economic, Social and enviromental performance

member of the mol group

annual report 2008

tvK at a glance Key financial and operating data Letter from the Chairman Overview of the environment OUR BUSINESSES Major Strategic Goals Consolidated Companies Our Production Our Sales

4 6 8 12 16 20 22 28

FINANCIAL AND OPERATIONAL PERFORMANCE Management Discussion and Analysis on the results 34 Independent Auditor’s report 46 Consolidated Financial Statements 49 Supplement to the consolidated financial statement 55 1 10 Key Corporate Data SUSTAINABILIT y REPORT Main results and goals Protecting the Environment Human Focus Our Quality Management Our Social Commitment Performance indicators CORPORATE GOVERNANCE Corporate Governance Integrated Risk Management Board of Directors Top Management Structure of Organization of TVK Plc. Supervisory Board Report by the Supervisory Board Corporate Information GLOSSARY OF TERMS SHAREHOLDER INFORMATION STATEMENT OF RESPONSIBLIT Y 1 16 122 125 132 133 136 142 150 152 156 158 159 161 162 165 168 169

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tvK annual report 2008

content

tvK at a glance

Tisza Chemical Group Public Limited Company (TVK Plc. or TVK) operates in Tiszaújváros, as a member of the Petrochemical Division of the MOL Group, and cooperates integratedly with Slovnaft Petrochemicals, s.r.o., in Bratislava. We are supplying polymers mainly to European plastic processing companies, and our olefin sales are significant mainly towards the Hungarian chemical and oil-processing industries. Our petrochemicals business is among the top ten players in the European polyolefin market, and are supported by excellent geographic position. We produce commodity polymers in competitive quality, which are fundamental for a wide range of industrial application and for the production of a vast number of consumer goods that are essential to our everyday lives.

supply, fortified regional position, efficient asset base and growth. Growth relies on efficiency improvement, upgrading and optimization programs relating to the asset portfolio and in terms of the market, on the new methods of market analysis, a flexibly responsible product portfolio and the increased efficiency of sales owing to the new sales concept along with our customer focus approach. Our market strategy calls for meeting the demand for polymer from countries east and south of Hungary whilst retaining our market share in Hungary and in Western Europe. We continue the work in the fields of environmental protection, social responsibility, transparency and contact building with the conscious commitment to sustainability development, with strong professional background for the sake of being able to react with new programs to the social and environmental challenges to assist developing a more liveable society and environment. Fulfilling our mission which reflects our core values is the fundamental goal of our operations. Mission Our company offers petrochemical products of excellent quality and high level services to its customers; and in doing so its operations contribute to sustainable technology development that enriches people’s lives in dignified environment while creating value for its shareholders and every stakeholder of the enterprise.

Core values • Responsible commitment to health, safety and our natural environment. • Competitive operations creating value based on mutually beneficial, long term and fair business relations. • Quality consciousness immersing the operations of the company, innovative approaches fostering the potential for continuous development. • Highly qualified, creative and motivated employees, open and cooperative work environment and a corporate culture based on the respect for personal, local and national characteristics. Our corporate vision, which also reflects the outlines of our core values, takes shape in an awareness of our business environment, resources and capabilities. Vision We are to retain our leadership of the regional petrochemical market by continuously developing our operating efficiency and the competitiveness of our assets. Optimised in line with customer requirements, our high quality portfolio of products provides a stable footing for exploiting the opportunities arising from the surge of demand for polymer in Central Europe, which we couple with building on the advantages emanating from diversification and strategic partnership. Our corporate social responsibility guarantees that we create value for all the stakeholders of our operations.

Our core lines of business are:
• Olefin production: the production and wholesale distribution of ethylene, propylene and olefin-production co-products. • Polymer production: the production and wholesale distribution of low, medium and high density polyethylene (LDPE, MDPE, HDPE) and polypropylene (PP copolymer and homogeneous polymer). Based on our capacities and strategy, we established a proprietary sales network, which covers several European countries. We operate offices in nine countries, containing six 100% owned subsidiaries. We supply feedstock to several Hungarian, Central European, Western and Eastern European small and medium sized

plastic processing operations in more than 40 countries. TVK shares are traded on the Budapest Stock Exchange and on the International Order Book of the London Stock Exchange.

Our Major Goals
We intend to achieve the retention of its petrochemical leadership in the region, continuous improvement of our efficiency, competitiveness and profitability by exploiting the rise in regional polymer utilization. Our strategy is focused on value creation and on reaping the benefits of the synergies of the integration of the MOL Group. The major ingredients to success in the petrochemical sector are: security of feedstock

4

tvK annual report 2008

tvK at a glance

5

Key Financial and Operating Data

IFRS, consolidated, audited
Sales Earnings Before Interest and Taxes (EBIT) Depreciation ebitda Net financial profit Profit before tax Net profit Capital expenditure Shareholders’ equity Registered capital Non-current assets Liabilities Balance sheet total EPS –earnings per share (HUF/share, EUR/share)

2007 (HUF,million)
337,646 32,973 12,948 45,921 (2,287) 30,695 23,684 7,251 157,642 24,534 149,677 77,321 234,963 975

2008 (HUF,million)
323,406 4,555 13,148 17,703 (3,683) 854 (146) 5,235 148,541 24,534 141,692 61,240 209,781 (6)

2007 (EUR,000)
1,332,725 130,148 51,107 181,255 (9,027) 121,157 93,483 28,620 622,230 96,838 590,791 305,194 927,425 3.85

2008 (EUR,000)
1,221,414 17,203 49,656 66,859 (13,910) 3,225 (551) 19,771 560,998 92,658 535,131 231,286 792,284 (22.66)

Major ratios roe – Return on owner’s equity (%) ROA – Return on assets (%) Average headcount Number of shares Number of consolidated companies

2007
15.02 10.08 1,179 24,290,843 9

2008
(0.10) (0.07) 1,170 24,290,843 9

Closing price of TVK shares on the Budapest Stock Exchange (HUF and EUR)
- Highest - Lowest - On December 31 Capitalisation (on December 31 closing price, million)
Note:

2007 (HUF)
8,490 5,250 7,010 179,752

2008 (HUF)
7,060 2,405 2,405 58,420

2007 (EUR)
33.51 20.72 27.67 709.5

2008 (EUR)
26.66 9.08 9.08 220.64

The,EUR/HUF,mid,FX,rate,quoted,by,the,National,Bank,of,Hungary,for,December,28,,2007,was:,253.35 The,EUR/HUF,mid,FX,rate,quoted,by,the,National,Bank,of,Hungary,for,December,31,,2008,was:,264.78

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tvK annual report 2008

Letter from the Chairman

Dear Shareholders,
Our Company closed the past two business years with record results. Judging by the figures only, 2008 gave us fewer reasons for pride. If, however, we also consider the contents behind the figures as well as the business environment, we had every reason to carry our heads high in 2008. Corporate sales income surpassed HUF 323 billion, our EBITDA topped HUF 17 billion and we achieved operating cash flow at HUF 14 billion. Profit before taxation, on the other hand amounted ‘only’ to HUF 804 million in the past year.

The use of the inverted commas is justified by the global and domestic economic environment against which we produced these results. The price of oil and consequently of petrochemical feedstock (naphtha and gas oil) rocketed to unprecedented heights in the first half of 2008. At the same time, the prices quoted for our polymer products in European markets followed a downward trend throughout the year, except for a brief transitional recovery between May and August, and brought our earnings capacity under pressure. The onset of a downturn in oil prices in the third quarter brought partial relief only as the early signs of the crisis of financial markets, which has since rippled on to almost every sector of the real economy and has sent several regions of the global economy into a recession, were already detectable in late September 2008. Although at different degrees, the slump hit almost every important segment of TVK’s market. It is against this backdrop that we should appreciate the fact that the company’s profit before taxation could remain in the blue, whilst the value of its operating cash flow proves that the company has retained its financial stability despite the hardships of the economy. These achievements are mostly the outcome of an extremely austere cost saving program launched by management as early as in the second quarter of 2008, which managed to improve our profitability ratios by several billion HUF by the end of the year. We responded to the first signals of a downturn in demand by exploring alternative market opportunities, which allowed us to compensate for most of the consequences of demand subsiding in our traditional markets. We managed to retain our market share and regional leadership in spite of the difficult market circumstances. Integrated operation within the framework of the MOL Group played a key role in achieving our results. We optimise our refinery and petrochemical processes along the complete hydrocarbon value chain in line with our “from-crude-to-plastics” philosophy, which allows us to maximize our earnings capacity in addition to mitigating risks. Integrated operation offers synergies, the chance to reach operational excellence through fine tuning plans with the refinery, feedstock supply and through procuring common services inside the MOL Group. These solutions provide us with significant profits and flexibility. Our geographic position is another competitive advantage as it is less expensive for us to reach the markets of Central and Eastern Europe as compared to our competitors, where growth rates are superior to those in Western Europe. The strategic cooperation developed with Slovnaft Petrochemicals has allowed us to improve efficiencies by harmonizing our production and sales processes. Shareholders and stakeholders can find a new chapter in this year’s Annual Report as we have integrated our Sustainability Report into the chapter discussing our non-financial performance. We spent HUF 517 million on tasks arising in connection with environmental protection in 2008. As a company that assigns top priority to managing the risks threatening human health and the environment, we are pleased to announce that we did not have to pay any penalties due to sanctions imposed for emissions above control limit or any legal non-compliance in the areas of Health, Safety and the Environment in 2008. The right of employees to a safe working environment did not remain empty words as we managed to continue the favourable trend of past years in the area of labour safety and the our indicators of the frequency of work related incidents classified as adverse have stabilised at low levels close to zero, which is outstanding even in international comparison.

let ter from the chairman

9

Recruiting, developing and retaining trained resources of high quality are key components in attaining corporate strategic goals. The company seeks to increase employee loyalty, to expose employees to challenging tasks and to offer them opportunities in each operational area while offering the best available working conditions and competitive remuneration. Moreover, our regular employee satisfaction surveys and human resource related indicators offer us continuous feedback about our HR performance and the areas that need to be developed. As part of our HR efforts, we introduced a Performance Evaluation System (PES) in 2008, continued and expanded our RELAY program of management succession among foremen; cooperated with the local Erdey-Grúz Vocational School in Tiszaújváros to offer a course for chemical engineering technicians and among others prepared two agreements under which both the University of Miskolc and the University of Debrecen opened off-site petrochemical departments, which was a major contribution to training a second line of university level professionals. We spent HUF 175 million on employee training and education. Despite the difficult circumstances, our company did not lose sight of its corporate social responsibility. Although at a somewhat lower key, it responsibly continued its practice of playing a leading role in promoting the achievement of and in creating the opportunities for outstanding results in the field of education, culture, arts, science and sports in the Southern Borsod region. I am also writing this letter to thank all of our associates for their responsibility and devotion at work, which contributed to the results we achieved in 2008 and to maintaining the stability of the company. At the same time this letter intends to request our associates to stay as committed and selfless in 2009 as they were last year as the year ahead will not at all be easier than the previous one due to the crisis processes going on in the global economy.

György Mosonyi Chairman of the Board of Directors

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tvK annual report 2008

Overview of the Environment at 8% until April to rise to 8.50% in May and to peak at 11.50% in October and to reduce to 10% by the end of the year. Domestic inflation fell from 7.1% at the beginning of the year to 3.5% in December yielding an annual average of 6.1%. The downturn was due first of all to agricultural production prices decreasing, the price of oil quoted in global markets reducing and the unfolding recession. When the exchange rate band modelled after the one used in ERM-II was abandoned in late February, the domestic currency responded in the following quarter by strengthening in excess of 8% against the common European currency (with the strongest and the weakest levels at 15% apart in the respective period). The exchange rate of the HUF against the EUR had dropped from 259.36 HUF/EUR to 247.93 HUF/EUR by the second quarter. The rate stood at 236.17 HUF/EUR in Q3 and the average came to 262.42 HUF/EUR in the fourth quarter. The domestic legal tender hovered in a narrow range around 264 HUF/EUR in the final weeks of the year to close 2008 at 264.78 HUF/EUR. Petrochemical Trends In 2008 the price level of raw materials required for monomer production increased in the first half, than decreased continuously in the second half of the year. In 2008 the average quoted (FOB med) price of naphtha (759 USD/t) showed a year on year increase of 17% whilst the average quoted (CIF med) (922 USD/t) price of atmospheric gas oil was 39% higher than in 2007. The prices quoted in the European markets for the polymer products produced by TVK (ICIS’ fd nwe low spot, EUR/t) decrease in the first quarter of 2008, than increased in the second quarter and decreased permanent in the second half of 2008. The annual average of the quoted price of the polyethylene and of polypropylene, respectively, was 1-2% and 6-7% lower than in 2007. For the year as a whole, the average quoted price of LDPE was 1,165 EUR/t, that of blown HDPE grade was 1,141 EUR/t, whilst PP homopolymer raffia and copolymer grades were 1,062 and 1,131 EUR/t.

The intensity at which the changing global and national macroeconomic environment and sectorial trends influenced the profitability of our Company in 2008 is unprecedented. Swinging between wide extremes, incessantly changing external circumstances exerted both positive and negative effect on the earnings capacity of our company.

Macroeconomic Processes
Stemming from the United States of America, the credit crunch has been the single most influential event for the global economy. This financial crisis can be traced back to decades of credit fuelled residential consumption and the wide scale financial liberalisation which had set the scene for it in the US, where the lenient financial regulations were conducive to the placement of high volumes of risky mortgage loans. The default and the write-off of uncovered receivables triggered a series of bankruptcies of US banks and financial institutions, including the failure of recognised players of the global money market. The emanating crisis of confidence in the financial markets led on to a shortage of money and a credit crunch, which took global scale in no time sending several important regions of the world economy into recession. International economic research institutes responded to the crisis by predicting reduced rates of global economic growth. Although earlier forecasts talked about a slow rate of economic expansion followed by gradual acceleration, more recent calculations of a best case scenario suggest that the recessionary cycle will only bottom in 2009. The October 2008 forecast of the International Monetary Fund set the growth rate at 3.9 per cent for 2008 and at only 3.0% for 2009. The growth outlook of the Eurozone and the United States received the hardest blows. As compared to 1.8-1.9 per cent of growth in January, the October forecast predicted no more than 0.1-0.2 per cent of growth in Europe and in the US for next year. The European Commission also applied a similar cut to its growth forecast as economic growth slowed down in the Eurozone in 2008 (Eurozone GDP is 2.1%). The annual average of the price of a barrel of oil was USD 99.7 in 2008. Following an upward trend in the first half of the year, the price of oil peaked at USD 144.2 per barrel in July to gradually sink to the annual low point of USD 33.7 per barrel. Economic Trends in Hungary The Hungarian economy grew at a mere 1.9 per cent in the first half of 2008. Although growth was propelled by industry and agriculture, while the pace of growth of producing sectors slowed down substantially. Hungarian gross domestic product grew by no more than 0.8% in the third quarter of 2008. Coupled with the effects of European recession, the processes that surfaced in the real economy in the second half of 2008 led on to a downturn or stagnation in export sensitive sectors. The Monetary Council of the National Bank of Hungary intervened to modify the central bank prime rate six times in 2008. Prime rate stood

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tvK annual report 2008

overview of the environment

13

14

tvK annual report 2008

our buSineSSeS

Major Strategic Goals
We are committed to sustainable development as our actions show. We continued to study and minimize the environmental impact of our activities, as well as the use of energy, and pollutant emissions in many projects. We are committed to ensuring the option to produce to produce biodegradable end-products, a special MOL Petrochemicals grade in order to decrease the environmental load. Basic research work is in progress in cooperation with a research company and a university to develop biodegradable materials via different additives.

Our system of strategic goals place competitiveness and adding value in the focus as the continuous improvement of competitiveness is the exclusive means of enabling our company to exploit existing business opportunities to the utmost and to lay the foundations for new opportunities and as a result our operations create added value for our shareholders and for all the stakeholders of our business.

Considering our present competitive position and our expectations of the business environment, our main strategic objectives, which follow from are system of strategic goals, are set out below: • maintain our leadership of the regional petrochemical market by continuously improving our operating efficiency and the competitiveness of our assets; • exploit the business opportunities presented by the major growth momentum of demand for polymer in Central Europe by developing an optimised basket of high quality polyethylene and polypropylene products tailored to customer requirements; • diversify our portfolio of petrochemical products by establishing mutually beneficial partnerships; • utilise to the largest possible extent the synergies emanating from cooperating with other MOL Group companies to achieve a common business optimum.

The integration has helped TVK and SPC harmonise their activities both in terms of strategy and operations, which is a key efficiency improvement factor. Combined, the polymer production capacity of the two companies surpasses 1.2 million tons, which is the largest in Central Europe and also ensures a sizable market position in Europe as a whole. Now that the sales activities and the two organisations are fully integrated, this volume is distributed across common sales channels relying on a unified system of marketing and logistics support. The harmonisation of product portfolios has allowed us to create a more competitive and more modern product range and now our development activities are also subject to a jointly developed strategy and unified governance in an effort to meet customer requirement in the widest possible sense. Internally, group companies freely apply the principle of sharing best practices, which has improved our efficiency measurably. Major Results in 2008 As petrochemical business is highly cyclical we had every reason to expect some decline after 2007, when our Company’s results peaked at record heights. Still, market participants and even the most recognised advisors were baffled by the rate at which this downturn materialized in the first half of 2008 in the wake of a swift, sky-rocketing increase of the price of crude oil, first and in turn in the price of refinery products, including petrochemical feedstock. The petrochemical cycle had reached its nadir by early summer 2008 and rebounded in

The Advantages of Integration - TVK as a Member of the MOL Group The petrochemical segment of TVK Plc. and Slovnaft Petrochemicals, s.r.o. (SPC), a petrochemical subsidiary of Slovnaft a.s. established in 2006, are integrated to form the MOL Group Petrochemical Division. Accordingly, they operate according to a harmonized production program to reach a common optimum they share with other group refineries, which guarantees secure and predictable feedstock supply for the petrochemical business on the one hand and greater operational flexibility for refining on the other hand.

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tvK annual report 2008

major Strategic goalS

17

tandem with a sudden collapse of oil prices to reach a peak in November above the record value of 2007. Unfortunately, the markets had by then been hit by the recession evolving in the wake of the financial crisis, which cause a sharp decline in the construction and automotive sectors, which are key consumers of polymer. All that prevented us from fully utilising the outstanding margins of the last quarter of the year. In sum, 2008 proved to be less favourable in business terms than the preceding year, and although the business closed the year in the blue, the results on our books were substantially inferior to the 2007 record. Still, our performance in the field of counterbalancing negative external influences can fill us with pride and confidence. Management identified and evaluated the severity of the situation in time and launched an extremely tight-fisted cost savings program already in the second quarter. The program managed to mitigate the effect of losing revenues by adding several billion Forints to profits. Intensified commercial efforts helped sell significant polymer volumes in alternative markets, which compensated for most of the decline of demand in our traditional strategic markets. The experiences of 2008 have proven the decisive impact of external factors on the petrochemical business yet again and have highlighted that our efficiency can be sufficient to avoid losses and to cope with and overcome even extremely difficult periods. Facing future challenges Forecasts by analysts about 2009 continue to reflect the unfavourable effects of the recession, but the growth potential of the regional polymer market, which is outstanding even in international comparison, is to prevail in the long run. After the current anomalies are eliminated, the economies of Central Europe will continue to converge to the level of development of Western Europe, which is expected to be swift and to bring major qualitative and quantitative shifts in demand for polymer. We believe that crises develop faster and recoveries from the bottom of recession last shorter in these accelerated times than earlier,

which led us to rethinking our sales and development strategies so as to avoid being caught unprepared by opportunities. Our sales strategy is focused on maintaining an optimum ratio between regional and Western European sales. We have developed valuable footholds in Germany and Italy, the two largest European markets. Maintaining and strengthening these positions are core elements of our long term plans. Drawing on the favourable economic location of our company, we are relying on the growth potential of Central European economies and would like to seize the opportunities presented by converging to Western European levels. To achieve that, we opened offices in the Ukraine in 2006 and in Petchem Division at MOL Romania back in 2007, and managed to run up sales as we had expected. Regional countries situated north of Hungary, such as the Czech Republic, Slovakia and Poland are also important export markets. We are working to shape our business portfolio in a complex system that evaluates every material factor with a view to our strategic goals. Although circumstances influencing the market are in constant ferment, our portfolio development relies on opportunities that promise to ensure that the company can sustain its value creation in the longer run. That also brings operating efficiencies and the quality of products and services into focus: we have to excel in both respects to ensure that we can withstand strong competitive forces in the longer term. Our company has been traditionally performing at a high level of quality in two areas and we have every reason to face future challenges with confidence and to exploit every opportunity that the future may present for a leading Central European petrochemical enterprise. Our development strategy seeks to shape a balance product portfolio as opposed to specialisation, which we think has major associated risks. We attach equally high importance to developing our polyethylene and polypropylene product lines, but we are also examining additional diversification options to

complement our polymer business lines on the basis of mutual benefits with the involvement of external partners, if necessary. Cooperation with our strategic partners, such as MOL Group companies and Borsodchem, which looks back on decade-long history, will remain a key element of our operations and will continue to improve the value of our portfolio. As regards sales, we intend to perfect our successful method of managing product and customer portfolios actively, which is supported by a system designed to optimise the complete supply chain (Supply Chain Management). We give high priority to protecting the environment. In this regard, we wish to live up

to our social corporate responsibility by keeping our plants at a high technical level and by doing so reducing security and environmental risks as well as by operating environmental protection systems that outperform regulatory requirements. Moreover, we are also engaged in developing a new, biologically degradable type of polymer product. As regards the long term future, we are confident that polymers and other petrochemical products play an important role in the development of human civilisation and have much more to offer than at present to make people’s lives more complete. We consider it our mission to turn this opportunity into reality.

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tvK annual report 2008

major Strategic goalS

19

Consolidated Companies

The strategy of TVK calls for focusing on the core business of producing and selling olefins and poly-olefins as fundamental targets. This strategy helps regroup resources to core areas that produce higher added value. TVK consolidated companies include strategic trading subsidiaries as well as companies that are indispensable for supporting operations.

TVK Italia S.r.l.
Line of Business Sell tvK products in Italy 1994 Milan EUR 100,000 100% -

TVK UK Ltd.
Sell tvK products in the United Kingdom 1996 London gbp 200,000 100% -

tvK Inter-Chemol GmbH
Sell TVK Products in Germany 1997 Frankfurt am Main EURO 615,000 100% -

TVK-France S.a.r.l.
Sell tvK products in France 1997 Paris EUR 76,225 100% -

TVK Polska Sp. z o. o.
Sell tvK products in Poland 1998 Warsaw PLN 109,000 100% -

TVK Ukraina tov
Sell tvK Products in the Ukraine 2005 Kiev hryvnia 33,996 100% -

tvK Ingatlankezelő Kft.
Lease and operate real estate 1998 Tiszaújváros HUF 2,970 million 100% -

TVK Erőmű Kft.
Power and steam production and distribution 2001 Tiszaújváros HUF 3,298 million 26% ÉMÁSZ Plc.

Tisza-WTP Kft.
Supply of raw and feed water 2002 Tiszaújváros HUF 495 million 0%, unacquired affiliate, fully consolidated Sinergy Kft.

Year of Foundation Premises Equity capital TVK stake Co-owner

2008 Financial Figures (unconsolidated, HUF million) Owner’s equity Sales income Net profit 161 594 124 55 410 1 428 3,576 251 (5) 1 14 (27) 184 534 182 41 107 22 3,006 422 0 733 14,204 30 444 1,152 (8)

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tvK annual report 2008

21

Our Production

Our major goal called for the optimal operation of our petrochemicals business, the maximum utilization of available capacity and the resulting growth of production volume along with efficiency improvements.

The economic pillar of sustainable development is extremely important TVK, which operates in a market economy. The most important challenges we must face are related to the life cycle of our products: reducing environmental impacts, improving product quality, ensuring safe products and production processes and expanding our long term portfolio biologically degradable products. Our current production processes and each development must be based on scientific results and the best available technology.

Competitive advantages
According to our ‘crude to plastic’ philosophy we optimize our petrochemical and refining production through the whole hydrocarbon value chain, which not only maximize our profitability but reduce the risk on group level. We exploit synergies from integration to enhance our operational excellence considering coordinated planning, feedstock supply with refining and shared services within MOL Group. These elements provide us significant benefits and flexibility. Our geographical location also gives a competitive advantage, offering low-cost access to the fast growing polymer markets of Central Europe. We have a competitive asset base with a well-balanced product portfolio. Our highly talented staff has capabilities and experiences to manage most effectively our operation and to face the challenges as well.

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tvK annual report 2008

our production

23

Reconstruction and development program Reconstruction projects have been launched at TVK Olefin-1 unit in order to enhance energy and cost efficiency and ensure the safe operation of the key assets for further 15 years. TVK Olefin-1 Reconstruction Program has been launched to improve the unit technical status and ensure efficient operation for the future with higher capacity utilization.

The volume of ethylene produced from internal source and the external and internal economic environment in 2008 let us continue operating the LDPE-1 Plant, which has been up and running for as ling as 38 years, however below its nameplate capacity. In 2009 we stop operating the plant considering the resolutions of the environmental protection authorities and the economic environment.

Major Processes of Vertically Aligned Production at TVK

Monomer Production
Purchased ethylene Purchased naphtha Purchased AGO Purchased liquefied gases

Polymerisation
Ethylene sold

LDPE Plants

LDPE HDPE PP

Olefin Plants

HDPE Plants PP Plants

C4, BT, C8, C9 fractions, quench oil, hydrogen

Data of our production plants

Purchased propylene

Propylene sold

plant
Olefin Plants Olefin-1* Olefin-2* Ethylene total Polymer Plants LDPE-1 LDPE-2 LDPE total HDPE-1 HDPE-2 HDPE total PP-3 PP-4 PP total Polymers total

Capacity (kt/year)
370 290 660 32 65 97 200 220 420 100 180 280 797

Technology
Linde Linde

Year commissioned
1975 2004

ici baSf Chevron Phillips Mitsui LyondellBasell LyondellBasell

1970 1991 1986 2004 1989 1999

Olefin Production In 2008, due to the unfavourable pyrolysis feedstock supply (we refused to process atmospheric gasoil (AGO) since May, which is substantially more expensive than naphtha, and we could not replace AGO with less expensive chemical feedstock) and to the lower production caused by breakdowns capacity utilization of Olefin-1 Plant was 86%. Beside this, production of Olefin-2 Plant was over the 2007 year level, capacity utilization was 100%, as a consequence of the efficiency improvement modifications made in 2007. The Olefin-1 Plant started up in 1975 and Olefin-2 came on line at TVK site in 2004. Both utilise Linde technology. Calculated for ethylene, the annual capacity of the two plants from 2008 increased from 620 kt to 660 kt as a result of the efficiency improvement modifications made in 2007. In 2008, the sales income of olefin production increased by 5%, ethylene output was down by 6% compared to 2007. The capacity utilisation calculated for ethylene was 91.9% altogether in both plants. This result was influences negatively by volume of the available feedstock and the breakdowns to process failures in Olefin-1 Plant. As the sole producer of ethylene in Hungary, we are a strategic supplier of BorsodChem, and the bulk of the feedstock it provides is made in house, totalling 143 kt in 2008. Yet, we also procured small volumes of ethylene (2 kt) and propylene (4 kt) from import sources, and we sold 23 kt of own produced propylene in 2008.

Figures of Olefin Business Unit 2004-2008

Olefin sales income (HUF million)
0 2004 2005 2006 2007 2008 30 60 90 120

Ethylene production (kt)
0 2004 200 400 600 800

2007 2008

We utilise our vertically integrated structure of production to produce raw materials for plastics processing from a variety of hydrocarbons. The production process includes two major stages: making monomers and polymerisation. The olefin plants convert the naphtha, gas oil and liquefied gases purchased from the MOL Group into ethylene and propylene to be processed into polyethylene and polypropylene in TVK’s own polymer plants. Ethylene, produced in the olefin plants is sold to BorsodChem and we also

purchase more ethylene through pipeline from Ukraina. The surplus propylene produced int he olefin plants are sold to Slovnaft Petrochemicals and external customers. The MOL Group uses the co-products cracking, such as isobutylene, benzene-toluene, C8 and C9 fractions to make MTBE and benzene or as components in blended gasoline and heating oil. Quench oil is utilised as feedstock for making carbon black by Tiszai Columbian Koromgyártó Kft., located in the TVK industrial complex.

Capacity utilisation (%)*
0 2004 2006 2007 2008
* Capacity utilisation calculated for ethylene

30

60

90

120

24

tvK annual report 2008

our production

25

Polymer Production In 2008, total polymer production reached 732 kt, decreasing 53 kt yoy. Produced volumes reached lower levels as the last year in all product types, mainly due to the unfavourable olefin feedstock supply and the lower demand caused by the recession. As a result of this, the average capacity utilization of the polymer plants was 92%. The net income from polymer sales was down 9% to reach HUF 207 billion, with 71% sold in export markets. Low-Density Polyethylene (LDPE) Product Group Using ICI technology, the LDPE-1 Plant of TVK came on in 1970 and was complemented by the LDPE-2 Plant of BASF technology in 1991. The joint annual capacity of the two plants is 97 kt. In 2009 we stop the operation of LDPE1 Plant. The sales income of the LDPE Product Group was HUF 26 billion, down by 13% compared to 2007, LDPE production reached 89 kt. The lower 92% capacity utilization is due to the available volume of monomers worth to be processed at LDPE-1 Plant.

Figures of LDPE Product Group 2004-2008

Figures of HDPE Product Group 2004-2008

Figures of PP Product Group 2004-2008

Sales income (HUF million)
0 2004 2005 2006 2007 2008 10 20 30 40

Sales income (HUF million)
0 2004 2005 2006 2007 2008 30 60 90 120

Sales income (HUF million)
0 2004 2005 2006 2007 2008 25 50 75 100

Volume sold (kilotons)
0 2004 2005 2006 2007 2008 30 60 90 120 2004 2005 2006 2007 2008

Volume sold (kilotons)
0 100 200 300 400 2004 2005 2006 2007 2008

Volume sold (kilotons)
0 100 200 300 400

Capacity utilisation (%)
0 2004 2005 2006 2007 2008 25 50 75 100 2004 2005 2006 2007 2008

Capacity utilisation (%)
0 25 50 75 100 2004 2005 2006 2007 2008

Capacity utilisation (%)
0 25 50 75 100

*Etilénre vonatkoztatott kapacitáskihasználás

*Etilénre vonatkoztatott kapacitáskihasználás

High-Density Polyethylene (LDPE) Product Group Utilising Chevron Phillips process technology, the HDPE-1 Plant was constructed in 1986. The HDPE-2 plant utilising the Mitsui Chemicals so-called CX-process came on line in 2004. The joint annual capacity of the two plants is 420 kt. Sales income of the HDPE Product Group decreased by 13% and reached HUF 103 billion. The total production volume was 361 kt. 86% capacity utilization was mainly due to the periodic monomer leakage.

Polypropylene (PP) Product Group The PP-3 Plant has operated since 1989 with Spheripol (Himont, currently LyondellBasell) technology, and has been complemented by the PP-4 Plant, which uses Spheripol (Montell, currently LyondellBasell) technology since 2000. The total annual capacity of the two plants is 280 kt. In case of PP Product Group we succeeded to maintain the production level of 2007. The sales income was HUF 78 billion, down only by 2%. The total production volume was at the level of the year before, reaches 283 kt. The capacity utilization was 101%.

Outlook T h e ex te r na l e c o n o m i c e nv i r o nm e nt compels us to maintain austerity in cost management while focussing first of all on the continuous improvement of operating efficiency, maintaining and ensuring secure operations, enhancing the energy efficiency of our systems of process technology in view of the substantial rise of energy prices and on identifying and immediately implementing any remaining opportunities presented by our technological systems besides considering the environmental aspects in full.

our production

27

Our Sales

We managed to achieve the targets set for 2008 despite extremely adverse market circumstances: we maintained our market presence and reputation both in Hungary and in the countries of Central and Eastern Europe. We have maintained our regional leadership. We managed to increase customer loyalty by exploiting synergies, actively managing our product and customer portfolios and by developing a new portfolio of services.

We develop our products by continuously examining customer requirements and do our best to deliver high quality services and product information tailored to satisfy customer needs completely by keeping product liability in mind, which we interpret to mean that it is our duty to manage, minimise and communicate the health, safety and environmental (HSE) effects during the life cycle of our products and production processes. It is our aspiration to integrate product liability into each section of the life cycle, including sales.

The international financial crisis and the ensuing economic recession left their marks on our performance in 2008. Quoted prices and currency rates, which have a particularly high impact on the petrochemical business, hit our profitability especially hard mainly during the second and third quarter when margins plummeted to a historical low. In the fourth quarter, worsening macroeconomic conditions were counterbalanced by the favourable effect of the falling price of petrochemical feedstock.

Total polymer production amounted to 732 kt in 2008, representing a year-on-year downturn of 53 kt. Altogether 733 kt of polymer products were sold, which is 49 kt less than a year earlier. Sales contracted in each segment except for PP products. Lower sales involved reduced domestic distribution in the case of LDPE products and the decline of export sales in the case of HDPE.

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tvK annual report 2008

our SaleS

29

The net income from polymer sales amounted to HUF 206 billion in 2008, which is HUF 20 billion below the sales income of the previous year. Sales income was adversely affected by both the lower volume of sales and the reduction of quoted polymer prices. Export destinations represent 71% (520 kt) of total polymer sales, whilst the share of the domestic market was 29% (213 kt). In 2008, polymer export sales continued to focus on European markets with 97% of export revenues realised in Europe and only 3% originating outside of Europe. Our proprietary distribution network, which we have been operating successfully for several years covering several European countries, has been instrumental in achieving these results. We have offices in Austria, the United Kingdom, France, Poland, Germany, Italy, Russia, the Ukraine and Romania. Our foreign trading subsidiaries are engaged in selling the products of both TVK and the MOL Group member Slovnaft Petrochemicals. We continued to implement the tactical elements of our strategy successfully despite the hardships: we enhanced our market analyses methodology, we have developed a new portfolio of services to strengthen customer loyalty, we have revamped our sales concept with a view to improving the efficiency of our sales channels and we continued to modify our product portfolio flexible in response to the outcome of continuous analyses. Direct customer communications were strengthened as part of our new services portfolio. We continued our ‘Open Doors’ program, a series of customer meetings started in 2007 and also used a new channel for strengthening

customer loyalty in 2008 as we launched a customer magazine called PROGRESS, which offers useful information to clients about product development projects, our production and business activities and can get an inside view of the life of TVK. Outlook The economic crisis and the recession force the petrochemical sector just as much as other industries to face unprecedented future challenges. We will do our utmost to get past these difficult times. In addition to increasing efficiencies, we are focusing to sharpen our competitive edge and continue to manage our product and customer portfolios proactively. As the markets of Central Europe have greater growth potential than the European average, our sales strategy continues to focus on exploiting our favourable geographic location. Although our target markets are those of Central Europe, we intend to strengthen our key Western European penetration. We are confident despite the difficulties that our core business and core markets have growth opportunities. Our future goals • Increase market penetration • Maintain regional leadership • Increase and manage customer portfolio actively • Tailor product portfolio to market requirements • Maintain the reliable and stable customer base, serving new customers • Further improve customer loyalty • Develop the cooperation between TVK and Slovnaft Petrochemicals

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tvK annual report 2008

financial and operational performance

Management Discussion and Analysis on the Results

Key Financial Data efficient operation deSpite unfavourable marKet environment
Quoted prices and exchange rates had significant negative influence on profitability, especially during Q2 2008. Although the market environment changed in favor in Q3 2008, we could not exploit fully the market opportunities because of the soaring energy prices and the downtimes. In the last quarter the worsening macroeconomic situation was counterbalanced by huge fall in petrochemical feedstock prices. 2008 was characterized by unfavorable external environment and the attractive internal profit improvement program as balancing the effects. Special focus on feedstock structure optimization affected our performance positively. In this difficult external environment it was necessary to apply a stringent control over operating cost and reduce capital expenditures to a reasonably lower level. Minor CAPEX projects were revised, rescheduled and delayed or even cancelled in order to minimize the spending. We achieved significant savings in maintenance cost as well focusing on the operational safety. Some major individual projects were renegotiated and rescheduled based on detailed risk analysis.
TVK Group Results (IFRS)
Net Sales ebitda Operating Profit / (Loss) - EBIT Profit (Loss) of Financial Operations Income Tax, Deferred Tax Net Profit (Loss) Operating Cash Flow

HUF million
2007 337,646 45,921 32,973 (2 287) 7,01 1 23,684 36,855 2008 323,406 17,703 4,555 (3 683) 1,000 (146) 14,688

EUR million
2007 1,332.7 181.3 130.1 (9) 27.7 93.5 145.5 2008 1,221.4 66.9 17.2 (13.9) 4.8 (0.6) 55.5

Variance % huf (4) (61) (86) 62 (82) (60) eur (8) (63) (87) 55 (83) (62)

Note: EUR/HUF mid FX rate quoted by the NBH for December 28, 2007: 253,35 EUR/HUF mid FX rate quoted by the NBH for December 31, 2008: 264,78

Financial Highlights
• Consolidated sales were down 4% to reach HUF 323 billion due to the 7% lower sales volumes sold and the unfavourable turn of exchange rates and polymer prices. • Group level operating profit reached HUF 4.6 billion. • Group level EBITDA was down 61% to reach HUF 18 billion as a result of a 86% decrease in consolidated operating profit. • Group level financial loss was HUF 3.7 billion. TVK Plc. recorded long term loans at EUR 60 million on 31 December 2008 after repaying EUR 20 million of debt in December. • Group level net loss amounted to HUF 146 million. • Net cash from operations amounted to almost HUF 15 billion, showing that we were able to maintain the company’s financial stability as a result of our efficiency improving actions during unfavourable and extreme external business environment. • Overall capacity utilisation fell by 9% in 2008 year on year. The specific monomer recovery ratios surpassed the values recorded for both olefin plants in the reference period. • The volume of producing and selling polymer products fell by 7% and 6%, respectively, from the reference levels of the preceding year. A breakdown by type shows an increase of 1% in sales volume of polypropylene, which offers a larger margin relative to polyethylene along with efforts to cut polyethylene sales by 11%. • Integrated petrochemical margin plummeted to an all time low in the second quarter only to rebound near the end of the third quarter in response to collapsing chemical feedstock prices. To avoid additional losses, we refused to process atmospheric gasoil (AGO) due to the high prise. Breakdowns due to process failures and the substantial rise of energy prices put downward pressure on our profits.

The figures presented in the 2008 Annual Report of the business year of Tisza Chemical Group Public Limited Company are audited and final. For the purposes of the Annual Report, the term “TVK Group level data” refers to the data of TVK Plc. and the entities under its control consolidated in line with international financial reporting standards (IFRS). 7 subsidiaries, 1 affiliated business and 1 non-participating business were fully consolidated while 2 businesses were consolidated by the equity method. As required under law, the annual report presents true and fair figures and statements, and does not withhold any facts that the issuer – to its best knowledge – considers to be of material importance in terms of evaluating the issuer’s position. The issuer is liable for the contents of this flash report. The issuer is also liable for damages arising from a failure to make regular and extraordinary disclosures and any misleading representation in its disclosures.

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Key Financial Data

Currency* Unit*

huf 1,000

X

eur 1,000,000

X

Sales Income, Operating Costs, Operating Profit
Sales income In 2008, consolidated TVK Group level sales decreased by 4% year on year and amounted to HUF 323,406 million. The change owing fundamentally to lower volumes sold and the unfavourable turn of exchange rates and polymer prices, which was mitigated partially by the increasing sales price of olefin products. In 2008, TVK Plc. realized 48% of its sales income from export sales. Germany (20%), Italy (16%), Poland (15%), Austria (4%), the United Kingdom (4%) and France (3%) represented the majority of exports. In 2008, consolidated TVK Group level operating income fell by 4% from the previous year and amounted to HUF 323,622 million. The amount includes other operating income at HUF 216 million. The negative variance is due first of all to compensations received during 2007 surpassing this year’s figure by HUF 468 million and to recognising the difference between the exchange rate of receivables and payables in the accounts as gains amounting to HUF 169 million in 2007 as opposed to a loss stated under expenses in 2008.

*Please indicate your selection by placing an X in the corresponding cell.

IFRS, audited
Total revenues Operating profit (EBIT) Net income from financial activities Profit before tax Profit after tax Earnings per share (EPS) Dividend per (ordinary) share Fixed assets Total liabilities Share capital Shareholders’ equity Total assets Number of employees (year-end)

Year 2007
337,646 32,973 (2,287) 30,695 23,684 975 369 149,677 77,321 24,534 157,642 234,963 1,179

Year 2008
323,406 4,555 (3,683) 854 (146) (6) n,a, 141,692 61,24 24,534 148,541 209,781 1,17
Costs Operating income 48% export

Rising by HUF 11,164 million (4%), TVK Group level material costs reached HUF 267,578 million due to the higher cost of both purchased feedstock and energy. The higher cost of feedstock reflects the higher quoted price of the feedstock used for producing monomers, but the effect was mitigated substantially by the HUF appreciating against the USD and on a smaller scale by the reduction of the volume of feedstock used. Energy costs were up by 26% primarily as a result of the price hike, but the volume consumed dropped slightly due to curbing production. The 869 and 110 downturn in services recognized under materials amounted to HUF million (-6%) including a reduction of freight costs by HUF 753 million a decrease of the fee paid for outsourced logistics services by HUF million due to reduced sales volumes.

Sales income compensated for the variance in costs of goods sold and in the value of mediated services. Group level wage related costs decreased by HUF 806 million (-8%) despite implemented wage increases. The main item behind the reduction includes the variance of the balance of provisioned amounts and the utilisation of reserves. The amount of depreciation and amortisation was up only 1.5% to HUF 13,148 million. Other operating costs rose by HUF 422 million (11%) year on year, as realised and unrealised exchange rate losses were incurred at HUF 632 million on AR/AP due mainly to the appreciation of the HUF against the

Operating Environment
Margin downturn Integrated petrochemical margin responded to the polyethylene and polypropylene and feedstock price and cross rates changes by a downturn of 19% in both HUF and EUR terms on average in 2008. Exchange rate changes had a negative bearing on TVK group level operating profits in the period under review.

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EUR. At the same time, insurance premium reduced by HUF 195 million due to the lower premium charged for property and business interruption covers. The variance of inventories produced in house shows a reduction of stock levels by HUF 4,205 million in 2008 typically as a result of stock depreciation due to lower feedstock prices. TVK Group level consolidated operating profit (EBIT) amounted to HUF 4,555 million in 2008, as opposed to HUF 32,973 million worth of profits in 2007. EBITDA In 2008, the group level EBITDA of TVK fell by 61% to HUF 17,703 million as a result of a decrease in consolidated operating profit by 86% and a 2% rise in depreciation.

Net Asset Position
Total assets The consolidated balance sheet total amounted to HUF 210 billion, which represents a decrease of 11% over the previous year. The consolidated value of invested assets amounted to HUF 141,692 million on December 31, 2008, or 5% lower than on December 31, 2007 due first of all to the lower value of tangible assets attributable to recognized depreciation. The value of current assets fell by 20% to HUF 68,089 million; including a 42% reduction of the value of inventories as inventory depreciated due to lower feedstock prices. The reduction was mitigated by the slight increase of olefin products and goods on hand. The value of accounts receivable shows a year-on-year increase of 33% due to the lower selling price of polymer products. Other current assets increased by 269%, which is attributable to the facility extended to the parent company at the end of the year. The increase of amounts receivable on the VAT account was influenced heavily by the modification of VAT return rules. The value of current assets rose at the end of the reporting period in response to a rise in the value of company tax transferred with the option to reclaim. The underlying reason for the lower value of group level cash and bank is the downturn of cash generation capacity since the reference period. Invested assets

Current assets

Profit/Loss on Financial Operations
Financial loss As opposed to the loss of HUF 2,287 million recorded for the reference period, the Group incurred HUF 3,683 million in losses on financial operations in 2008. In the reporting period, Group level financial income dropped by HUF 491 million from the level of the reference period, as interest income subsided due to poorer cash generation capacity. Financial expenditure rose by HUF 905 million. The company took out a loan at EUR 50 million in the course of the year, of which EUR 20 million was repaid in December. Compared to year 2007, unrealised exchange rate losses, recognised on credit received and other assets were up by HUF 1,711 million and realised exchange rate gains were up by HUF 236 million. Interest expense reduced by HUF 303 million year on year due to the lower average amount of debt on the books. The closing balance of the FX denominated shareholder loan remained unchanged and stood at EUR 60 million at the end of reporting period.

Financial Position
Long term liabilities Between December 31, 2007 and December 31, 2008 long term liabilities decreased by 30% to HUF 19,746 million. The reduction reflects that longterm debt reduced by 39% reflecting the repayment of EUR 20 million in December from the EUR 50 million shareholder loan taken out in June and the reclassification of the remaining portion as a short term loan. The value of short term liabilities fell by 15% to HUF 41,494 million between December 31, 2007 and December 31, 2008. The variance reflects first of all the reduced value of accounts payable as both the price charged for and the volume of olefin plant feedstock purchased in December was lower, which was partially compensated for by the reclassification of the current portion of long term loans under short term liabilities.

Taxation
Tax liability In 2008, TVK Group earnings before taxes was HUF 854 million with corporate tax liability sated at HUF 1,271 million. Deferred tax expense amounted to the negative figure of HUF 271 million and essentially includes the accrual of the negative tax base.

Short term liabilities

Net Profit
EPS Consolidated net losses were incurred at HUF 146 million. Earnings per share (EPS) decreased to a HUF -6, compared to HUF 975 last year value.

Owner’s Equity, Registered Capital, Capital Reserves and Retained Earnings
The owner’s equity of the TVK Group amounted to HUF 148,541 million representing a year on year decrease of 6%. Share capital did not change, amounted to HUF 24,534 million. HUF 14,721 million increase of retained earnings at HUF 109,097 million includes the net earnings of the parent company and its consolidated subsidiaries. Balance sheet profit decreased by HUF 23,830 million to a loss of HUF 146 million.

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Cash flow
Cash
The group level cash flow statement of TVK dated December 31, 2008 shows a reduction in cash and cash equivalents at HUF 6,726 million since the beginning of the year. Operating cash flow amounted to HUF 14,688 million. EBITDA increased cash flow by HUF 17,703 million and changes in working capital (inventories, trade accounts receivable and payable, other receivables and other liabilities combined) increased cash flow by HUF 375 million, whilst the revaluation of inventories and receivables added HUF 605 million to operating cash flow. On the other hand, items reducing cash flow included the payment of taxes charged to earnings at HUF 2,535 million and the balance of amounts provisioned and released at HUF 633 million. The variance of inventories on hand improved cash flow because the prices of olefin plant feedstock fell heavily, which led to inventory depreciation. Moreover, there was a slight increase in the volume of inventories produced in house by and purchased for the olefin plants. The decreased value of trade accounts receivable originates from the downturn of sales prices due to lower main market quoted prices in Q4 2008 compared to the level of prices determining the end-ofyear value of trade accounts receivable during Q4 2007. The reduced value of accounts payable emanates from the lower price and volume of cracker feedstock purchases in December 2008 than in December 2007. As regards other amounts receivable, cash was reduced mainly by the higher amount of refundable VAT. Other short-term liabilities reduced operating cash flow due to the accrual of quantity discounts and the reduced value of accrued costs. Investments decreased cash flow by HUF 15,547 million, including the effect of a revolving facility extended to the parent company at HUF 9,780 million and amounts disbursed to the suppliers of capital goods at HUF 6,257 million. Net cash from financial operations decreased cash flow by HUF 5,867 million in the reporting period, including cash outflows associated with the repayment of borrowings as well as with interest and dividend payments, which compensated for the positive cash flow effect of borrowing.

Subsidiaries

The majority of the capital expenditure (HUF 105 million) of the subsidiaries was incurred by projects implemented at TVK Ingatlankezelô Kft.

Operating Cash Flow

Organizational and Personnel Changes, Employees
Organization There was no major change occurring in the organization in 2008 During the year the following significant change occurred in the senior management: Mr. József Simola, member of the Board of Directors resigned from membership with the effect from the adjourning of the Annual General Meeting, held on April 17, 2008. The AGM did not elect new member to the Board of Directors. Employment Changes in employment: The closing headcount of full time employees in the companies consolidated in the TVK Group stood at 1,170 on December 31, 2008, representing a reduction of 9 persons.

Headcount

Full Time Employees
Corporate level Group level

2007.12.31.
1,147 1,179

2008.12.31.
1,139 1,170

Investment Cash Flow

TVK Shares on the Budapest Stock Exchange
Global capital market effects In 2008, the performance of the global capital markets was determined by the financial crisis. Eroding liquidities and long seen changes in the exchange rates were typical of the capital markets in the third part of the year, primarily. In response to market changes, the BUX, index of the Budapest Stock Exchange reached its deepest level in last October when it settled at 10,751 points, representing 58% drop comparing to the level of the beginning of the year. At the end of the year, the BUX index closed at 12,242 points, or 53% below the 25,890 points at the beginning of the year. On the spot markets, the share section including the shares gave a larger part of the trading (92%). The brokerage trading accounted for 85% of the total turnover including 67% generated by resident investors. TVK shares were among those domestic shares, which suffered the highest losses in 2008: TVK share price went down by 66%. The two extreme share prices are HUF 7,060 on January 2, 2008 and HUF 2,405 as the closing share price as of December 31, the last trading day of the year. TVK share price followed the changes in the BUX and continuously decreased throughout the year. The annual volatility was 30.7%.

Financial Cash Flow

Capital Expenditure
Expenditures The value of capital expenditure incurred by the TVK Group in 2008 totalled at HUF 4,538 million, including sustenance jobs at the parent company at HUF 4,433 million. In 2008, the maintenance projects renovations represented efficiency improvement individual projects a value of HUF 1,449 million and the major part of investments in a value of HUF 2,377 million. We spent HUF 607 million on other development projects - within which the main projects were the IT and other development projects amounted to HUF 577 million.. TVK share

Projects

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Data

In 2008 the TVK shares had an annual turnover of HUF 5,637 million and 1,284,152 shares were sold with an average daily volume of HUF 22.5 million. TVK’s market capitalisation reached HUF 58,420 and remained 67% below last year’s level of HUF 179,752 million; however, the Company managed to keep its position and still remained the eighth among the listed companies in terms of market capitalisation. TVK share was not one of the specifically liquid securities during 2008 either due to the limited free float.

Shareholder
Interest (%) Domestic institution/ company Foreign institution/ company Domestic individual Foreign individual Employees, senior officers Treasury shares Shares held by unidentified parties total 87.09 8.14 0.27 0.00 4.50 100

31-Dec-07
Voting ratio (%)3,4 87.09 8.14 0.27 0.00 4.50 100 Quantity (of shares) 21,154,466 1,976,426 65,71 1 941 1,093,299 24,290,843 Interest (%) 88.63 9.95 1.40 0.01 0.01 100

31-Dec-08
Voting ratio (%)3,4 88.63 9.95 1.40 0.01 0.01 Quantity (of shares) 21,530,125 2,416,138 339,587 2,391 2,602

Ownership Structure
Shareholders with more than 5% stake In 2008 the ownership structure of the company changed significantly, as in the person and share of shareholders holding a property of more than 5% a significant change happened in the first quarter of 2008. The ownership ratio registered in the share register of MOL Plc. was 86.79% and the stake of MOL Plc’s subsidiary, Slovnaft, a.s. was 8.07%. Thus MOL Plc’s direct and indirect influence over the Company increased to 94.86%. The ratio of Hungarian institutional investors (including the 86.79% stake of MOL Plc. ) was around 90%, whereas the share of foreign institutional investors was about the level of 10%. The ownership share of private investors was not significant this year, it was hardly 1% at the end of the year. The Company had no treasury shares in 2008 either. According to a resolution of the Company’s General Meeting held on April 17, 2008, HUF 8,963,321,067 - representing HUF 369 earning per share - a part of the Company’s 2007 profit after tax, was paid as dividend as from June 2, 2008,.

Shareholders structure

100 24,290,843

Divident payment

Shareholder
MOL Hungarian Oil and Gas Plc. Slovnaft, a.s.

Quantity (of shares)
21,083,142 1,959,243

Interest (%)
86.79 8.07

Voting ratio (%)3,4
86.79 8.07

Notes: In accordance with the resolution of 2007 Annual General Meeting, every ordinary share with a par value of HUF 1,010 (i.e. one thousand ten forint) entitles the holder thereof to have one and one hundredth vote. Please note that in Hungary, the Share Register does not fully reflect the ownership structure, as registration is not mandatory.

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Tisza Chemical Group Public Limited Company and Subsidiaries Consolidated financial statements prepared in accordance with International Financial Reporting Standards together with the independent auditors’ report 31 December 2008

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conSolidated financial StatementS

45

Independent Auditors’ Report

To the Shareholders of Tiszai Vegyi Kombinát Nyilvánosan Mûködô Részvénytársaság
1.) We have audited the accompanying 2008 consolidated annual financial statements of Tiszai Vegyi Kombinát Nyilvánosan Mûködô Részvénytársaság (“the Company”), which comprises the consolidated balance sheet as at 31 December 2007 - showing a balance sheet total of HUF 209,781 million and a net loss attributable to the equity holders of the parent for the year of HUF 146 million -, the related consolidated profit and loss account for the year then ended, changes in shareholder’s equity, consolidated cash flows for the year then ended and the summary of significant accounting policies and other explanatory notes. 2.) We issued an unqualified opinion on the Company’s consolidated annual financial statements prepared in accordance with the International Financial Reporting Standards as adopted by EU as at 31 December 2007 on 28 March 2008. report is consistent with the consolidated financial statements and does not include reviewing other information originated from non-audited financial records. 6.) We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion 7.) We have audited the elements of and disclosures in the consolidated annual financial statements, along with underlying records and supporting documentation, of Tiszai Vegyi Kombinát Nyilvánosan Mûködô Részvénytársaság in accordance with Hungarian National Auditing Standards and have gained sufficient and appropriate evidence that the consolidated annual financial statements have been prepared in accordance with the International Financial Reporting Standards as adopted by EU. In our opinion the consolidated annual financial statements give a true and fair view of the equity and financial position of Tiszai Vegyi Kombinát Nyilvánosan Mûködô Részvénytársaság as at 31 December 2008 and of the results of its operations for the year then ended. The consolidated business report corresponds to the disclosures in the consolidated financial statements. 8.) Without qualifying our opinion we draw the attention to Note 24 to the consolidated financial statements that describe the environmental aspects of the Company’s operations and highlights the risk of additional significant decontamination expenses that might incur over the current amount of the provision in relation to past environmental damage as may be identified by future environmental surveys.

Management’s Responsibility for the Consolidated Financial Statements 3.) Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with the International Financial Reporting Standards as adopted by EU. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility 4.) Our responsibility is to express an opinion on these consolidated financial statements based on the audit and to assess whether the consolidated business report is consistent with the consolidated financial statements. We conducted our audit in accordance with Hungarian National Auditing Standards and with applicable laws and regulations in Hungary. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. 5.) An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our work regarding the consolidated business report is restricted to assessing whether the consolidated business

Budapest, 20 March 2009

Ernst & Young Kft. Registration No. 001165

Szilágyi Judit Registered Auditor Chamber membership No.: 001368

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tvK annual report 2008

INDEPENDENT AUDITORS’ REPORT

47

Independent Auditor’s Report To the Shareholders of Tiszai Vegyi Kombinát Nyilvánosan Mûködô Részvénytársaság
We have audited the consolidated financial statements of Tiszai Vegyi Kombinát Nyilvánosan Mûködô Részvénytársaság and its subsidiaries (“the Group”), which comprise the consolidated balance sheet as at 31 December 2008, and the consolidated income statement, consolidated statement of changes in equity and consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes on pages 9-77. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility and Basis of Audit Opinion Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of Tiszai Vegyi Kombinát Nyilvánosan Mûködô Részvénytársaság and its subsidiaries as of 31 December 2008, and of the consolidated results of their operations and their cash flows for the year then ended in accordance with International Financial Reporting Standards. Without qualifying our opinion we draw attention to Note 24 to the consolidated financial statements that describe the environmental aspects of the Company’s operations and highlights the risk of additional significant decontamination expenses that might incur over the current amount of the provision in relation to past environmental damage as may be identified by future environmental surveys.

Tisza Chemical Group Public Limited Company and Subsidiaries
Consolidated financial statements prepared in accordance with International Financial Reporting Standards

31 December 2008

Tiszaújváros, 20 March 2009

Árpád Olvasó Chief Executive Officer

Gyula Hodossy Chief Financial Officer, Deputy CEO

Ernst & Young Kft. Budapest, Hungary 20 March 2009

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Consolidated balance sheet 31 December 2008
Notes
aSSetS Non-current assets Intangible assets Property, plant and equipment Investments in associated companies Other non-current assets Total non-current assets Current assets Inventories Trade receivables, net Other current assets Prepaid taxes Cash and cash equivalents Total current assets total aSSetS EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Share capital Reserves Net income attributable to equity holders of the parent Equity attributable to equity holders of the parent Minority interests Total equity Non-current liabilities Long-term debt, net of current portion Provisions for liabilities and charges Deferred tax liabilities Other non-current liabilities Total non-current liabilities Current liabilities Trade and other payables Provisions for liabilities and charges Current portion of long-term debt Total current liabilities TOTAL EQUITY AND LIABILITIES

Consolidated income statement 31 December 2008
2008 2007
HUF million HUF million 3 4 5 6 3,492 137,833 178 189 141,692 7,072 37,009 15,433 2,03 6,545 68,089 209,781 3,807 145,467 204 199 149,677 12,220 54,875 4,184 766 13,241 85,286 234,963 Net sales (revenue) Other operating income Total operating income Raw materials and consumables used Personnel expenses 7 8 9 10 Depreciation, amortization and impairment Other operating expenses Change in inventories of finished goods and work in progress Work performed by the enterprise and capitalized Total operating expenses Profit from operations Financial income 1 1 12 24,534 124,153 -146 148,541 148,541 13 14 21 12,586 2,724 4,423 13 19,746 24,392 393 16,709 41,494 209,781 24,534 109,424 23,684 157,642 157,642 20,489 3,032 4,694 28,215 47,741 575 790 49,106 234,963 Financial expense Net financial expense Gain / (Loss) from associates Profit before tax Income tax expense Profit for the year Attributable to: Equity holders of the parent Minority interests Basic and diluted earnings per share attributable to ordinary equity holders of the parent (HUF) 22 (146) (6) 23,684 975 21 20 20 20 18 3,4 19

Notes
16 17

2008
HUF million 323,406 216 323,622 288,817 9,328 13,148 4,241 4,205 (672) 319,067 4,555 417 4,100 3,683 (18) 854 1,000 (146)

2007
HUF million 337,646 808 338,454 282,390 10,134 12,948 3,819 (3,189) (621) 305,481 32,973 908 3,195 2,287 9 30,695 7,01 1 23,684

15 14 13

The notes are an integral part of these consolidated financial statements

The notes are an integral part of these consolidated financial statements

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Consolidated statement of changes in equity 31 December 2008
Retained earnings Minority interest Net income attributable to equity holders of the parent Total equity attributable to equity holders of the parent Total reserves Share premium Share capital

huf million Opening balance 1 January 2007 Currency translation differences Total income and expense for the year recognized directly in equity Retained profit for the year Total income and expense for the year Transfer to reserves of retained profit for the previous year Redeemed treasury shares Dividends Closing balance 31 December 2007 Currency translation differences Total income and expense for the year recognized directly in equity Retained profit for the year Total income and expense for the year Transfer to reserves of retained profit for the previous year Dividends Closing balance 31 December 2008 24,534 24,534 24,534

huf million 15,022 15,022 15,022

huf million 77,106 (1) (1) (1) 17,271 94,376 23,684 (8,963) 109,097

huf million 26 26 8 8 8 34

huf million 92,154 (1) (1) (1) 17,271 109,424 8 8 8 23,684 (8,963) 124,153

huf million 17,271 23,684 23,684 (17,271) 23,684 (146) (146) (23,684) (146)

huf million 133,959 (1) (1) 23,684 23,683 157,642 8 8 (146) (138) (8,963) 148,541

huf million -

huf million 133,959 (1) (1) 23,684 23,683 157,642 8 8 (146) (138) (8,963) 148,541

The notes are an integral part of these consolidated financial statements

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Translation reserve

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Notes to the Consolidated Financial Statements
Prepared in Accordance with International Financial Reporting Standards

Consolidated statement of cash-flows 31 December 2008
2008
Profit before tax Adjustments to reconcile profit before tax to net cash provided by operating activities Depreciation and impairment Amortization and impairment Write-off of inventories, net Increase/(decrease) in environmental provisions Increase/(decrease) in provisions Net (gain) / loss on sale of tangible assets Write-off of receivables Unrealised foreign exchange (gain) / loss on receivables and payables Interest income Interest on borrowings Net foreign exchange (gain)/ loss excluding foreign exchange differences on receivables and payables Other financial (gain) / loss, net Share of net (profit)/loss of associates Operating cash flow before changes in working capital (Increase)/ decrease in inventory (Increase)/ decrease in debtors (Increase)/ decrease in other receivables Increase/(decrease) in accounts payable Increase in other current liabilities Income taxes paid Net cash provided by operating activities Purchase of Property, Plant and Equipments Proceeds from disposals of fixed assets Loans and long-term bank deposits provided Proceeds from liquidation of investments Proceeds from disposal of other investments Interest received and other financial income Dividends received Net cash used in investing activities Proceeds from issue of new debts Repayments of long-term debt Increase/(Decrease) in other financial liabilities Interest paid and other financial costs Dividends paid to minority interest and payment on liquidation Net cash provided by financing activities (Decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash effect of consolidation of subsidiaries previously accounted for as other investment Cash and cash equivalents at the end of the year HUF million 854 12,645 503 403 (446) (44) (47) 64 138 (377) 1,971 1,566 350 18 17,598 4,745 17,671 (629) (21,801) (361) (2,535) 14,688 (6,257) 64 (9,780) 6 404 16 (15,547) 12,078 (5,372) (720) (2,893) (8,960) (5,867) (6,726) 13,241 6,515

2007
HUF million 30,695 12,533 415 18 (666) 97 (3) 42 (456) (884) 2,274 91 587 -9 44,734 -3,877 -8,076 239 9,976 212 (6,353) 36,855 (6,309) 37 23 942 (5,307) (30,092) (704) (3,120) (33,916) (2,368) 15,621 13,253

1. Presentation of The Group Structure
Background to the consolidated companies
TVK Plc. Tiszavidéki Vegyi Kombinát, TVK’s legal predecessor was founded in 1953. In 1961 it was transformed into a state-owned company called Tiszai Vegyi Kombinát (the “state-owned company”). Prior to its privatisation, the state-owned company was incorporated as a public limited liability company on 31 December 1991 (the “Company”). In accordance with the law on the transformation of unincorporated state-owned enterprises, the assets and liabilities of TVK were revalued as at that date. As at 31 December 1995, the Company was 99.92% owned by the Hungarian State Privatisation and Holding Company (“ÁPV Rt.”) and the remaining 0.08% was owned by local municipalities. In 1996, the Company was privatised through an offering of shares owned by ÁPV Rt. to foreign and domestic institutional and private investors. Following this privatisation, shares of the Company were listed on the Budapest Stock Exchange and Global Depository Receipts (“GDRs”) representing the shares were listed on the London Stock Exchange. As of 31 December 2008, MOL Plc. holds the majority of the shares. The Company, with its registered seat in Tiszaújváros (H-3581 Tiszaújváros, TVK-Ipartelep TVK Központi Irodaház 2119/3. hrsz. 136. épület), produces chemical raw materials including ethylene, propylene and polymers of these products for both domestic and foreign markets. The Group had 1,170 and 1,179 employees as at 31 December 2008 and 2007, respectively.

Consolidated subsidiaries
Company name TVK Ingatlankezelô Kft. TVK Italia Srl. TVK UK Ltd. TVK Inter-Chemol GmbH TVK France S.a.r.l. TVK Erômû Kft.* TVK Polska Spzoo TVK Ukraina tov Tisza WTP Kft** Country Range of activity Ownership Ownership
31-Dec-08 31-Dec-07

Consolidation Method
31-Dec-08

Property leasing, Hungary management italy Wholesale and retail trade United Wholesale and retail trade Kingdom Germany Wholesale and retail trade France Wholesale and retail trade Electricity production and Hungary distribution Poland Wholesale and retail trade Ukraine Wholesale and retail trade Hungary Feed water and raw water

100% 100% 100% 100% 100% 26% 100% 100% 0%

100% 100% 100% 100% 100% 26% 100% 100% 0%

Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation

* The ownership of TVK Plc is 26%. The syndicated agreement between the owners, gives TVK Plc . operating policies of TVK Erômû Kft., it is fully consolidated in 2008 and 2007.

** Tisza-Wtp Kft was formed in 2002 specifically for providing feed water and raw water to TVK Plc. and TVK Erômû Kft under a long-term co-operation agreement. Tisza WTP Kft has been consolidated by the Company since 1 January 2006 in accordance with SIC 12. According to service agreement Tisza WTP Kft. provides services that is consistent with the Group’s ongoing major operations and TVK Group is the exclusive purchaser of services provided by Tisza WTP.

The notes are an integral part of these consolidated financial statements

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2. Basis of preparation
TVK Plc. prepares its statutory unconsolidated financial statements in accordance with the requirements of the accounting regulations contained in Law C of 2000 on Accounting (HAS). Some of the accounting principles prescribed in this law differ from International Financial Reporting Standards (IFRS). For the purposes of the application of the Historical Cost Convention, the consolidated financial statements treat the Company as having come into existence as of 31 December 1991, at the carrying values of assets and liabilities determined at that date, subject to the IFRS adjustments. These consolidated financial statements have been approved and authorized for issue by the Board of Directors on 20 March 2009. The financial year is the same as the calendar year.

1. Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and all applicable IFRSs that have been adopted by the EU. IFRS comprise standards and interpretations approved by the International Accounting Standards Board (“IASB”) and the International Financial Reporting Interpretations Committee (“IFRIC”). Effective 1 January 2005, the change in the Hungarian Accounting Act allows the Group to prepare its consolidated financial statements in accordance with IFRS that have been adopted by the EU. Curently, due to the endorsement process of the EU, and the activities of the Group, there is no difference in the policies applied by the Group between IFRS and IFRS that have been adopted by the EU.

Joint ventures A joint venture is a contractual arrangement whereby two or more parties (ventures) undertake an economic activity that is subject to joint control. Joint control exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the ventures. A jointly controlled entity is a joint venture that involves the establishment of a company, partnership or other entity to engage in economic activity that the group jointly controls with its fellow ventures. The Company’s interests in its joint ventures are accounted for by the proportionate consolidation method, where a proportionate share of the joint venture’s assets, liabilities, income and expenses is combined with similar items in the consolidated financial statements on a line-by-line basis. The financial statements of the joint ventures are prepared for the same reporting year as the parent company, using consistent accounting policies. When the Group contributes or sells assets to the joint venture, any portion of gain or loss from the transaction is recognized based on the substance of the transaction. When the Group purchases assets from the joint venture, the Group does not recognize its share of the profits of the joint venture from the transaction until it resells the assets to an independent party. Investments in associates An associate is an entity over which the group is in a position to exercise significant influence through participation in the financial and operating policy decisions of the investee, but which is not a subsidiary or a jointly controlled entity. The Group’s investments in its associates are accounted for using the equity method of accounting. An associate is an entity over which the Group has significant influence and which is neither a subsidiary nor a joint venture. Under the equity method, the investment in the associate is carried in the balance sheet at cost plus post acquisition changes in the Group’s share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised. The income statement reflects the share of the results of operations of the associate. Where there has been a change recognized directly in the equity of the associate, the Group recognizes its share of any changes and discloses this, when applicable, in the statement of changes in equity. Profits and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate. The reporting dates of the associate and the Group are identical and the associate’s accounting policies conform to those used by the Group for like transactions and events in similar circumstances. Investments in associates are assessed to determine whether there is any objective evidence of impairment. If there is evidence the recoverable amount of the investment is determined to identify any impairment loss to be recognized. Where losses were made in previous years, an assessment of the factors is made to determine if any loss may be reversed. Other consolidated entities Special purpose entities are fully consolidated. Special purpose entities are companies which operate substantially in compliance with the Company business needs. It provides a supply of goods or services that is consistent with the Company’s ongoing major or central operations.

2. Principles of Consolidation
Subsidiaries The consolidated financial statements include the accounts of TVK Plc. and the subsidiaries that it controls. This control is normally evidenced when the Group owns, either directly or indirectly, more than 50% of the voting rights of a company’s share capital and is able to govern the financial and operating policies of an enterprise so as to benefit from its activities. As required by IAS 27, immediately exercisable voting rights are taken into account when determining control. The purchase method of accounting is used for acquired businesses by measuring assets and liabilities at their fair values upon acquisition, the date of which is determined with reference to the date of obtaining control. Minority interest is stated at the minority’s proportion of the fair values of net assets. The income and expenses of companies acquired or disposed of during the year are included in the consolidated financial statements from the date of acquisition or up to the date of disposal. Intercompany balances and transactions, including intercompany profits and unrealised profits and losses are eliminated. The consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. Minority interests represent the profit or loss and net assets not held by the Group and are shown separately in the consolidated balance sheets and the consolidated income statement, respectively. Acquisitions of minority interests are accounted for using the parent company extension method, whereby the difference between the consideration and the book value of the share of the net assets acquired is recognized as goodwill.

2.1. Changes in Accounting Policies
The Group accounting policies adopted are consistent with those applied years, apart from some further minor modifications in the classification balance sheet or the income statement, none of which has resulted on the financial statements. Comparative periods have been restated reclassifications. . in the previous financial of certain items in the in a significant impact to reflect these minor

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The Group has adopted the following new and amended IFRS and IFRIC interpretations during the year. Except as noted below, adoption of these standards and interpretations did not have any effect on the financial statements of the Group. They did however give rise to additional disclosures. • Amendments to IAS 39 & IFRS 7 – reclassification of financial assets • IFRIC 11 IFRS 2 – Group and Treasury Share transactions • IFRIC 12 Service Concession Arrangements The Group has not early adopted any standards and interpretations that were published but not yet effective. The principal effects of these changes are as follows: Amendments to IAS 39 & IFRS 7 – reclassification of financial assets The changes to IAS 39 permit an entity to reclassify non-derivative financial assets out of the ‘fair value through profit or loss’ (FVTPL) and ‘available-for-sale’ (AFS) categories in limited circumstances. Such reclassifications trigger additional disclosure requirements. The Group has not made any reclassification based on this amendment. IFRIC 11 IFRS 2 – Group and Treasury Share transactions This interpretation requires arrangements whereby an employee is granted rights to an entity’s equity instruments to be accounted for as an equity-settled scheme, even if the entity buys the instruments from another party, or the shareholders provide the equity instruments needed. The existing equity-settled scheme in the Group will not be affected by this interpretation. IFRIC 12 Service Concession Arrangements This interpretation applies to service concession operators and explains how to account for the obligations undertaken and rights received in service concession arrangements. No member of the Group is an operator and hence this interpretation will have no impact on the Group.

- IFRS 3 Business Combinations This revised standard comes into effect for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. It contains a numerous changes compared to the previous IFRS 3. Among others, non-controlling interests must be measured either at fair value or as the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets, where previously only the latter was permitted. Additional guidance was added on recognizing contingencies and measuring certain identifiable assets and liabilities of the acquiree. Furthermore, costs incurred by the acquirer in connection with the business combination must be recognized as expense, as opposed to the previous treatment which required these to be included in the calculation of goodwill. The revision will have no material impact on the currently reported financial position of the Group. - IFRS 8 Operating Segments IFRS 8 was issued in November 2006 and becomes effective for financial years beginning on or after 1 January 2009. This standard requires disclosure of information about the Group’s operating segments and replaces the requirement to determine primary (business) and secondary (geographical) reporting segments of the Group. The management expects that there will be no change in the current disclosures, as the primary business segments determined for reporting purposes will qualify as business segments under the new standard. - IAS 23 Borrowing Costs (Amendment) A revised IAS 23 Borrowing costs was issued in March 2007, and becomes effective for financial years beginning on or after 1 January 2009. The standard has been revised to require capitalisation of borrowing costs when such costs relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. The Group currently follows this policy, therefore the change will have no impact on the consolidated financial statements. - IAS 27 Consolidated and Separate Financial Statements This revised standard must be applied for annual periods beginning on or after 1 July 2009. It requires the attribution of total comprehensive income to the owners of the parent and to the noncontrolling interests even if this results in the non-controlling interest having a negative balance. The previous standard allocated such excess losses to the owners of the parent except for some rare circumstances. In addition, requirements were added to treat changes in a parent’s ownership interest in a subsidiary which do not result in the loss of control within equity, as well as specifying that any gain or loss arising on the loss of control of a subsidiary must be recognized in profit or loss. The revision will have no material impact on the currently reported financial position of the Group. - IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements (amendment) - Puttable Financial Instruments and Obligations Arising on Liquidation These revised standards become effective for financial years beginning on or after 1 January 2009. They require some puttable financial instruments and some financial instruments that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation to be classified as equity. The amendment will have no impact on the existing financial instruments of the Group. - IFRIC 13 Customer Loyalty programmes IFRIC Interpretation 13 was issued in June 2007 and becomes effective for annual periods beginning on or after 1 July 2008. This Interpretation requires customer loyalty award credits to be accounted for as a separate component of the sales transaction in which they are granted and therefore part of the fair value of the consideration received is allocated to the award credits

Issued but not yet effective International Financial Reporting Standards
At the date of authorisation of these financial statements, the following Standards and Interpretations were in issue but not yet effective - IAS 1 (Revised) – Presentation of financial statements The revised standard (effective from 1 January 2009) separates owner and non-owner changes in equity. Therefore, the statement of changes in equity will include only details of transactions with owners, with all non-owner changes in equity presented as a single line. In addition, the standard introduces a statement of comprehensive income: presenting all items of income and expense recognised in the income statement, together with all other items of recognised income and expense, either in one single statement, or two linked statement.. The group will apply IAS 1 (Revised) from 1 January 2009. It is likely that both the income statement and statement of comprehensive income will be presented as performance statements. - IFRS 2 Share-based Payment (amendment) – Vesting Conditions and Cancellations This amendment to IFRS 2 – Share-based Payment becomes effective for financial years beginning on or after 1 January 2009. It clarifies the definition of vesting and non-vesting conditions, as well as the accounting treatment of cancellations. The amendment will have no material impact on the existing share-based schemes of the Group.

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and deferred over the period that the award credits are fulfilled. The Group expects that this interpretation will have no material impact on the Group’s financial statements because currently there is no existing retail loyalty schemes. - IFRIC 15 Agreement for the Construction of Real Estate IFRIC 15 was issued in July 2008 and becomes effective for financial years beginning on or after 1 January 2009. The interpretation is to be applied retrospectively. It clarifies when and how revenue and related expenses from the sale of a real estate unit should be recognised if an agreement between a developer and a buyer is reached before the construction of the real estate is completed. Furthermore, the interpretation provides guidance on how to determine whether an agreement is within the scope of IAS 11 or IAS 18. IFRIC 15 will not have an impact on the consolidated financial statement because the Group does not conduct such activity. - IFRIC 16 Hedges of a Net Investment in a Foreign Operation The IFRIC 16 was issued in July 2008 and will be effective prospectively for financial years beginning on or after 1 October 2008. This interpretation provides guidance on the accounting for a hedge of a net investment. The interpretation will have no impact on the Group’s financial statements, as the Group has not entered in any such hedges. - IFRIC 17 Distributions of Non-cash Assets to Owners IFRIC 17 was issued in November 2008 and becomes effective for financial years beginning on or after 1 July 2009. This interpretation provides guidance on the accounting treatment when an entity distributes assets other than cash as dividends to its shareholders. The dividend should be measured at the fair value of the assets distributed and the difference between this amount and the previous carrying amount of the assets distributed should be recognised in profit or loss when the entity settles the dividend payable. This interpretation has no impact on the Group because dividend is distributed in cash. - IFRIC 18 Transfers of Assets from Customers IFRIC 18 was issued in January 2009 and becomes effective for financial years beginning on or after 1 July 2009. Entities in specific sectors often receive items of property, plant and equipment form their customers, or cash to acquire or construct specific assets. These assets are then used to connect customers to a network and/or provide them with ongoing access to a supply of goods and/or services. This interpretation provides guidance on when and how an entity should recognise such assets. When the item of property, plant and equipment transferred from a customer meets the definition of an asset under the IASB Framework from the perspective of the recipient, the recipient must recognise the asset in its financial statements. If the customer continues to control the transferred item, the asset definition would not be met even if ownership of the asset is transferred to the utility or other recipient entity. This interpretation is expected to have no material effect on the Group’s financial statements. Improvements to IFRSs In May 2008 the Board issued its first collection of amendments to its standards, primarily view to remove inconsistencies and clarify wording. These amendments will be effective from 1 January 2009. The Group has not yet adopted the following amendments but it is anticipated that these changes will have no material effect on the Group’s financial statements. IAS 1 Presentation of Financial Statements Assets and liabilities classified as held for trading in accordance with IAS 39 Financial Instruments: Recognition and Measurement are not automatically classified as current in the balance sheet, so it should be analysed whether the expectations of the period of realisation of financial assets and liabilities differed form the classification of the instrument.

IAS 8 Accounting Policies, Change in Accounting Estimates and Errors. This amendment clarified that only implementation guidance that is an integral part of an IFRS is mandatory when selecting accounting policies. IAS 10 Events after the Reporting Period This amendment clarified that dividends declared after the end of the reporting period are not obligations. IAS 16 Property, Plant and Equipment IASB replaced the term “net selling price” with “fair values less costs to sell”. Items of property, plant and equipment held for rental that are routinely sold in the ordinary course of business after rental, are transferred to inventory when rental ceases and they are held for sale. IAS 18 Revenue This amendment replaced the term ‘direct costs’ with ‘transaction costs’ as defined in IAS 39. IAS 19 Employee Benefits This improvement revised the definition of ‘past service costs’, ‘return on plan assets’ and ‘short term’ and ‘other long –term’ employee benefits. Amendments to plans that result in a reduction in benefits related to future services should be accounted for as curtailment. The reference to the recognition of contingent liabilities has been deleted to ensure consistency with IAS 37. IAS 20 Accounting for Government Grants and Disclosures of Government Assistance According to this improvement loans granted in the future with no or low interest rates will not be exempt from the requirement to impute interest. The difference between the amount received and the discounted amount should be accounted for as government grant. Also various terms had been changed in order to be consistent with other IFRS. IAS 23 Borrowing Costs The definition of borrowing costs is revised to consolidate the two types of items that are considered components of ‘borrowing costs’ into one – the interest expense calculated using the effective interest rate method calculated in accordance with IAS 39. IAS 27 Consolidated and Separate Financial Statements According to this amendment, when a parent entity accounts for subsidiary at fair value in accordance with IAS 39 in its separate financial statements, this treatment should continue when the subsidiary is subsequently classified as held for sale. IAS 28 Investment in Associates If an associate is accounted for at fair value in accordance with IAS 39, only the requirement of IAS 28 to disclose the nature and extent of any significant restrictions on the ability of the associate to the transfer funds to the entity in the form of cash or repayment of loans applies. This amendment has no impact on the Group as it does not account for its associates at fair value in accordance with IAS 39. An investment in an associate is a single asset for the purpose of conducting the impairment test. Therefore, any impairment test is not separately allocated to the goodwill included in the investment balance. This amendment has no impact on the Group because this policy was already applied.

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IAS 29 Financial Reporting in Hyperinflationary Economies This amendment revised the reference to the exception to measure assets and liabilities at historical cost, such that it notes property, plant and equipment as being an example, rather than implying that is a definitive list. Also various terms had been changed in order to be consistent with other IFRS. IAS 31 Interest in Joint Ventures If a joint venture is accounted for at fair value, in accordance with IAS 39, only the requirements of IAS 31 to disclose the commitments of the venturer and the joint venture, as well as summary financial information about the assets, liabilities, income and expense will apply. This amendment has no impact on the Group because it does not account for its joint ventures at fair value in accordance with IAS 39. IAS 34 Interim Financial Reporting According to this amendment, earnings per share should be disclosed in interim financial reports if an entity is within the scope of IAS 33 IAS 36 Impairment of Assets When discounted cash flows are used to estimate ‘fair value less cost to sell’ additional disclosures required when the discounted cash flows are used to estimate ‘value in use’. This amendment will have no immediate impact on the consolidated financial statements of the Group because the recoverable amount of its CGUs is currently estimated using ‘value in use’. IAS 38 Intangible Assets Expenditure on advertising and promotional activities is recognised as an expense when the Group either has the right to access the goods or has received the service. This amendment has no impact on the Group because it does not enter into such promotional activities. IAS 39 Financial Instruments: Recognition and Measurement According to this improvement, changes in circumstances relating to derivatives are not reclassifications and therefore may be either removed from, or included in, the ‘fair value through profit or loss’ classification after initial recognition. The reference in IAS 39 to a ‘segment’, when determining whether an instrument qualifies as a hedge, had been removed. The use of the revised effective interest rate also had been required when remeasuring a debt instrument on the cessation of fair value hedge accounting. IAS 40 Investment Property This amendment revised the scope such that property under construction or development for future use as an investment property is classified as investment property. If fair value cannot be reliably determined, the investment under construction should be measured at cost until such time as fair value can be determined or construction is complete. Also the amendment revised the conditions for voluntary change in accounting policy to be consistent with IAS 8 and clarified that the carrying amount of investment property held under lease is the valuation obtained increased by any recognised liability. IFRS 7 Financial Instruments: Disclosures This amendment removed the reference of ‘total interest income’ as a component of financial costs.

2.2 Summary of significant accounting policies
i) Presentation Currency
Based on the economic substance of the underlying events and circumstances the functional currency of the parent company and the presentation currency of the Group has been determined to be the Hungarian Forint (HUF).

ii) Business Combinations
Business combinations are accounted for using the purchase accounting method. This involves recognizing identifiable assets (including previously unrecognized intangible assets) and liabilities (including contingent liabilities and excluding future restructuring) of the acquired business at fair value. Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash generating units, or groups of cash generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is allocated represents the lowest level within the Group at which the goodwill is monitored for internal management purposes, and is not larger than a segment based on the Group’s reporting format determined in accordance with IAS 14 Segment Reporting. Where goodwill forms part of a cash-generating unit (or group of cash generating units) and part of the operation within that unit (or group) is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. When subsidiaries are sold, the difference between the selling price and the net assets plus cumulative translation differences and un-amortized goodwill is recognized in the income statement.

iii) Investments and Other Financial Assets
Financial assets within the scope of IAS 39 are classified as either financial assets at fair value through profit or loss, loans and receivables, held to maturity investments, or available for sale financial assets, as appropriate. When financial assets are recognized initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group considers whether a contract contains an embedded derivative when the entity first becomes a party to it. Purchases and sales of investments are recognized on settlement date which is the date when the asset is delivered to the counterparty.

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Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss includes financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit and loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments or a financial guarantee contract. Gains or losses on investments held for trading are recognized in profit and loss. Financial assets may be designated at initial recognition as at fair value through profit or loss if the following criteria are met: (i) the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognising gains or losses on them on a different basis; or (ii) the assets are part of a group of financial assets which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management strategy; or (iii) the financial asset contains an embedded derivative that would need to be separately recorded. Such financial assets are recorded as current, except for those instruments which are not due for settlement within 12 months from the balance sheet date and are not held with the primary purpose of being traded. In this case all payments on such instruments are classified as non-current. As at 31 December 2008 and 2007, no financial assets have been designated as at fair value through profit and loss. Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets which carry fixed or determinable payments have fixed maturities and which the Group has the positive intention and ability to hold to maturity. After initial measurement held to maturity investments are measured at amortised cost. This cost is computed as the amount initially recognized minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initially recognized amount and the maturity amount, less allowance for impairment. This calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. Gains and losses are recognized in the income statement when the investments are derecognized or impaired, as well as through the amortisation process. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement loans and receivables are subsequently carried at amortised cost using the effective interest method less any allowance for impairment. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction costs. Gains and losses are recognized in the income statement when the loans and receivables are derecognized or impaired, as well as through the amortisation process. Available-for-sale financial investments Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the three preceding categories. After initial measurement, available for sale financial assets are measured at fair value with unrealised gains or losses being recognized directly in equity in the fair valuation reserve. When the investment is disposed of, the cumulative gain or loss previously recorded in equity is recognized in the income statement. See the impairment of available-for-sale assets under point vii). Fair Value For investments that are actively traded in organised financial markets, fair value is determined by reference to quoted market prices at the close of business on the balance sheet date. For

investments where there is no quoted market price, fair value is determined by reference to the current market value of another instrument which is substantially the same or is calculated based on the expected cash flows of the underlying net asset base of the investment.

iv) Classification and Derecognition of Financial Instruments
Financial assets and financial liabilities carried on the consolidated balance sheet include cash and cash equivalents marketable securities, trade and other accounts receivable and payable, long-term receivables, loans, borrowings, investments, and bonds receivable and payable. The accounting policies on recognition and measurement of these items are disclosed in the respective accounting policies found in this Note. Financial instruments (including compound financial instruments) are classified as assets, liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains, and losses relating to a financial instrument classified as a liability, are reported as expense or income as incurred. Distributions to holders of financial instruments classified as equity are charged directly to equity. In case of compound financial instruments the liability component is valued first, with the equity component being determined as a residual value. Financial instruments are offset when the Company has a legally enforceable right to offset and intends to settle either on a net basis or to realise the asset and settle the liability simultaneously. The derecognition of a financial instrument takes place when the Group no longer controls the contractual rights that comprise the financial instrument, which is normally the case when the instrument is sold, or all the cash flows attributable to the instrument are passed through to an independent third party.

v) Derivative Financial Instruments
The Group uses derivative financial instruments such as forward currency contracts and interest rate swaps to hedge its risks associated with interest rate and foreign currency fluctuations. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to net profit or loss for the year as financial income or expense. The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments. An embedded derivative is separated from the host contract and accounted for as a derivative if all of the following conditions are met: • the economic characteristics and the risks of the embedded derivative are not closely related to the economic characteristics of the host contract, • a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and • a hybrid (combined) instrument is not measured at fair value with changes in fair value reported in current year net profit.

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vi) Hedging
For the purpose of hedge accounting, hedges are classified as • fair value hedges • cash flow hedges or • hedges of a net investment in a foreign operation. A hedge of the foreign currency risk of a firm commitment is accounted for as a cash flow hedge. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Hedges which meet the strict criteria for hedge accounting are accounted for as follows: Fair value hedges Fair value hedges are hedges of the Group’s exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk that could affect the income statement. For fair value hedges, the carrying amount of the hedged item is adjusted for gains and losses attributable to the risk being hedged, the derivative is remeasured at fair value and gains and losses from both are taken to the income statement. For fair value hedges relating to items carried at amortised cost, the adjustment to carrying value is amortised through the income statement over the remaining term to maturity. Any adjustment to the carrying amount of a hedged financial instrument for which the effective interest method is used is amortised to the income statement. Amortisation may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in profit or loss. The changes in the fair value of the hedging instrument are also recognized in profit or loss. The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting or the Group revokes the designation. Cash-flow hedges Cash flow hedges are a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction that could affect the income statement. The effective portion of the gain or loss on the hedging instrument is recognized directly in equity, while the ineffective portion is recognized in the income statement.

Amounts taken to equity are transferred to the income statement when the hedged transaction affects the income statement, such as when hedged financial income or financial expense is recognized or when a forecast sale or purchase occurs. Where the hedged item is the cost of a non-financial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability. If the forecast transaction is no longer expected to occur, amounts previously recognized in equity are transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognized in equity remain in equity until the forecast transaction occurs. If the related transaction is not expected to occur, the amount is taken to the income statement. Hedges of a net investment Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a way similar to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognized directly in equity while any gains or losses relating to the ineffective portion are recognized in the income statement. On disposal of the foreign operation, the cumulative value of any such gains or losses recognized directly in equity is transferred to the income statement. The Company had no derivative financial instrument and hedging transactions in 2007 and 2008.

vii) Impairment of financial assets
The Group assesses at each balance sheet date whether a financial asset or group of financial assets is impaired. Assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The amount of the loss is recognized in the income statement. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for financial assets, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. Available-for-sale financial investments If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognized in the income statement, is transferred from equity to the income statement.

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In the current year the Group had no available-for sale financial investments. Impairment losses recognized on equity instruments classified as available for sale is not reversed. Impairment losses recognized on debt instruments classified as available-for-sale are reversed through income, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in income.

This includes cost of construction, plant and equipment and other direct costs. Construction-inprogress is not depreciated until such time as the relevant asset is available for use.

xii) Intangible Assets
Intangible assets acquired separately are capitalized at cost and from business acquisitions are capitalized at fair value as at the date of acquisitions. Intangible assets are recognized if it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise; and the cost of the asset can be measured reliably. Following initial recognition, the cost model is applied to the class of intangible assets. The useful lives of these intangible assets are assessed to be either finite or indefinite (during 2008 and 2007 the Company has no intangible asset with indefinite useful life). Amortization is charged on assets with a finite useful life over the best estimate of their useful lives using the straight line method. The amortization period and the amortization method are reviewed annually at each financial year-end. Intangible assets, excluding development costs, created within the business are not capitalized and expenditure is charged against income in the year in which the expenditure is incurred. Intangible assets are tested for impairment annually either individually or at the cash generating unit level. Research and development costs are expensed as incurred. Development expenditure incurred on an individual project is carried forward when its future recoverability can reasonably be regarded as assured. Following the initial recognition of the development expenditure the cost model is applied requiring the asset to be carried at cost less any accumulated impairment losses. Costs in development stage can not be amortized. The carrying value of development costs is reviewed for impairment annually when the asset is not yet in use, or more frequently when an indicator of impairment arises during the reporting year indicating that the carrying value may not be recoverable. The amount of research and development costs was million HUF 696 (2007: million HUF 709) relating to product development.

viii) Cash and Cash Equivalents
Cash includes cash on hand and cash with banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with maturity less than three months from the date of acquisition and that are subject to an insignificant risk of change in value.

ix) Trade Receivables
Receivables are stated at face value less provision for doubtful amounts. Where the time value of money is material, receivables are carried at amortized cost. A provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect all of the amounts due under the original terms of the invoice. Impaired debts are derecognized when they are assessed as uncollectible.

x) Inventories
Inventories, including work-in-process are valued at the lower of cost and net realisable value, after provision for slow-moving and obsolete items. Net realisable value is the selling price in the ordinary course of business, less the costs of making the sales. Cost of purchased goods, including naphtha and purchased gas oil inventory, is determined primarily on the basis of weighted average cost. The acquisition cost of own produced inventory consists of direct materials, direct wages and the appropriate portion of production overhead expenses including royalty. Unrealisable and unusable inventory is fully written off.

xi) Property, Plant and Equipment
Property, plant and equipment are stated at historical cost (or the carrying value of the assets determined as of 31 December 1991) less accumulated depreciation, depletion and accumulated impairment loss. When assets are sold or retired, their cost and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is included in the consolidated income statement. The initial cost of property, plant and equipment comprises its purchase price, including import duties and non-refundable purchase taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use, such as borrowing costs. Estimated decommissioning and site restoration costs are capitalized upon initial recognition or, if decision on decommissioning is made subsequently, at the time of the decision. Changes in estimates thereof adjust the carrying amount of assets. Expenditures incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance and overhead costs (except form periodic maintenance costs), are normally charged to income in the period in which the costs are incurred. Periodic maintenance costs are capitalized as a separate component of the related assets. Construction in progress represents plant and properties under construction and is stated at cost.

xiii) Depreciation, Amortization
Depreciation of each component of an intangible asset and property, plant and equipment is computed on a straight-line basis using the following rates:

Software Buildings and infrastructure Production machinery and equipment Office and computer equipment Vehicles

20-33% 2-10% 5-14.5% 14.5-50% 10-20%

Amortization of leasehold improvements is provided using the straight-line method over the term of the respective lease or the useful life of the asset, whichever period is less. Periodic maintenance costs are depreciated until the next similar maintenance takes place. The useful life and depreciation methods are reviewed at least annually to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items of property, plant and equipment and, if necessary, changes are accounted for in the current period.

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The base of the depreciation of security and strategic spare parts is the average depreciation rate of technical equipments and vehicles relating to the production.

xv) Interest-bearing loans and borrowings
All loans and borrowings are initially recognized at the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses are recognized in net in the income statement when the liabilities are derecognized, as well as through the amortisation process, except to the extent they are capitalized as borrowing costs.

xiv) Impairment of Assets
Property, plant and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognized in the income statement for items of property, plant and equipment and intangibles carried at cost. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. The fair value is the amount obtainable from the sale of an asset in an arm’s length transaction while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if this is not practicable, for the cash-generating unit. Impairment losses are reviewed annually and, where the recoverable amount of an asset has changed, are increased or written back, fully or partially, as required. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of the cash-generating unit (or group of cashgenerating units), to which the goodwill relates. Where the recoverable amount of the cashgenerating unit (or group of cash-generating units) is less than the carrying amount of the cash-generating unit (group of cash-generating units) to which goodwill has been allocated, an impairment loss is recognized. Impairment losses relating to Goodwill cannot be reversed in future periods. The Group performs its annual impairment test of goodwill as at 31 December. Intangible assets with indefinite useful lives are monitored for impairment indicators throughout the year and are tested for impairment at least annually as of 31 December either individually or at the cash generating unit level, as appropriate. Cash generating units The Company identified two cash generating units (CGU) which are the ethylene production of Olefin 2 for sales and the production of Olefin plants for internal use for the production of polymers. The recoverable amount of each CGU has been determined based on a value in use calculation using cash flow projections based on financial budgets approved by senior management covering a 19-year period. The average pre-tax discount rate applied to cash flow projections is 5.21 % (2007: 5.14 %). The calculation of value in use for cash generating units are most sensitive to the following assumptions: • Raw materials price; • Product price; • Exchange rate; • Material balance; and • Discount rates. With regard to the assessment of value in use of these cash-generating units, the management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of the units to materially exceed its recoverable amount.

xvi) Provisions
A provision is recognized when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. The amount of the provision is the present value of the risk adjusted expenditures expected to be required to settle the obligation, determined using the estimated risk free interest rate as discount rate. Where discounting is used, the carrying amount of the provisions increases in each period to reflect the unwinding of the discount by the passage of time. This increase is recognized as interest expense. Provision for Redundancy The employees of the Group are eligible, immediately upon termination, for redundancy payment pursuant to the Hungarian law and the terms of the Collective Agreement between TVK and its employees. The amount of such a liability is recorded as a provision in the consolidated balance sheet when the workforce reduction program is defined, announced and the conditions for its implementation are met. Provision for Environmental Expenditures Environmental expenditures that relate to current or future economic benefits are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations and do not contribute to current or future earnings are expensed. Liabilities for environmental costs are recognized when environmental assessments or clean-ups are probable and the associated costs can be reasonably estimated. Generally, the timing of these provisions coincides with the commitment to a formal plan of action or, if earlier, on divestment or on closure of inactive sites. The amount recognized is the best estimate of the expenditure required. Where the liability will not be settled for a number of years, the amount recognized is the present value of the estimated future expenditure. Provision for Retirement Benefits The Group operates long term employee benefit program. None of these schemes requires contribution to be made to separately administered funds. The cost of providing benefits under those plans is determined separately for each plan using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognized as income or expense immediately. Past service costs, resulting from the introduction of, or changes to the defined benefit scheme are recognized as an expense on a straight-line basis over the average period until the benefits become vested. Provision for Old Team benefits Based on the modification of the Collective Agreement on 19 December 2006, the Company pays Old Team benefits to its employees as follows:

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Every five years, the Company pays a fix set amount to all employees who had worked at least 10 years for the Company. Based on actuarial calculations, the Company made provision for Old Team benefits of current employees that reflects the expected payments based on their past service levels.

xvii) Greenhouse gas emissions
The Group receives free emission rights in Hungary as a result of the European Emission Trading Schemes. The rights are received on an annual basis and in return the Group is required to remit rights equal to its actual emissions. The Group has adopted a policy of applying a net liability approach to the emission rights granted. A provision is only recognized when actual emissions exceed the emission rights granted and still held. Where emission rights are purchased from other parties, they are recorded at cost, and treated as a reimbursement right., whereby they are matched to the emission liabilities and remeasured to fair value.

Cash-settled transactions The cost of cash-settled transactions is measured initially at fair value at the grant date using the binomial model. This fair value is expensed over the vesting period with recognition of a corresponding liability. The liability is remeasured at each balance sheet date up to and including the settlement date to fair value with changes therein recognized in the income statement.

xix) Leases
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term. Initial direct costs incurred in negotiating a finance lease are added to the carrying amount of the leased asset and recognized over the lease term on the same bases as the lease income. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in the income statement on a straight-line basis over the lease term.

xviii) Share-based payment transactions
Certain employees (including directors and managers) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (‘equity-settled transactions’). Equity-settled transactions The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by applying generally accepted option pricing models (usually by the binomial model). In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the parent company (‘market conditions’). The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). The cumulative expense recognized for equity settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the number of awards that, in the opinion of the directors of the Group at that date, based on the best available estimate of the number of equity instruments that will ultimately vest. No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied. Where the terms of an equity-settled award are modified, as a minimum an expense is recognized as if the terms had not been modified. An additional expense is recognized for any increase in the value of the transaction as a result of the modification, as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on cancellation, and any expense not yet recognized for the award is recognized However, if a new award is substituted for the cancelled award, and designated as a award on the date that it is granted, the cancelled and new awards are treated as a modification of the original award, as described in the previous paragraph. the date of immediately. replacement if they were

xx) Government grants
Government grants are recognized at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognized as income over the years necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the income statement over the expected useful life of the relevant asset by equal annual instalments.

xxi) Reserves
Reserves shown in the consolidated financial statements do not represent the distributable reserves for dividend purposes. Reserves for dividend purposes are determined based on the company-only statutory earnings of TVK Plc. Translation reserves The translation reserve represents translation differences arising on consolidation of financial statements of foreign entities. Exchange differences arising on a monetary item that, in substance, forms part of the company’s net investment in a foreign entity are classified as equity in the consolidated financial statements until the disposal of the net investment. Fair valuation reserves The fair valuation reserve includes the cumulative net change in the fair value of effective cash flow hedges and available for sale financial instruments. Equity component of debt and difference in buy-back prices Equity component of compound debt instruments includes the residual amount of the proceeds from the issuance of the instrument above its liability component, which is determined as the present value of future cash payments associated with the instrument. The equity component of compound debt instruments is recognized when the Group becomes party to the instrument.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

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xxii) Treasury Shares
The nominal value of treasury shares held is deducted from registered share capital. Any difference between the nominal value and the acquisition price of treasury shares, together with any gains or losses on transactions therein, are recorded directly to share premium.

• in respect associates the extent future and utilised.

of deductible temporary differences associated with investments in subsidiaries, and interests in joint ventures, deferred income tax assets are recognized only to that it is probable that the temporary differences will reverse in the foreseeable taxable profit will be available against which the temporary differences can be

xxiii) Dividends
Dividends are recorded in the year in which they are approved by the shareholders.

xxiv) Revenue Recognition
Revenue is recognized when it is probable that the economic benefits associated with a transaction will flow to the enterprise and the amount of the revenue can be measured reliably. Sales are recognized net of sales taxes and discounts when delivery of goods or rendering of the service has taken place and transfer of risks and rewards has been completed. Interest is recognized on a time-proportionate basis that reflects the effective yield on the related asset. Dividends due are recognized when the shareholder’s right to receive payment is established. Changes in the fair value of derivatives not qualifying for hedge accounting are reflected in income in the period the change occurs.

Deferred income tax liabilities are recognized for all taxable temporary differences, except: • where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. At each balance sheet date, the Company re-assesses unrecognized deferred tax assets and the carrying amount of deferred tax assets. The enterprise recognizes a previously unrecognized deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. The Company conversely reduces the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of the deferred tax asset to be utilised. Current tax and deferred tax are charged or credited directly to equity if the tax relates to items that are credited or charged, in the same or a different period, directly to equity, including an adjustment to the opening balance of reserves resulting from a change in accounting policy that is applied retrospectively.

xxv) Borrowing Costs
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the assets are ready for their intended use. Borrowing costs include interest charges and other costs incurred in connection with the borrowing of funds, including exchange differences arising from foreign currency borrowings used to finance these projects to the extent that they are regarded as an adjustment to interest costs.

xxvii) Foreign Currency Transactions
Foreign currency transactions are recorded in the reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction. Exchange rate differences arising on the settlement of monetary items at rates different from those at which they were initially recorded during the periods are recognized in the consolidated income statement in the period in which they arise. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. Items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Foreign exchange differences on trade receivables and payables are included in operating profit, while foreign exchange differences on borrowings are recorded as financial income or expense. Financial statements of foreign entities are translated at year-end exchange rates with respect to the balance sheet, and at the weighted average exchange rates for the year with respect to the income statement. All resulting translation differences are included in the translation reserve of equity. On disposal of a foreign entity, the deferred cumulative amount recognized in equity relating to that particular foreign operation shall be recognized in the income statement.

xxvi) Income Taxes
The income tax charge consists of current and deferred taxes. Deferred taxes are calculated using the balance sheet liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the enterprise expects, at the balance sheet date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and tax losses when it is probable that sufficient taxable profits will be available against which the deferred tax assets can be utilized, except: • where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

xxviii) Earnings Per Share
The calculation of basic earnings per share is based on the profit attributable to ordinary shareholders using the weighted average number of shares outstanding during the year after deduction of the average number of treasury shares held over the period.

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The calculation of diluted earnings per share is consistent with the calculation of basic earnings per share while giving effect to all dilutive potential ordinary shares that were outstanding during the period, that is: • the net profit for the period attributable to ordinary shares is increased by the aftertax amount of dividends and interest recognised in the period in respect of the dilutive potential ordinary shares and adjusted for any other changes in income or expense that would result from the conversion of the dilutive potential ordinary shares. • the weighted average number of ordinary shares outstanding is increased by the weighted average number of additional ordinary shares which would have been outstanding assuming the conversion of all dilutive potential ordinary shares.

3. Intangible assets
The Group’s intangible assets as of 31 December 2008 and 2007 were as follows: Goodwill
HUF million At 1 January 2007 Gross book value Accumulated amortization and impairment Net book value Year ended 31 December 2007 - additions - amortization for the year - impairment - transfers Closing net book value At 31 December, 2007 Gross book value Accumulated amortization and impairment Net book value Year ended 31 December 2008 - additions - amortization for the year - impairment - transfers Closing net book value At 31 December, 2008 Gross book value Accumulated amortization and impairment Net book value 92 92 6,969 (3,569) 3,400 7,061 (3,569) 3,492 92 180 (503) 8 3,400 180 (503) 8 3,492 92 92 6,783 (3,068) 3,715 6,875 (3,068) 3,807 92 200 (415) 21 3,715 200 (415) 21 3,807 92 92 6,586 (2,677) 3,909 6,678 (2,677) 4,001

Software
HUF million

Total
HUF million

xxix) Segmental Disclosure
The Group has four major divisions (Olefin, Polyethylene, Polypropylene and Other) that serve as the primary basis for the Company’s segment reporting purposes. These segments are vertically integrated, i.e. the output of one segment serves as raw material for the next one (a significant part of the end product of olefin production is used as raw material for polypropylene and polyethylene production). Revenues are presented be geographical segment.

xxx) Contingencies
Contingent liabilities are not recognized in the consolidated financial statements unless they are acquired in a business combination. They are disclosed in the Notes unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the consolidated financial statements but disclosed when an inflow of economic benefits is probable.

2.3 Significant accounting judgments and estimates
Critical judgments in applying the accounting policies
In the process of applying the accounting policies, which are described in note 2.2 above, management has made certain judgments that have a significant effect on the amounts recognized in the financial statements (apart from those involving estimates, which are dealt with below). These are detailed in the respective notes, however, the most significant judgments relate to: • Outcome of certain litigations • assessment of control (over operation) of TVK Erômû Kft. and Tisza WTP (Note 1) Sources of estimate uncertainty The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the amounts reported in the financial statements and the Notes thereto. Although these estimates are based on the management’s best knowledge of current events and actions, actual results may defer from those estimates. These are detailed in the respective notes, however, the most significant estimates relate to the following: • Scope of environmental provision and quantification and timing of environmental liabilities (Note 14, 24) • The availability of taxable income against which deferred tax assets can be recognized (Note 21) • Actuarial estimate applied in the calculation of retirement benefit obligations (Note 14) • Determination of useful lives of property, plant and equipment and intangibles • Impairment of tangible assets and intangibles (Notes 3, 4)

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Goodwill
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination. Before recognition of impairment losses, the carrying amount of goodwill had been allocated as follows:

4. Property, plant and equipment
The Group’s tangible assets as of 31 December 2008 and 2007 were as follows:

31-Dec-08 Net book value before impairment HUF million TVK Polska Spzoo Total goodwill 92 92 Impairment Net book value Net book value before impairment HUF million 92 92

31-Dec-07 Impairment HUF million Net book value HUF million 92 92

Land and buildings
HUF million At 1 January 2007 Gross book value 40,896 Accumulated depreciation and (9,001) impairment Net book value 31,895 Year ended 31 December 2007 - additions - capitalization 2,183 - additions by newly founded subsidiaries - depreciation (1,322) for the year - impairment (186) - disposals (28) - transfers and (1) other changes Closing net book 32,541 value At 31 December, 2007 Gross book value 42,852 Accumulated depreciation and (10,31 1) impairment 32,541 Net book value Year ended 31 December 2008 - additions - capitalization 1,57 - additions by newly founded subsidiaries - depreciation for (1,402) the year - impairment (162) (15) - disposals - transfers and other changes Closing net book 32,532 value At 31 December, 2008 Gross book value 44,346 Accumulated (1 1,814) depreciation and impairment Net book value 32,532

Technical equipment, vehicles
HUF million 164,305 (54,276) 1 10,029 3,844 (9,563) (161) (13) 104,136 167,796 (63,66) 104,136 1,739 (9,636) (18) (16) 96,205

Other equipment and vehicles
HUF million 18,029 (1 1,013) 7,016 724 (1,273) (16) 182 6,633 18,51 1 (1 1,878) 6,633 910 (1,423) (5) (2) 694 6,807

Capital projects
HUF million 1,896 1,896 7,051 (6,751) (12) (6) (21) 2,157 2,157 2,157 4,359 (4,219) (8) 2,289

Total
HUF million 225,126 (74,29) 150,836 7,051 (12,158) (375) (34) 147 145,467 231,316 (85,849) 145,467 4,359 (12,461) (185) (17) 670 137,833

HUF million HUF million 92 92

The Company recognized goodwill of HUF 92 million relating to TVK Polska Spzoo, which is subject to annual impairment test according to the requirements of IAS 36 – Impairment of Assets.

169,238 (73,033) 96,205

19,821 (13,014) 6,807

2,289 2,289

235,694 (97,861) 137,833

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Impairment
In 2008 impairment expense was recorded in amount of HUF 185 million, which mainly relates to the unused hall building and its tangible assets. These tangible assets were sold in 2009 and the basis of their impairment was the customer’s bid.

5. Investment in associated companies
The Group’s financial investments as of 31 December 2008 and 2007 were as follows:
Company name Date of Ownership Ownership Country Range of activity foundation 31-Dec-08 31-Dec-07 Net book value of investment 31 dec 2008 HUF million Net book value of investment 31 dec 2007 HUF million

Leased assets
Property, plant and equipment includes machinery under finance leases:

31-Dec-08
HUF million Gross value Accumulated depreciation Net book value 478 379 99

31-Dec-07
HUF million 478 309 169

Associates TMM Tûzoltó és Mûszaki Mentô Kft. VIBA-TVK Kft. Hungary 1995 Fire prevention, technical rescue, technical supervision Producing black polymer dye Dormant 30% 30% 114 114

Hungary 1993

40%

40%

64

82

Pledged assets
None of the assets of the Company were pledged as of 31 December 2008 and 2007. Assets of TVK Erômû Kft. (HUF 11,793 million) and assets of Tisza-WTP Kft. (HUF 1,681 million) are pledged as collateral for long-term investment loans.

Tiszai Hulladékégetô Hungary 1996 Kft*. Total associates Total

-

49.96%

178 178

8 204 204

* Tiszai Hulladékégetô Kft. was sold on October 7, 2008.

Financial information on associates
Main financial data of the Group associates at 31 December 2008: (These amounts represent 100% of the values of the companies reported by those companies in accordance with IFRS.) Total assets Liabilities Total operating revenues Profit and loss for the year

HUF million TMM Tûzoltó és Mûszaki Mentô Kft. VIBA-TVK Kft. 439 466

HUF million 48 305

HUF million 544 1,567

HUF million 6 (53)

Main financial data of the Group associates at 31 December 2007: ((These amounts represent 100% of the values of the companies reported by those companies in accordance with IFRS.) Total assets Liabilities Total operating revenues Profit and loss for the year

HUF million TMM Tûzoltó és Mûszaki Mentô Kft. VIBA-TVK Kft. Tiszai Hulladékégetô Kft. 458 913 14

HUF million 73 699 1

HUF million 517 2,037 -

HUF million 5 -

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6. Other non-current assets
The Group’s other non-current assets as of 31 December 2008 and 2007 were as follows: 31-Dec-08
Government bonds** Prepayments for capital projects Loan to Plastico S.A.* Other*** Total HUF million 175 14 189

8. Trade receivables, net
Receivables as of 31 December 2008 and 2007 were as follows: 31-Dec-08
HUF million Domestic debtors - of which: MOL Group members Associates Export debtors - of which: MOL Group members Less: provision for doubtful debts Total 17,123 2,914 92 19,982 100 37,105 (96) 37,009

31-Dec-07
HUF million 171 28 199

31-Dec-07
HUF million 25,206 5,698 253 29,719 1,284 54,925 (50) 54,875

*In 2002, TVK Plc. sold its investment in Plastico S.A. In 2006, based on a legal opinion, the Company reassessed the recoverability of its outstanding loan receivable from Plastico S.A. and decided to fully write it off. Net of impairment of HUF 575 million as of 31 December 2008 and 2007, respectively. (See Note 9.) **Long-term securities include type 2013/C government bonds maturing in December 2013. Government bonds bear a floating interest rate equivalent to the Treasury Bonds previous 6 month average interest rate. These bonds are accounted for as held to maturity instruments. *** It contains loans given which are interest free in the amount of HUF 13 million in 2008.

Movements in the provision for doubtful receivables were as follows: 31-Dec-08
HUF million At 1 January Additions Reversal Amounts written off Sale of receivables Acquisition / (sale) of subsidiaries 9,336 2,106 717 61 12,220 Currency differences At 31 December 50 47 (1) 96

7. Inventories
Inventories as of 31 December 2008 and 2007 were as follows: Lower of cost or net realisable value Lower of cost or net realisable value

31-Dec-07
HUF million 18 42 (7) (3) 50

At cost

At cost

31-Dec-08 HUF million Work in progress and finished goods Raw-material Other materials Purchased goods Total 5,532 1,127 903 165 7,727 5,132 1,127 648 165 7,072

31-Dec-07 HUF million 9,336 2,106 978 61 12,481

The Group believes that the level of provision as of 31 December 2008 is sufficient to cover potential future losses. As of 31 December 2008 and 2007, no inventory owned by TVK Plc. was pledged as collateral. The total amount of impairment was 655 HUF million and HUF 261 million as of 31 December 2008 and 2007, respectively ( as cumulated figures). Inventories are regularly reviewed for impairment.

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As at 31 December 2008 and 2007 the analysis of trade receivables that were past due but not impaired is as follows: 31-Dec-08
Neither past due nor impaired Past due but not impaired Within 90 days 91 - 180 days Over 180 days Total HUF million 34,633 2,376 2,424 (4) (44) 37,009

Analysis of loans receivable 31-Dec-08
Loan to Plastico S.A. Write off doubtful receivables Total HUF million 323 323 -

31-Dec-07
HUF million 323 323 -

31-Dec-07
HUF million 51,583 3,292 3,267 6 19 54,875

Movements in the provision for doubtful loans receivable were as follows: 31-Dec-08
At 1 January Additions Reversal Amounts written off Currency differences At 31 December HUF million 323 323

31-Dec-07
HUF million 323 323

The Group recorded a write-off on doubtful debts of HUF 18 million and HUF 7 million in 2008 and 2007, respectively. Income from bad debts, written off receivables of HUF 30 million and HUF 26 million in 2008 and 2007, respectively. To assess provision for doubtful debts, the Company estimated incurred losses that arise due to the liquidity problems of certain major debtors. The provision has been determined by reference to past default experience. -Export receivables are denominated primarily in EUR, USD and GBP and are recorded at the exchange rate as of 31 December 2008 and 2007. The resulting gain or loss is classified in a net amount either as other income or other expense, respectively (see notes 17 and 19) in the accompanying income statements.

10. Cash and cash equivalents
Cash and cash equivalents as of 31 December 2008 and 2007 were as follows: 31-Dec-08 31-Dec-07
HUF million 6,291 6,442 299 173 32 3 1 13,241

9. Other current assets
31-Dec-08
Loan to MOL Reclaimable VAT Prepayments Interest receivables Loans to employees and other receivables Advances to suppliers Accrued income Loan to Plastico S.A.* Other Total HUF million 10,627 4,535 1 12 39 36 28 21 35 15,433

31-Dec-07
HUF million 3,861 56 46 42 63 12 104 4,184

Cash Cash Cash Cash Cash Cash Cash Total

at bank – EUR at bank – HUF at bank – PLN at bank – USD at bank – other currencies on hand – other currencies on hand – HUF

HUF million 3,980 2,182 201 122 58 1 1 6,545

*The long-term part of the loan receivable from Plastico S.A. reduced by the proportionate impairment loss has been recorded as other non-current asset (See Note 6). In 2006, based on a legal opinion, the Company reassessed the recoverability of its outstanding loan receivable from Plastico S.A. and decided to fully write it off. Net of impairment of HUF 323 million as of 31 December 2008 and 2007, respectively.

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1 Share capital 1.
Share capital as of 31 December 2008 was as follows: Shareholder
Domestic entities International entities Domestic private investors International private investors Unregistered investors Total

Share capital as of 31 December 2007 was as follows: Number of shares
21,154,466 1,976,426 65,71 1 941 1,093,299 24,290,843

Number of shares
21,530,125 2,416,138 339,587 2,391 2,602 24,290,843

face value (HUF)
1,01 1,01 1,01 1,01 1,01

Total Shareholding (HUF million) %
21,746 2,440 343 2 3 24,534 88.63 9.95 1.40 0.01 0.01 100.00

Shareholder
Domestic entities International entities Domestic private investors International private investors Unregistered investors Total

face value

Total

Shareholding
% 87.09 8.14 0.27 0.00 4.50 100.00

(HUF) (HUF million) 1,01 21,366 1,01 1,996 1,01 67 1,01 1 1,01 1,104 24,534

Shareholders with a shareholding above 5% registered in the Share Register as of 31 December 2008: Shareholder
MOL Hungarian Oil and Gas Company Slovnaft a s

Shareholders with a shareholding above 5% registered in the Share Register as of 31 December 2007: Shareholder
MOL Hungarian Oil and Gas Company Slovnaft a s

Shareholding %
86.79 8.07

Shareholding %
86.79 8.07

MOL is the parent company of Slovnaft a s., it is the ultimate parent company of TVK. MOL is the parent company of Slovnaft a s., it is the ultimate parent company of TVK. MOL’s direct and indirect influence over the Company is 94.86%.

Share capital by type of shares as of 31 December 2007: Type of share
Ordinary shares representing equal and equivalent rights of members (face value of one share is HUF 1,010) Total

Number of shares
24,290,843 24,290,843

Share capital (THUF)
24,533,751 24,533,751

Share capital by type of shares as of 31 December 2008: Type of share
Ordinary shares representing equal and equivalent rights of members (face value of one share is HUF 1,010) Total

Number of shares
24,290,843 24,290,843

Share capital (THUF)
24,533,751 24,533,751

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12. Reserves
The total amount of reserves legally available for distribution based on the statutory company only financial statements of TVK Plc. is HUF 122,968 million and HUF 131,256 million as of 31 December 2008 and 2007, respectively.

December 2002, the Kft signed a long-term project and development loan agreement for HUF 1,883 million (EUR 8 million) with OTP Bank Rt. By the end of the availability period (29 December 2003), the Kft had drawn down a total of EUR 7,340,000 from the facility. The project loan is secured by the Company’s assets. At the end of 2008, Tisza WTP Kft reclassified a instalment of HUF 126 million (EUR 477 thousand) due in 12 months to current liabilities. **** According to service agreement the shareholding of the majority owners of the capital of TVK Erômû Kft and Tisza WTP Kft. is to be reimbursed during the lifetime of the project, and is recorded as other long-term debt in accordance with IAS 32, as it qualifies as a financial liability.

13. Long-term debt, net of current portion
Long-term debt, net of current portion as of 31 December 2008 and 2007 were as follows: Weighted average interest rate
2008 % Unsecured loan in EUR from MOL Plc. (majority stakeholder)* Secured bank loan of TVK Erômû Kft. in EUR** Secured bank loan of Tisza-WTP Kft. in EUR*** Financial lease payable Other**** Total long term debt Current portion of long-term debt Total long-term debt, net of current portion 5.25% 5.71% 5.69%

Weighted average interest rate
2007 % 4.80% 5.06% 5.01% 31-Dec-08 31-Dec-07 HUF million HUF million 15,887 8,385 1,431 3,592 29,295 16,709 12,586 7,600 8,646 1,484 50 3,499 21,279 790 20,489

Secured loans were obtained for specific capital expenditure projects and are secured by the assets financed from the loan. 31-Dec-08
Maturity over five years Maturity two to five years Total HUF million 8,754 3,832 12,586

31-Dec-07
HUF million 9,439 1 1,050 20,489

Present values of financial lease liabilities as of 31 December 2008 and 2007 respectively are as follows: 31-Dec-08
Maturity not later than 1 year Maturity two to five years Total HUF million -

31-Dec-07
HUF million 50 50

*On 22 December 2004, the Company utilized HUF 54,109 million (EUR 220 million) from a loan facility of EUR 280 million granted by MOL Hungarian Oil and Gas Company (MOL). Total cost of the short term loan from MOL is lower by 11 base point than the weighted total cost of syndicated foreign exchange loans. On 29 July 2005 the Company prepaid HUF 2,450 million (EUR 10 million) from the EUR 220 million parent company loans. The Company prepaid HUF 15,339 million (EUR 60 million) in 2006, and EUR 70 million was irrevocably withdrawn from the parent company’s loan. The Company prepaid HUF 30,013 million (EUR 120 million) in 2007, and value of loan from MOL is HUF 7,600 million (EUR 30 million) at the end of 2007. In 2008, the Company utilized HUF 12,078 million (EUR 50 million) from the loan facility and it prepaid HUF 5,332 million (EUR 20 million), then the credit portfolio amounted to HUF 15,887 million (EUR 60 million) on December 31, 2008 after year end revaluation. At the end of 2008, the Company transferred the annuity part of the credit to the short term debt. **On 26 July 2002, TVK Erômû Kft signed a project financing agreement with OTP Bank Rt, and the facility, that amounted to HUF 9,810 million (EUR 40 million), had been fully drawn by 31 December 2004. The loan is secured by a pledge on TVK Erômû Kft’s assets. At the end of 2008 the short-term part of the loan amounts to HUF 703 million (EUR 2,656 thousand) reported as short-term loan payable. *** In order to implement a water treatment plant to be operated by Tisza WTP Kft, on 17

Future minimum lease payments under finance leases together with the present value of the net minimum lease payments as of 31 December 2008 and 2007 respectively are as follows: 31-Dec-08 Minimum present lease value of payments payments
Within one year After one year but no more than five years Total minimum lease payments Less amount representing finance charges Present value of minimum lease payments HUF million HUF million -

31-Dec-07 Minimum present lease value of payments payments
HUF million 53 53 (3) 50 HUF million 50 50 50

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14. Provision for liabilities and charges
Provisions for expected liabilities and charges as of 31 December 2008 and 2007 were as follows:
Environmental huf million 3,675 193 (859) 3,009 170 154 (770) 2,563 446 2,563 293 2,27 Severance huf Million 47 12 (32) 27 20 47 27 47 Long term employee retirement benefits huf million 221 49 1 1 (14) 267 39 9 (22) 293 20 247 21 272 Old Team benefit huf million 201 28 15 (20) 224 -24 10 (31) 179 32 192 44 135 Early Retirement benefits huf million 33 74 (27) 80 33 (78) 35 77 3 35 Total huf million 4,177 163 219 (952) 3,607 238 173 (901) 3,1 17 575 3,032 393 2,724

Provision for Old Team benefits On 31 December 2008, based on actuarial calculations, the Company made a HUF 179 million provision for the future Old Team benefits of current employees. Every five years, TVK pays a fix set amount to all employees who had worked at least 10 years for the Company.

The following table summarise the main financial and actuarial variables and assumptions based on which the amount of retirement benefits were determined: 2008
Discount rate in % Average wage increase in % Mortality index (male) Mortality index (female) 7.0 5.0 0.06-2.82 0.02-1.15

Balance as of 1 January 2007 Provision made during the year and revision of previous estimate Unwinding of the discount Provision used during the year Balance as of 31 December 2007 Provision made during the year and revision of previous estimate Unwinding of the discount Provision used during the year Balance as of 31 December 2008 Current portion 31 December 2007 Non-current portion 31 December 2007 Current portion 31 December 2008 Non-current portion 31 December 2008

2007
7.6 5.6 0.06-2.82 0.02-1.15

15. Trade and other payables
The Group’s payables and other current liabilities as of December 2008 and 2007 were as follows: 31-Dec-08
HUF million Domestic trade creditors - of which: MOL Group members Associates Import creditors - of which: MOL Group members Suppliers related to capital projects - of which: MOL Group members Discount payable to customers Accrued expenses Dividend payable to the majority owner of TVK Erômû Kft. Amounts due to employees and related contributions Dividend payable to owner of Tisza-WTP Kft. Personal income tax Dividends payable* Other Total 14,277 10,699 50 1,100 80 1,619 501 3,863 2,641 357 303 64 33 7 128 24,392

31-Dec-07
HUF million 35,020 30,165 199 2,151 172 2,830 694 4,438 2,017 574 369 80 103 5 154 47,741

Environmental provision The amount of provision contains the discounted value of amounts estimated for 12 years. The environmental provision is expected to be further increased subject to the completion of an ongoing environmental survey. (See Note 25) The amount of the provision has been determined on the basis of existing technology at current prices by calculating risk-weighted cash flows discounted using estimated risk-free real interest rates. Provision for severance The provision for severance pays equals the amount of severance pays due but not yet paid as at 31 December 2008. Provision for long term employee retirement benefits As of 31 December 2008 the Company has recognized a provision of HUF 293 million to cover its estimated obligation regarding future retirement benefits payable to current employees expected to retire from group entities. TVK operate benefit schemes that provide lump sum benefit to all employees at the time of their retirement. TVK employees are entitled for maximum of 2 months of final salary respectively, depending on the length of service period. None of these plans have separately administered funds. The value of provision has been determined using the projected unit credit method, based on financial and actuarial variables and assumptions that reflect relevant official statistical data and are in line with those incorporated in the business plan of the TVK. Principal actuarial assumptions states an approximately 2% difference between the discount rate and the future salary increase.

*Dividend payable in 2008 are related to 2005’s and 2007’s dividend which hasn’t been paid yet

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16. Net sales by geographical area
Net sales by geographical area as of 31 December 2008 and 2007 were as follows: 2008
Hungary (reduced by quantity discount) Germany italy Poland Slovakia Romania Austria United Kingdom France Other European Countries Non-European Countries - Quantity discount of foreign sales Total HUF million 166,297 31,368 25,623 23,396 8,892 7,572 6,349 5,829 4,929 40,501 5,073 -2,423 323,406

19. Other operating expenses
Other operating expenses as of 31 December 2008 and 2007 were as follows: 2008
Insurance premium Foreign exchange loss of receivables and payables, net Rental costs, leasing Property protection and fire prevention Consulting, advisory and auditing costs Public sanitation PR and promotion Administrative charges and duties Bank charges Local taxes Elimination of waste Donations, contributions to set off costs and expenses Damages, default interest, penalties, fines Receivables impairment, net Debt forgiven Other* Total HUF million 794 632 510 431 299 271 256 199 190 174 129 77 45 34 2 198 4,241

2007
HUF million 161,909 32,782 30,144 24,362 10,337 8,207 6,508 8,414 6,967 43,016 7,700 (2,7) 337,646

2007
HUF million 989 472 408 289 245 299 189 165 173 106 92 98 16 19 259 3,819

17. Other operating income
Other operating income as of 31 December 2008 and 2007 were as follows: 2008
Default interest received, indemnity, penalties Gain on the disposal of tangible assets Retrospective discount Donations received Foreign exchange gain on receivables and payables, net Other Total HUF million 1 17 47 27 1 24 216

* Include environmental expenses and environmental provision (See Notes 14 & 24.).

2007
HUF million 585 4 39 169 1 1 808

20. Financial (income) / expense
The financial (income) / expense as of 31 December 2008 and 2007 was as follows 2008
Interest received Dividend received Impairment, reverse impairment and revaluation of securities Other Total financial income Interest expense* Foreign exchange losses of loans Discounts given for early payment of receivables Interest on provision Other Total financial expenses Total financial (income) / expense, net HUF million 377 16 4 20 417 1,971 1,566 380 173 10 4,1 3,683

2007
HUF million 884 24 908 2,274 91 596 219 15 3,195 2,287

18. Personnel expenses
Personnel expenses as of 31 December 2008 and 2007 were as follows: 2008
Wages and salaries Social security Other personnel expenses Total HUF million 6,292 1,982 1,054 9,328

2007
HUF million 6,661 2,221 1,252 10,134

* Interest expense of the Group for 2008 includes HUF 421 million (2007: HUF 654 million), being the share from the net income of TVK Erômû Kft. of its majority shareholder (ÉMÁSZ Nyrt.), and Tisza WTP Kft. of shareholder (Sinergy Kft.).

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21. Income taxes
Corporate income tax: Due to the effect of tax base corrections, the positive profit before taxation turned into negative in 2008, so no tax income liability was arisen. In case of solidarity tax, the situation was the same. Deferred tax:

A numerical reconciliation between tax expense and the product of accounting profit multiplied by the applicable tax rates is as the follows: 2008
HUF million Profit before tax per consolidated income statement Tax at the applicable tax rate (16%) Tax holiday available Revaluation of deferred tax assets and liabilities Impact of changes in Hungarian tax legislation Solidarity surplus tax Adjustment to the period of realization Losses of subsidiaries not recognized as an asset Differences not expected to reverse Effect of different tax rates Local tax Other Total income tax expense / (benefit) 854 137 28 (175) 109 837 64 1000

2007
HUF million 30,695 4,91 1 1,191 33 235 578 63 7,01 1

Total applicable income taxes reported in the consolidated financial statements for the years ended 31 December 2008 and 2007 include the following components: 2008
Deferred income taxes Current corporate income taxes Local trade tax Innovation fee Total income tax expense / (benefit) HUF million (271) 263 997 1 1 1,000

2007
HUF million 1,656 4,667 688 7,01 1

The deferred income/expense consisted of the following items as of 31 December 2008 and 2007: Balance sheet 2008
Depreciation Environmental provision Statutory tax losses carried forward Impairment losses and other provisions Differences due to capitalisation according to IFRS Capitalized periodic maintenance cost Other Total deferred tax

2007

Effect on profit and loss 2008 2007

HUF million HUF million HUF million HUF million 7,933 6,690 1,243 1,671 (410) (481) 71 107 (2,443) (722) 41 24 0 4,423 (968) (796) 48 121 80 4,694 (1,475) 74 (7) (97) (80) (271) (85) (66) (7) (44) 80 1,656

22. Earnings per share (EPS)
The Group’s earnings per share based on consolidated information for 31 December 2008 and 2007 are as follows: 2008
Net income, IFRS (million HUF) Weighted average of shares outstanding in the period (pieces) EPS (HUF 1,010 face value) (146) 24,290,843 HUF (6)

2007
23,684 24,290,843 HUF 975

The Group recognized of HUF 2,443 million deferred tax assets from tax losses of HUF 15,269 million that are available indefinitely for offset against future taxable profits of the companies in which the losses arose. The amount of such tax losses was HUF 6,053 million as of 31 December 2007. Deferred tax assets have not been recognized in respect of losses elsewhere in the Group as they may not be used to offset taxable profits and they have arisen in subsidiaries that have been loss-making for some time. In 2008 the Group has recognized deferred tax effects in respect of losses at Group companies. The temporary difference relating to foreign subsidiaries have not been recognized because of the xxvi.) section of the accounting policy.

The average number of ordinary shares was determined based on the weighted mathematical average method. Employee shares were also considered in the calculation as employees are also entitled to dividends. Diluted EPS is the same as undiluted EPS as the Company has no diluting instruments or purchase options.

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23. Financial instruments
Financial instruments in the balance sheet include associated investments, other non-current assets, trade receivables, other current assets, cash and cash equivalents, short-term and longterm debt, other non-current liabilities, trade and other payables. The financial assets and liabilities are carried at amortized cost.

Capital management The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years end 31 December 2008 and 31 December 2007. The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. Three different strategies are followed based on the level of Net Gearing. In the three various scenarios, Risk Management focuses on the followings: • High Gearing situation is declared when the Net Gearing ratio will exceed 40% for any of the next consecutive four business quarters according to actual 12 month rolling forecast. In a high gearing situation, the prime objective of risk management is to reduce the probability of breaching debt covenants, where a breach would seriously impair the company’s ability to fund its operations. • Moderate Gearing situation is triggered when the Net Gearing ratio is between 20% and 40%. In Moderate Gearing situation, risk management aims to enhance the commitment in maintenance of investment grade credit rating. Having public investment grade credit rating ensures significant financial flexibility as capital market sources are also available at reasonable cost level. • Low Gearing status occurs if the Net Gearing ration is below 20%. In this status, the focus of risk management shall be directed more toward guarding of shareholder value by maintaining discipline in CAPEX spending, ensuring risk-aware project selection.

The following tables sets out the carrying amount, by maturity of the Group’s financial instruments that bear interest as of 31 December 2008: Within 1 year huf million Floating rate Cash and cash equivalents* Government bonds** (2013/C) Obligations under financial leases Borrowing from MOL Plc* Capital project loan 6,545 16,639 1,330 1,378 1,368 1,374 175 1,377 5,839

1-2 years huf million

2-3 years huf million

3-4 years huf million

4-5 years Over 5 years huf million huf million

* Carrying amount of cash and cash equivalents and borrowing from MOL Plc equals the contracted amounts. ** Contracted amount of the government bonds (2013/C) is HUF 231 million

The following tables sets out the carrying amount, by maturity of the Group’s financial instruments that bear interest as of 31 December 2007: Within 1 year huf million Floating rate Cash and cash equivalents* Government bonds** (2013/C) Obligations under financial leases Borrowing from MOL Plc* Capital project loan 13,241 50 1,314

31-Dec-08
Long-term debt, net of current portion Current portion of long-term debt Short-term debt Less: Cash and cash equivalents Net debt Equity attributable to equity holders of the parent Minority interest Total capital Capital and net debt Gearing ratio (%) HUF million 12,586 16,709 6,545 22,750 148,541 148,541 171,291 13.28

31-Dec-07
HUF million 20,489 790 13,241 8,038 157,642 157,642 165,680 4.85

1-2 years huf million 8,332 1,322

2-3 years huf million 1,324

3-4 years huf million 1,328

4-5 years huf million 1,331

Over 5 years huf million 171 6,950

96

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97

Financial risk management
Foreign exchange and commodity price risks The prices of the most important raw materials and those of olefin and polymer products produced by TVK Plc fluctuate according to international market rates. Sales are significantly affected by the EUR/HUF exchange rate, while purchases are primarily USD based. In 2008, TVK Plc. did not have any forward or option contract nor had other derivatives to hedge FX risks. The loan granted to the Company is denominated in EUR in order to reduce exchange rate risks. Credit risk Credit risk arises from the possibility that customers may not be able to settle their liabilities to the Company within the normal terms of trade. Credit risk arises from the risk of late payment by another party. In order to mitigate these risks, the Company carefully assesses each debtor and the debtor’s ability to repay its debt on a regular basis. The company covers a significant part of trade receivables by credit insurance. Management is of the opinion that the maximum credit risks approximate the carrying amounts of the respective assets. Interest rate risk management As an chemical company, TVK has limited interest rate exposure. As of 31 December 2008 and 2007, 100% of the Company’s debt was at variable rates respectively. As of 31 December 2008 and 2007, there was no open interest rate swap transaction. Liquidity risk The Company is to maintain sufficient cash and cash equivalents or have available funding through an adequate amount of committed credit facilities to cover the liquidity risk in accordance with its financing strategy. The amount of undrawn facilities as of 31 December 2008 consists the followings:

31-Dec-08
Due not later than 1 year Over 1 year Total
Capital and contractual commitments

31-Dec-07
HUF million 9 9 18

HUF million 6 6

The total value of capital commitments as of 31 December 2008 is HUF 1,772 million, which is fully attributable to TVK Plc. Gas Purchase Obligation, Take or Pay Contract The TVK Erômû Kft. has concluded long-term gas purchase contract with EON in order for continuous operation of equipments in the power plant. As of 31 December 2008, 963 million cubic meters of natural gas (from which 655 mcm under take-or-pay commitment calculated with an average price) will be purchased during the period ending 2017 based on this contract. Environmental protection In 1996, before the privatisation of TVK Plc, an environmental audit of the Company had been carried out. Based on the findings of the audit, the restoration of the contaminated soil in the area of the Olefin plant was convened. The restoration on the area of the Paint Factory continued. The restoration of contaminated soil and water in other areas started in 1999, for which the Company contracted external consultants. Based on the findings of this environmental audit, the Company recorded a provision for the estimated total environmental expenses to clean up existing pollution in 1996. As a full-scale assessment of the Company’s potential environmental obligation is still outstanding, the amount of provision has been updated every year based on the results of the original study, the actual clean up work performed and on management estimation. The management of the company regularly assessed the measures and/or investments necessary in order to meet new Hungarian environmental requirements issued based on applicable EU directives. In connection with this, an assessment of underground pollution of areas under decontamination began in the second half of 2002. Further to the findings of an environmental review carried out by an external consultant, HUF 2,101 million additional environmental provisions were created for expected extra restoration costs in 2002. The amount of provisions covers only those expenses that could be assessed and properly quantified at the time of reporting. In 2003 the Company continued the survey of the underground pollution in order to get sufficient information about extension of environmental pollution and determine the most applicable technology for environmental restoration. The surveys found extensive underground pollution caused in the past. The Company submitted the summary report on the environmental survey completed at the end of 2003 to the North-Hungary Area Environment Authority by the required deadline in 2004. The environmental authority requested further additions to the closing document. All the requested additions were prepared by TVK Plc. and have been submitted to the authority. Based on the documentation submitted, the North-Hungary Authority for the Environment, Nature and Water issued a note to TVK Plc. prepare and submit a technical action plan by 30 September 2005.

2008
HUF million Short - term facilities available Total loan facilities available 4,324 4,324

2007
HUF million 1 1,267 1 1,267

24. Commitments and contingency liabilities
APEH revision In 2008, the Hungarian Tax and Financial Control Administration (APEH) conducted a full scope tax audit at the Company with respect to the year 2004 to 2005. The result of the tax audit was tax difference of HUF 435.4 million, which generated HUF 153.4 million tax penalty and HUF 66.7 million default surcharge. The total amount of penalties recognized in January, 2009. The Company made a statement of claim to Metropolitan Court for judicial review of APEH’s adjudgement. In accordance with the statement of claim, the Company didn’t recognize provision for the results of tax audit. Operating leases The operating lease commitments of TVK UK Ltd. are as follows:

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99

The submitted Technical Interference Plan has been prepared in accordance with relevant legislation in force and contains, in a scheduled manner, all the strategic measures and actions to be taken in the short and middle-term to achieve standard management of environmental responsibilities and to ensure compliance with environmental regulations with respect to the entire area of the TVKTIFO industrial site. The Company manages liabilities and commitments related to past operations as part of an integrated project in co-operation with MOL. Plc The joint liability was agreed to by both TVK Plc and MOL Plc in their Co-operation Agreement signed in July 2006. In its decision dated in December 2006 in relation to the complex Technical Intervention Plan, the Authority issued a decontamination order to both TVK and MOL with respect to the entire area of the TVK-TIFO industrial site. The decision approved the companies’ short and middleterm action plan that aims manage decontamination commitments on a risk and exposure basis while focusing on the continuous optimisation of environmental expenses and on decontamination solutions. As a major milestone, the plan aims to draw a complete pollution risk map by the beginning of 2009. The map will then be used to re-define middle-term environmental goals and to prioritise implementation. Within the TVK Plc’s site, work is carried out to avoid further pollution on the southern part of the plant and the Company is making significant efforts to gauge the extent of the pollution as well as to identify and map the possible movement of pollutants. In 2008 and in 2007 HUF 179 million and HUF 261 million was spent on this action. Resulted from the complexity and the measure of the polluted areas, beside this project there was also initiated the common risk based concept strategy approach of recognizing environmental liability at TVK-TIFO plant participating by contracted external consultants. In line with strategic environmental planning, the highest priorities at the TVK-TIFO industrial site are to protect human ecological receptors and to minimise environmental exposures (i.e. to identify and prevent the both horizontal and vertical spread of pollution). In order to gauge the deep pollutant towards the south-east of the Company’s premises, the boundaries of the polluted area (both vertically and horizontally) was identified with a so called “pollutant dynamism monitoring system”. Sampling and analyses already in progress need to be finalised in order to understand the pollutant’s movement and dynamics. Pollution is unchanged or is receding at the Emergency storage facility area of the Olefin container park. The results of risk assessment reviews first started in 2006 have already limited the number of risks. Health hazards reviews of farmland in 2006 and 2007 found that crops produced in farmland at the eastern boundary of the TVK-TIFO site as reviewed in phase 1 and phase 2, did not represent over-the-limit health hazard for breeding stock or for humans. We made a quantitative risk assessment in 2008 whose instantaneous findings showed that no agricultural, human exposure and ecological risks were expected to turn up that could be accounted for a contaminated subsoil under the industrial complex. Given that the information creating the input data for risk analyses need a continuous updating, , we added biological monitoring to our chemical analytical testing and monitoring programme in 2009 in order to explore any quantity of soil gas, which has a significant impact on human health and a long term impact on living organisms. In 2008, we drew up the water and geological structure of the site more precisely and mapped up the main water stream conditions including the impacts of the Tisza River on the area concerned. The examinations showed that the pollution going deep

in the external areas could be accounted for the operations of MOL Plc., too; therefore the two companies would jointly execute the actions associated with the elimination of the deep pollution. Another major task for us in 2009 is to continue mapping up the water streams and integrating them into the hydrodynamic transport model. In order to select the potential technical interventions, the members of the consortium, TVK Plc. and MOL Plc., involving outsider specialists, set up a research project, which successfully applied for the tender „ For a Liveable Environment” invited by the National Technological Research Agency. The objective of the research programme is to prevent the transport of contaminants in the 16-32 m deep water-bearing zone and to study the methods of the reduction of their concentration. The Company continuously analyses the progress of the clean-up process and has made significant financial and intellectual efforts in order to comply with relevant legal requirements by eliminating environmental problems inherited from the past. These potentially substantial future financial expenses will be reliably quantifiable only once the results of further surveys are known as currently available information is not adequate to identify either the extent of the pollution or the suitable restoration technology. The Company recognized – consideration of above-mentioned - an environmental provision based on the currently available quantifiable future expenses HUF 2,563 million as of 31 December 2008 (2007: HUF 3,009 million). Beyond the provision recognized in the Balance Sheet, there are further contingent environmental liabilities whose amount may exceed HUF 4 billion. However, the probability of having these tasks completed is less than 50% due to the fact that there is no legal obligation to carry them out and that their exact technical content is uncertain.

25. Segmental information
The Group’s sales per operational segment for the years 2008 and 2007 were as follows: Segment 2008 Foreign sales huf million 6,243 108,689 41,133 1,044 157,109

Domestic sales huf million

Total sales huf million 108,923 129,626 76,399 8,458 323,406

Domestic sales huf million 94,687 24,758 36,497 5,967 161,909

2007 Foreign sales huf million 9,400 123,800 41,080 1,457 175,737

Total sales huf million 104,087 148,558 77,577 7,424 337,646

Olefin Polyethylene Polypropylene Other Total

102,680 20,937 35,266 7,414 166,297

100 tvK annual report 2008

noteS to the conSolidated financial StatementS 101

The gross book value of tangible fixed assets and accumulated depreciation per operational segment as of 31 December 2008 and 2007 were as follows: 31-Dec-08
Accumulated depreciation Gross book value*

26. Related party transactions
Transactions with associated companies in the normal course of business MOL Group has been TVK Plc’s main raw material supplier and buyer of TVK products ever since the Company was established. In 2001, the Company signed a long-term contract with MOLTRADE-Mineralimpex Zrt. on supplying raw materials for the period between 2004 and 2013.

31-Dec-07
Accumulated depreciation Gross book value*

Net book value

Net book value

Segment

2008
HUF million Sales - of which: to MOL Group companies of which Moltrade-Mineralimpex Zrt. Slovnaft Pethrochemicals s.r.o. MOL Plc. Slovnaft a.s. To other related parties of which Purchases - of which: from MOL Group companies 242,574 226,085 6,251 5,000 1,029 1 633 386 VIBA-TVK Kft. (associate) 60,209 52,385 5,954 1,218 540 613 61 1

2007
HUF million 58,400 49,404 7,641 945 273 937 935 233,389 221,544 2,520 5,305 1,576 907 674

Olefin Polyethylene Polypropylene Other Total

huf million 1 14,905 35,161 25,815 59,813 235,694

huf million 41,187 17,388 16,393 22,893 97,861

huf million 73,718 17,773 9,422 36,92 137,833

huf million 1 12,686 34,510 25,651 58,469 231,316

huf million 34,933 15,513 15,027 20,376 85,849

huf million 77,753 18,997 10,624 38,093 145,467

*Also contains construction in progress

Assets capitalised on a Group level in 2008 and 2007 were as follows: 2008
Segment Olefin Polyethylene Polypropylene Other Total Capitalised value HUF million 1,359 277 508 2,326 4,47 Of which: intangibles HUF million 251 251

of which

Moltrade-Mineralimpex Zrt. MOL Energiakereskedô Kft.* Petroszolg Kft. Slovnaft Pethrochemicals s.r.o. Slovnaft a.s.

2007
Capitalised value HUF million 2,44 1,235 707 2,677 7,059 Of which: intangibles HUF million 101 14 193 308

from other related parties of which VIBA-TVK Kft. (associate)
* MOL Energiakereskedô Kft. was founded 27 april 2007.

102 tvK annual report 2008

noteS to the conSolidated financial StatementS 103

27. Share-based payment plans
General Incentive Schemes for management until 2006 The incentive scheme involves company and organizational level financial and operational targets, evaluation of the contribution to the strategic goals of the company and determined individual tasks in the System of Performance Management (TMR), and competencies. From the incentive scheme based on evaluation of indicators and qualification of individual tasks and competencies, 60% will be paid after the evaluation and 40% will be paid after a two years waiting period. Expenses incurred by this scheme were HUF 245 million, and HUF 266 million in 2008 and 2007, respectively

Details of the share option rights granted during the year are as follows:
Number of shares in conversion options Number of shares in conversion options Number of shares in conversion options

Weighted average exercise price

Weighted average exercise price

The liabilities related to incentive scheme as of 31 December 2008 and 2007 were as follows: 31-Dec-08
Short term incentive (60%) Long term incentive (40%) 2004 Long term incentive (40%) 2005 Total HUF million 247 247

Granted during the year Outstanding at the end of the year

2008 share 15,000 15,000

2008 EUR/share 104.82 104.82

2007 share 13,427 13,427

2007 HUF/share 21,146 21,146

2006 share 12,417 12,417

2006 HUF/share 20,170 20,170

31-Dec-07
HUF million 219 219

As required by IFRS 2, this share-based compensation is accounted for as cash-settled payments, expensing the fair value of the benefit as determined at vesting date during the vesting period. Expense incurred by this scheme was HUF (114) million, and HUF 100 million in 2008 and 2007, respectively, recorded as personnel-type expenses with a corresponding increase in Trade and other payables.

Fair value as of the balance sheet date was calculated using the binomial option pricing model. The inputs to the model were as follows::
2008 Weighted average exercise price * Weighted average share price * Expected volatility based on historical data Expected dividend yield Expected life (years) Risk free interest rate Weighted average fair value of the options 104.82 37.40 40.59 % 4.81% 4.0 2.23% 4-Jan 2007 21,146 9,897 42.55% 4.81% 3.0 9.70% 991 2006 20,170 9,897 46.46% 4.81% 2.0 9.36% 765

Share-option incentive from 2006 The incentive system based on stock options and launched in 2006 ensures the interest of the management of the MOL Group in the long-term increase of MOL stock price. The incentive stock option is a material incentive disbursed in cash, calculated based on call options concerning MOL shares, with annual recurrence, which • operates covering periods of 5 years (3 year vesting plus 2 year exercising period) starting annually, • its rate is defined by the quantity of units specified by MOL job category • the value of the units is set annually (in 2007 and 2008, 1 unit equals to 100 MOL shares). It is not possible to redeem the share option until the end of the third year of the period (waiting period); the redemption period lasts from 1 January of the 4th year until 31 December of the 5th year. The incentive is paid in the redemption period according to the declaration of redemption. The paid amount of the incentive is determined as the product of the defined number and price increase (difference between the redemption price and the initial price) of shares.

* The units of measurement of values are EUR/share in 2008 and HUF/share in 2007 and 2006.

Key management compensation 2008
HUF million Salaries and other short-term employee benefits Termination benefits Post-employment benefits Other long-term benefits Share-based payment Honoraria Total 225 103 328

2007
HUF million 233 25 89 347

Loans to the members of the Board of Directors and Supervisory Board No loans have been granted to Directors or members of the Supervisory Board.

104 tvK annual report 2008

noteS to the conSolidated financial StatementS 105

Weighted average exercise price

28. Reconciliation between HAS unconsolidated financial statements and IFRS financial statements
The Hungarian Law on Accounting came into force on 1 January 1992 and has been subject to modifications since that date. A new act, Act C of 2000 came into force on 1 January 2001, which brought Hungarian accounting closer to IFRS. The accounting principles imposed by the law are based on the EU’s 4th, 7th and 8th Directives. However, they still differ in certain respects from IFRS. The following table shows the reconciliation of the equity under HAS (company only) and IFRS financial statements.

Share capital huf million
31 December 2007 – haS Effect of IFRS consolidation Shareholding of external shareholders IFRS according to IFRS adjustments - Deferred tax - Capitalised technical equipment - Depreciation of technical equipment - Capitalised periodic maintenance - Amortisation of periodic maintenance costs capitalised - Revaluation difference on investments - Elimination of amortization of goodwill - Management incentives - Transfer of negative goodwill to retained earnings - Other 31 December 2007 – IFRS Group 24,534 1 2 2 3 3 4 5 6 24,534

Reserves huf million 1 10,286 710 (4) (2,789) 7,668 (7,393) 1,073 (243) 256 79 (40) 2 (181) 109,424

net income huf million
25,594 43 (1,528) (34) 253 (477) 9 13 (189) -2 2 23,684

Minority Shareholders’ interests equity huf huf million million
160,414 753 (4) (4,317) 7,668 (7,427) 1,326 (720) 265 92 (229) (179) 157,642

Share capital huf million 31 December 2008 – haS Effect of IFRS consolidation Translation reserve IFRS according to IFRS adjustments: - Deferred tax - Capitalised technical equipment - Depreciation of technical equipment - Capitalised periodic maintenance - Amortisation of periodic maintenance costs capitalised - Revaluation difference on investments - Elimination of amortization of goodwill - Management incentives - Other 31 December 2008 – IFRS Group 24,534 1 2 2 3 3 4 5 6 24,534

Minority Reserves Net income interests Shareholders’ equity huf million 126,917 723 26 (4,317) 7,668 (7,427) 1,326 (720) 265 92 (229) (179) 124,145 huf million 675 -473 330 -35 (487) (18) (44) (94) (146) huf million 8 8 huf million 152,126 250 34 (3,987) 7,668 (7,462) 1,326 (1,207) 247 92 (273) (273) 148,541

1. Deferred tax IFRS requires the recognition of a deferred tax asset or liability for all taxable temporary differences, which will result in taxable amounts in determining taxable profit of future periods when the carrying amount of the asset or liability is recovered or settled. HAS does not recognise the concept of deferred taxation. 2. Capitalisation of borrowing costs IFRS allows capitalisation of borrowing costs directly attributable to the acquisition or construction of an asset. Borrowing costs may belong to either dedicated or general loan facilities and may include exchange differences to the extent that they are an adjustment to interest. HAS requires the capitalization of interests and foreign exchange differences, regardless of the extent of the latter, incurred only on dedicated borrowings. 3. Periodic maintenance cost In accordance with IAS 16, the cost of regular major inspections, relating to assets, group of assets, technology, plant or unit, is included in the carrying amount of identifiable property, plant and equipment that should be depreciated over the period until the next major inspection takes place. HAS requires such costs to be expensed when incurred.

106 tvK annual report 2008

noteS to the conSolidated financial StatementS 107

The cost of new tangible assets capitalised in 2005 were already net of periodic maintenance costs, which were recorded as separate components. The useful life of a “maintenance component” is the planned length of the maintenance period. The costs of periodic maintenance of tangible assets capitalised before 1 January 2005 were also capitalised by the Company as separate components (previously, these costs were expensed). 4. Accounting for investments Under IFRS, investments are measured based on the equity method. Under HAS, investments are presented at historic cost less impairment loss, if any. It contains the difference of the valuation of investment between HAS and IFRS and furthermore the elimination of revaluation of liquidated subsidiaries. 5. Reversal of Goodwill amortisation In accordance with the transitional provisions of IFRS 3 – Business Combination the annual amortisation of goodwill has been terminated after 1 January 2005. Under HAS the value of goodwill is amortised over its useful life. 6. Management incentives In accordance with IFRS short term management incentives are recognised in the period it relates to while under HAS it is recognized when settled financially. Long term management incentives are recognised time-proportionally during 36 months in IFRS while under HAS it is recognized in this year.

108 tvK annual report 2008

noteS to the conSolidated financial StatementS 109

Key Corporate Data 1997-2007 (HUF)
IFRS, consolidated, audited (HUF million) 1998 1999 2000 2001
155,131 6,933 8,593 15,526 8,693 6,971 137,644 95,376 24,623 359 9,1 1 6,32 4,990 1,990 3,250 78,763 2,292 24,423,843 24,234,843 189,000 1 1

2002
135,124 443 8,1 1 1 8,554 1,819 20,132 134,274 97,1 12 24,510 75 1,87 1,35 4,800 2,800 3,940 95,485 2,126 24,423,843 24,234,843 189,000 10

2003
150,284 4,177 7,797 1 1,974 5,278 55,420 182,082 102,363 24,501 218 5,16 2,9 4,550 3,940 3,955 95,849 2,015 24,423,843 24,234,843 189,000 7

2004
175,883 12,153 6,925 19,078 8,947 42,553 202,326 1 1,282 1 24,495 369 8,04 4,42 5,375 3,400 5,060 122,628 1,686 24,423,843 24,234,843 189,000 7

2005
249,693 13,136 9,723 22,859 6,409 6,981 227,714 1 17,718 24,492 264 5,44 2,81 5,890 4,605 5,240 126,990 1,542 24,423,843 24,234,843 189,000 8

2006
308,736 22,058 12,405 34,463 17,271 6,644 229,998 133,959 24,534 712 12,89 7,51 5,995 4,855 5,345 129,835 1,396 24,290,843 24,290,843 0 10

2007
337,646 32,973 12,948 45,921 23,684 7,251 234,963 157,642 24,534 975 15,02 10,08 8,490 5,250 7,010 179,752 1,187 24,290,843 24,290,843 0 9

2008
323,406 4,555 13,148 17,703 -146 4,539 209,781 148,541 24,534 -6 -0,10 -0,07 7,060 2,405 2,405 58,420 1,153 24,290,843 24,290,843 0 9

Sales 86,039 122,360 197,088 Earnings Before Interest and 15,424 6,030 7,312 Taxes (EBIT) Depreciation 4,234 4,666 5,560 ebitda 19,658 10,696 12,872 Net profit 1 1,840 7,196 1,451 Capital expenditure 21,785 34,380 7,743 Balance sheet total 1 16,410 154,618 166,179 Shareholders’ equity 73,149 72,655 87,754 Registered capital 25,084 22,605 24,700 Major ratios EPS – Earnings per share 550 323 65 (HUF/share) ROE – Return on equity (%) 16,19 9,9 1,65 ROA – Return on assets (%) 10,17 4,65 0,87 Closing price of TVK shares on the Budapest Stock Exchange (HUF) - Highest 5,240 4,875 6,670 - Lowest 1,420 2,120 3,180 - On December 31 2,920 4,820 4,600 Capitalisation (on December 31 70,766 1 16,812 1 1,480 1 closing price, million) Other Data Average headcount 3,264 3,304 2,587 Number of shares 24,841,315 24,841,315 24,820,001 24,234,843 24,234,843 24,234,843 - Ordinary shares - Employee stock 606,472 606,472 585,158 Number of consolidated 10 12 19 companies

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tvK annual report 2008

Key corporate data

11 1

Key Corporate Data 1999-2007 (EUR)

IFRS, consolidated, audited (EUR thousand)
Sales Earnings Before Interest and Taxes (EBIT) Depreciation ebitda Net profit Capital expenditure Balance sheet total Shareholders’ equity Registered capital Major ratios EPS – Earnings per share (EUR/share) ROE – Return on equity (%) ROA – Return on assets (%) Closing price of TVK shares on the Budapest Stock Exchange (EUR) - Highest - Lowest - On December 31 Capitalisation (on December 31 closing price, million)
Remarks: EUR/HUF EUR/HUF EUR/HUF EUR/HUF EUR/HUF EUR/HUF EUR/HUF EUR/HUF EUR/HUF EUR/HUF

1999
479,994 23,654 18,304 41,958 28,228 134,866 606,535 285,01 1 88,675 1.27 9.90 4.65

2000
743,897 27,599 20,986 48,585 5,477 29,225 627,233 331,222 93,229 0.25 1.65 0.87

2001
629,769 28,145 34,884 63,029 35,290 28,299 558,779 387,188 99,959 1.46 9.1 1 6.32

2002
572,802 1,878 34,383 36,261 7,71 1 85,341 569,199 41 1,666 103,900 0.32 1.87 1.35

2003
573,100 15,929 29,733 45,662 20,127 21 1,341 694,360 390,356 93,433 0.83 5.16 2.90

2004
712,279 49,216 28,044 77,261 36,233 172,328 819,366 450,662 99,198 1.50 8.04 4.42

2005
987,983 51,976 38,472 90,448 25,359 27,622 901,017 465,786 96,910 1.04 5.44 2.81

2006
1,223,686 87,428 49,168 136,595 68,454 26,334 91 1,605 530,951 97,241 2.82 12.89 7.51

2007
1,332,725 130,148 51,107 181,255 93,483 28,620 927,425 622,230 96,838 3.85 15.02 10.08

2008
1,221,414 17,203 49,656 66,859 -551 17,143 792,284 560,998 92,658 -0,02 -0,10 -0,07

19.12 8.32 18.91 458.23

25.18 12.00 17.36 420.77

20.26 8.08 13.19 319.75

20.35 1 1.87 16.70 404.77

17.35 15.02 15.08 365.52

21.77 13.77 20.49 496.61

23.31 18.22 20.73 502.47

23.76 19.24 21.19 514.61

33.51 20.72 27.67 709.50

26,66 9,08 9,08 220,64

mid mid mid mid mid mid mid mid mid mid

FX FX FX FX FX FX FX FX FX FX

rate rate rate rate rate rate rate rate rate rate

quoted quoted quoted quoted quoted quoted quoted quoted quoted quoted

by by by by by by by by by by

the the the the the the the the the the

NBH NBH NBH NBH NBH NBH NBH NBH NBH NBH

for for for for for for for for for for

December December December December December December December December December December

29, 29, 28, 31, 31, 31, 30, 29, 28, 31,

1999: 2000: 2001: 2002: 2003: 2004: 2005: 2006: 2007: 2008:

254.92 264.94 246.33 235.90 262.23 245.93 252.73 252.30 253.35 264.78

1 12

tvK annual report 2008

Key corporate data

1 13

1 14

tvK annual report 2008

SuStainability report

Main Results and Goals
Performance supporting economic sustainability • Part of the steam used for preheating the feed water of TVK Power Plant is not needed any more as a result of a project implemented in 2008 to utilise the heat of condensate. Once cooled, condensate is used as raw water in the water softening unit. • The fourth stage of the project designed to reconstruct overhead piping closed successfully and managed to reduce thermal losses and improve operating safety. About 2.2 km of supporting structures and 36.2 km of overhead pipes have been refurbished. • We cut costs by lengthening the period when voltage regulators feeding road and perimeter lighting units are operated at reduced voltage and by increasing the accuracy of the switching values of light switches. • A decision was made to establish off-site petrochemical departments of the University of Miskolc and the University of Debrecen at the TVK site to promote cooperation in research and education and to support the succession of professionals at TVK in the future. • In 2008, we spent HUF 39 million on supporting secondary schools and universities cooperating with us in the areas of education and research and providing assistance to train a second line of professionals for TVK. • We concluded agreements with only those suppliers and entrepreneurs that hold Quality and HSE certificates to promote the acquisition of such documents. • To reduce environmental load, we have started researching in a direction that involves modifying traditional plastic products to accelerate their biological degradation. Social performance Health and Safety reviewed existing risks of exposure and the option to eliminate them. The project also covered the installation of a closed system of sampling in the tank farm. • We have reviewed and modernised the rules of biological monitoring and have replaced fix location sampling with personal sampling to improve the quality of air measurement taken at job sites. • We have upgraded the HSE training material developed for contractors and have also created an instructive video. • An emergency care unit has been integrated into the TVK-TIFO site in cooperation with the provider of occupational health services. • We have participated in compiling the syllabus of a university level HSE course tailored to the needs of TVK. • An air exhaust system was installed in the local equipment operator positions of the HDPE-2 plant.

• We

2008 Performance
We understand that success and social acceptance are not only measured and reflected by economic indicators in this day and age. Our activities tend to be evaluated also in the light of how we perform in terms of our capacity to downsize our environmental footprint. TVK is committed to the sustainable development and communicates its achievements openly to stakeholders. We devote extra attention to creating a cleaner and liveable environment, secure and healthy working conditions. To ensure the attainment of these objectives, we look upon prevention and thinking responsibly as basic principles. The core principles environmentally oriented thinking and sustainability have been integrated solidly into our long term strategy. Our 2008 results are presented not separately in annual financial and sustainability report, but in this integradet report. Visit our website (www.tvk.hu) to view detailed information of the below issues .

Fire Protection were no fire incidents last year and the corporate documentation of protecting against explosions is complete. • The fire drill grounds, the mobile flare and the related nitrogen container have been transferred to TMM Tûzoltó és Mûszaki Mentô Kft., the in-house fire brigade, as part of outsourcing special high risk functions. • Additional smoke detectors have been installed to protect cable ducts and we continued to line the fire water network with a plastic piping. • The installation of rail security equipment meeting the new regulatory requirements has been completed at the rail load/unload site and the gas detector and alarm system of of the HDPE-1 plant has been replaced. • The replacement of stations improved cathode protection of the ethylene pipeline and increased the security of operations. • The water film cooling system of the isobutene load/unload unit has been installed and licensing for continued use is in progress.

• There

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Environmental

Targets
Continue to reduce VOC emissions from the operations in the area of TVK’s petrochemical business. The cost efficient Implementation of the jobs listed in the Technical Intervention Plan reduce the environmental liabilities identified by the end of 2007. As part of waste management looking to support sustainable development we have committed ourselves to bring the ratio of recycled waste to 30% by the end of 2008. Hazardous wastes generated during normal operation and emergency situations may decrease.

Results
Commissioning a new quench oil drainage unit further reduced the VOC emissions of our operations. We spent HUF 159 million in 2008 on performing the jobs as approved by the authorities.

• The

volunteer firemen of the company participated successfully in the municipal and county-wide competitions organised by the B.-A.-Z. County Firemen’s Association.

Clean air

Human Resources have successfully introduced our Performance Evaluation System (PES), which set the rate of incentives paid against performance in 2008 at 7% of annual basic wages. • We continued our STAFÉTA (RELAY) program and rolled it out to 64 participants. • 78 advisors and line managers are enrolled for a two-year competence development program. • We are running a training course for chemical engineering technicians in cooperation with Erdey-Grúz Tibor Secondary Vocational School in Tiszaújváros. 19 TVK employees qualified as technicians in the first class graduating, and now there are 29 trainees enrolled. • 87 employees qualified in nationally listed training courses, and we have supported 24 colleagues taking part in higher education. • 9 freshly graduated degree holders joined the company in 2008. • We spent HUF 175 million in 2008 on training and education courses with altogether 1,874 persons participating (average training expenditure per employee amounted to HUF 150,000).

• We

Remediation

Waste management

The achieved recycling rate is 28.1%.

Hazardous waste

The volume of hazardous waste generated decreased.

Social
Accidents Road safety Investigation of incidents Contractor safety pSm

Targets
Lost time injury frequency (LTIF) not to exceed 0.58. Keep road accident ratio (RAR) below 2.18 by promoting the culture of defensive driving. To ensure effective prevention, all accidents, fire incidents and near misses are investigated. Use HSE pre-qualification of contractors employed for at least a year. To reduce the likelihood of extraordinary events materialising, we will perform PSM jobs as scheduled. We will perform the jobs required for pre-registration under REACH as scheduled. No work related fatalities to occur among employees and subcontractors. Total Reportable Occupational Illness Frequency (TROIF) not to exceed zero. Reduce time lost due to sickness by 1% year on year by increasing the rate of employee participation in health promotion programs. Number of fires not to exceed two. Hold 15 fire and hazard prevention drills.

Results
LTIF: 0.61 RAR: 2.13 All the necessary investigations were performed. Semi-annual qualification was performed and documented. PSM jobs were performed as scheduled. Pre-registration has been completed. No work related fatalities occurred among employees and subcontractors in 2008 TROIF: 0

Environmental performance waste management function managed to increase the ratio of recycled waste to 28% by the end of 2008. • We have completed our Waste Management Plan for 2008-2013, covering as an essential element the Central Waste Collection Yard, which was opened in July 2008. • We continued to reduce the scope of our environmental liabilities by cost efficiently implementing the jobs listed in our Technical Intervention Plan. • We continued to decrease the Volatile Organic Compounds (VOC) emissions of our operations by commissioning our modified quench oil drainage plant. • We implemented the tasks necessary for REACH pre-registration successfully. • The operating time and efficiency of heat exchangers generating process steam are expected to increase substantially due to modifying pH regulation in the process water system of the Olefin-2 Plant, consequently reducing the consumption of imported steam and cutting cleaning costs. • Level gauge systems have been modernised in tank farm containers to reduce the risk of overfilling. • Installing double bottoms on tank farm containers T503 and T10003 completed the tank refurbishment program started in 2002, and the salvagers of the Olefin-1 plant were renewed.

• Our

reach Fatalities Occupational diseases Absence Fire incidents Fire protection

Achieved rate of reduction: 2.5% Number of fires: 0. Fire drills conducted as planned.

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Prizes and Recognition TVK was second runner up in the 2008 accountability rating, which is compiled annually using international methodology. Issued by Braun&Partners Network CSR, Accountability Rating Hungary 2008 ranked 60 of the largest Hungarian companies. Accountability Rating is the most important comprehensive system of evaluating corporate social responsibility. The rating shows, that the most significant Hungarian companies how much focus on handling the challenges of social, economic and environmental issues, and the actions are how were implemented to their business strategy how much are the stakeholders involved to their decisions.

Future Challenges 2009
Economic sustainability objectives • Reduce the ratio of energy consumption per unit of purchased feedstock by 2% by introducing a system of performance monitoring in the olefin line, consequently reducing of CO2 emissions. • A priority target for 2009 requires that we have the licensor Chevron Phillips Chemical Co. complete the Basic Engineering plan for upgrading the technology of and reconstructing the HDPE-1 plant, which was commissioned in 1986. The modernisation project planned for 20102012 will also cover the renewal of the product portfolio of HDPE-1. • New product implementation: Tipelin FS 383-03 (film type), 7100S (sheet extrusion stock) and 6301B (blow type) are new HDPE products, while our PP product range was expanded to include Tipplen K199 (injection type mainly for automotive application). Four new products are in the pipeline to further develop of our portfolio of PP products, including one (R 1059 A), which we produced in December already. We are planning to start producing three new PP products (K 850, K 1150, K 250) in 2009. Naturally, we are also aiming to upgrade our existing products to comply with the effective requirements, we modified the dosage recipes of several of our products in 2008 to ensure compliance. • In 2008, we continued to cooperate with Nor-X Industry AS of Norway and other domestic partners to develop a special master batch that promotes the biological degradation of our polyolefin (PE and PP) products. Based on our positive preliminary findings concerning polypropylene and HDPE, the projects will be broadened further to include LDPE in 2009. • Seeking to reduce environmental impacts, we identified studying the options available for recracking plastic waste in cooperation with independent institutions. Environmental objectives • Hazardous wastes generated during normal operation and emergency situations may not exceed 2200 tons. • We will continue to improve the rate of waste recycling reached last year (28% in 2008). • The operation of the Central Waste Collection Yard ensures that all waste generation processes of the company are concentrated to a single location. • We are to reduce the environmental liabilities we were aware of at the end of 2008 by HUF 335 million though the cost efficient implementation of the jobs listed in our Technical Intervention Plan. • We are to reduce our 2008 consumption of fresh water by 10% year on year. • Stringent process control will be applied to prevent the environmental spillage of chemical substances in volumes larger than 1 m3.

Labour and fire safety objectives • In line with the long term trend lost time injury frequency (LTIF) may not exceed 0.60. • Total Recordable Incident Rate (TRIR) may not exceed 2.41. • Keep road accident ratio (RAR) below 1.87 by promoting the culture of defensive driving. • Total number of fires not to exceed one incident. • Investigate 100% of accidents, fires and near misses. • The probable number of Process Safety Management (PSM) related extraordinary events materialising not to surpass 2. • 539 behaviour audits will be conducted in TVK to improve safety at work and to mitigate risks associated with human factors.

• No work related fatalities among employees and subcontractors. • Total Reportable Occupational Illness Frequency (TROIF) not to exceed zero. • Keep time lost due to sickness below 3.14. • Increase employee participation in workplace health protection programs to at

Health objectives

least 60%.

• A

Social objectives program designed for primary school pupils in grades 7 and 8 will offer instruction and site visits about the environmental impacts of the petrochemical sector, including the business of TVK.

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Protecting the Environment within the energy control system. The operation of the system could be supported by a software tool to help optimize meeting the energy requirement across the whole TVK area at the highest level of efficiency. • We are designing and fitting the furnaces of the Olefin-1 Plant with quench chillers to improve energy efficiency. • We are continuing to study the options for utilising gases discharged to the flares. Future challenges another threat during Trading Period III, as sector participants may decide to move and settle down outside Europe to shrug off the burdens imposed by cardondioxide trading, which they cannot finance any longer. Although there is no or very little emission of green house gases (GHG) energy intensive industries are directly responsible for, they have to incur increased energy charges imposed by the Green House Gases Emission Trading Scheme (ETS) Directive , which is why these industries are also exposed to the threat of “carbon leakage”. Although we support the objectives of protecting our climate, we would be ready to accept regulations that do not jeopardise the competitiveness and the survival inside the country and the EU of enterprises active in the chemical sector, such as TVK. A proposed amendment of the ETS directive in the pipeline envisages an arrangement whereby exposed industries would obtain free CO2 emission quotas up to a certain capacity level. Accordingly, we are mobilising our representative organisations (MAVESZ, CEFIC) to exert all possible effort to have the chemical sector recognised as an exposed industry. A branch that is incapable of transferring the extra costs arising from the ETS to its customers is accorded the ‘exposed’ status as the threat that it might settle down outside the EU (carbon leakage) exists. We consider it very important to disclose the criteria of the exposed status and to insert such criteria into the ETS Directive. Clean air Emission monitoring data suggest that plant process emissions of pollutants complied with the effective control limits. We spent HUF 2 million on controlling compliance in 2008. We use the intermittent measurement method envisaged in legal provisions and regulatory requirements at the required frequency to control local point sources. The tests are performed by accredited laboratories. To eliminate the VOC emissions from the quench oil drainage unit and the pre-heater, the drainage unit was modernised in 2008. The project involved the conversion of the drainage unit and the pre-heater into a closed system, sending exhaust fumes to a flare, installing 2 new draining stations suitable for draining coal-tar and the replacement of the old aprons and drainage hoses with new draining arms. The National Air Pollutant Monitoring Network performs regular checks of the presence pollutants in the ambient air near TVK and evaluates air quality. Air pollution levels are recorded by the immission measurement stations located in neighbouring settlements and the recorded levels are read and checked by the Northern Hungarian Directorate of Environmental Protection, Nature Conservation and Water Management (the Directorate). We received no notice from the Directorate of pollutant concentrations above control limit and that any such instances were attributable to our activities. Waste management The procedures regarding the coding and classification of hazardous wastes and the allocation of waste types to code categories comply with the standards in effect in the European Union. We completed our Waste Management Plan. The management of hazardous wastes is regulated in compliance with EU standards at TVK and our waste management activities of 2008 were compliant. The increased volume of hazardous waste is due first of all to extending

Climate change TVK and MOL have fully harmonized their operations also in connection with green house gases. Accordingly, we are making conscious efforts at minimizing emissions. There was a substantial increase in the number of corporate facilities granted a permission to emit gases by the UHG5479-1 license due to regulatory changes concerning the second trading period and our pyrolysis plants have also been subject to the rules governing the trading of carbon dioxide quotas since January 1, 2008, which imposed major changes in the area of monitoring and reporting emissions. In 2008, CO2 emissions subject to ETS amounted to 1.23 million tons, which is why the allocated quantity recorded in the National Allocation Plan approximates closely the emissions budgeted for the trading period between 2008 and 2012. The National Inspectorate for Environment, Nature and Water issued an emission license for the period between 2008 and 2012. Our continuous efforts at improving feedstock consumption and energy efficiency have had a significant impact on reducing specific CO2 emissions.

co2 emissions per 1 kt of ethylene output (ton/year)
0 2003 2005 2006 2008 0,5 1,00 1,50 2,00 2,50

As each process we operate complies with BAT requirements, we have very little room to reduce CO2 emissions any more. Moreover, petrol chemistry is highly energy intensive and hence energy consumption is a major cost item of our operations. Consequently, improving energy efficiency can couple with further reductions of CO2 emissions. Recognising this, we have launched several projects aiming at improving our energy efficiency and in doing so we took into account the financial implications of potential CO2 emissions during the evaluation of our project plans and investment decisions. We have taken important measures to contribute to implementing our climate strategy and to reaching additional improvements of the efficiency of energy consumption, including the following key actions: • Utilising the heat trapped in condensates to preheat the desalinated process water of TVK Power Plant and thereby reduce both the amount of natural gas used for the purpose and the related CO2 emissions. • We monitor the price pf quench oil, natural gas and the CO2 quota and take all this information into account to determine the mixture of fuel for the in-process boiler of the Olefin-1 Plant. • We run our Olefin-2 Plant with four furnaces and we expect this mode of operation to couple more favourable specific feedstock and energy recovery rates with higher volumes of output and to reduce the specific CO2 emissions calculated as a function of our main product. • The TVK level energy consumption and distribution system works in integration with consumers

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Human Focus the coverage of central Sustainability and HSE coordination to maintenance wastes which are now more systematically recoded in a new system. The expenditure incurred by hazardous waste management amounted to HUF 56 million in 2008. No penalties were imposed on our Company in respect of waste management in 2008. Several measures were taken to improve the efficiency of the process of waste management in 2008: • continued a project stared in the previous year for the central coordination of waste y We management. • completed and commissioned our Central Waste Collection Yard, which reduced the stay We time of wastes stored inside the fence. • We give priority to minimising waste and reducing the frequency of waste generation. Connecting the reactors R-7669 A/B into a regeneration system in 2008 is a tangible example of achieving these objectives, as this conversion is expected to increase the lifetime of the charges and the frequency of spent charge formation is expected to decrease. • Recording wastes are prepared in an electronic system (EBK Info) on a daily basis. Water and soil Neither the regulatory audits nor the checks performed internally during the year subject to this report identified any pollutant emissions above the control limit in the purified waste water discharged into the River Tisza, and hence not penalties were imposed in respect of emissions in 2008. Potable water is provided by operating our own plant that produces, cleans and distributes drinking water. This plant also supplies potable water to MOL’s TIFO Refinery via our own drinking water network. As a result of a continuous downward trend in demand for potable water at the industrial compound, the amount of water produced falls short of half of the licensed amount, which justifies a reduction of the capacity we had reserved. With that in mind, we reviewed our production, purification and distribution system and applied to the authorities for a new unified and combined water right license and for reducing the current licensed production capacity of 1,350,000 m3 p.a. to 700,000 m3 p.a. No pollutant emissions in excess of control limit were identified in the waste water discharged into the recipient during the sewer inspections held by the supervisory authority; hence no penalty was imposed in respect of waste water discharged in 2008. No environmental spillage of chemical substances in volumes larger than 1 m3 occurred in 2008. We spent HUF 262 million on sewage treatment and kept water quality substantially above the level required under law.

Health Professional medical control is especially important because of the large number of potential hazards of different nature employees may get exposed to and the severity of potential consequences. It is ascertained by job aptitude tests that cover checking general health status, heart, blood, urine, hearing, vision and respiratory functions. To ensure the provision of professional and rapid first aid, unit managers had to make sure that a person trained in providing first aid is available in each work area and in each shift: at present there are 240 trained first aid providers at 48 locations. Employees receive basic training and professional upgrading from professional ambulance officers specialising in first aid. A round-the-clock emergency service ensures that injuries and impairments are treated professionally and swiftly (ambulance car with ambulance officer). Approved as part of the New Europe program the Health Development Program (known as STEP) continued in 2008. Protecting one’s health depends first of all on changing your culture, and it is exactly the area where we would like to help employees with information about and assistance to improve their health status. The area of health development shows major achievements. We surpassed legislative requirements by: • administering arteriography, abdominal ultrasound, dermatological, musculoskeletal and decalcification screening tests on altogether 208 employees to survey their health status and to start the necessary therapies. • performing general status checks (blood pressure, blood sugar, body weight and body mass) three times institutionally on a large number of interested employees; • drafting 25 health plans designed to educate employees in healthy ways of living; • holding relaxation training for altogether 32 people in two rounds to reduce psychosocial risks (the training may help respond to and treat stress); • sending employees to a body weight optimization project called “It is easier together”. Labour safety We are committed to strengthening the culture of labour safety and security continuously, which means in plain terms that we try to avoid any and all work related injuries. Our Company has records of work related accidents going back to 1961. In addition to the indicators used across the MOL Group for the analysis of accidents, we also use to a specific value calculated (for one thousand blue collar workers) from reportable incidents (injuries healing over three days) as a benchmark as it allows comparison with other employers and sectors. Our statistical record of accident has shown a positive trend since 2000 and only a single number of reportable accident occurred last year, which resulted in a negligible specific value. As both the number and severity of accidents shows a positive trend, the risk rating of our business fell substantially. A comparison with the chemical sector in Hungary and Germany shows a striking difference in favour of our indicators of accident frequency and in the rate of improvement. The benchmark ratio known as Lost Time Injury Frequency (LTIF, i.e. the number of lost time injuries calculated for one million hours worked) also signals improvement.

Sewage treatment (HUF million, Year)
230 240 250 260 270 280 290 300 2004 2005 2006 2007 2008

Volume of discharged purified waste water per 1 kt 3 ethylene output of (m /year)
0 2004 2005 2006 2007 2008 2000 4000 6000 8000 10 000

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Work related accidents, Over 3 days lost / 1000 blue collar staff (Years)
40 35 30 25 20 15 10 5
1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006

Risk rating of the business (Risk, Year)
0 2000 2001 2002 2003 2004 2005 2006 2007 2008 200 400 600

• Several

preliminary hazard analyses were performed to survey the risks of repair jobs performed while operating (as required by our new procedures). • On site reviews conducted by various levels of management helped identify sources of risk. A special form of these reviews known as behaviour audits generated 550 recorded observations. • We exerted robust effort to enhance the road safety (by improving road conditions, installing traffic lights, performing checks and posting warnings). • Public road conditions were examined on a regular (monthly) basis.

The behaviour audits conducted as part of our “Safety at Work” project played a key role in improving our accident statistics. Rolling out behaviour audits to all employees in management positions is likely to make jobs safer and to prevent near misses from turning into accidents. The case studies published in our HSE Info helped draw conclusions across the organisation. Process Safety Management System (PSM): Our PSM Manual and the territorial implementation plan were both completed in 2007 and provide that the PSM system is to be introduced in 2010. An individual project proposal (IPP) designed to introduce the PSM system along with the related budget for the period 2008-2011 were approved in 2008. The employees to participate in the implementation of the project received PSM training last year. The most important PSM exercise involves the analysis of process risks, which is to be completed by July 2010.
20 Safety on Our Roads (SAFE TRAFFIC PROGRAM) The commitment of our company to reduce the number of job related accidents also triggered a survey of the possible options for minimising traffic risks and a series of measures designed to reduce the same to practice. In addition to the publication of and checking the adherence to documents pointing out the threats associated with pedestrian and bicycle traffic, we provide our drivers with practical information on defensive driving in the framework of a special program. To evaluate our traffic safety performance, we introduced an indicator called Road Accident Ratio (RAR), which we monitor monthly. The historical RAR justifies our efforts in this area. We also set new safety traffic lights to the internal roads to improve the traffic safety.

0

Reportable work related accidents, calculated for 1000 blue collar staff (Years)
25 20 15 10 5 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 German chemical sector Hungarian chemical sector tvK

Lost time injuries (LTI, Year)
0 2000 2001 2002 2003 2004 2005 2006 2007 2008 5 10 15

Source: KSH, BG Chemie Jahresbericht

Road accident ratio (RAR, Year)
0 2005 2006 2007 2008 2 4 6 8 10

We continued to investigate work related accidents in compliance with the relevant laws and professional expectations. We used the TRIPOD methodology with software support for revealing cause and effect relationships and for formulating comprehensive measures. We also took several measures to improve our accident statistics and to prevent extraordinary events in the course of the year: • We regularly review security aspects at various stages of construction projects to ensure that future operations comply with the technical requirement of safety. • We monitor extraordinary events and issue warnings if risks are expected to change. • In addition to conducting reviews of important risk areas (production plants, job stations with monitors, use of hazardous substances), we are practically running uninterrupted risk control. In 2008, 131 organised risk analyses were performed as part of our HSE audit, which led to a modification of our risk definition matrix to ensure legal compliance. • We have also performed risk analyses for the majority of job positions and certain work processes classified to carry high risk of exposure (such as cleaning filter and oil traps, jobs requiring internal access, etc.).

We recorded five road accidents during the year, which corresponds to a year on year reduction of 17%. We were responsible for 40% of the road accidents. The total property damage amounted to HUF 4 million or 85% of the amount recorded for last year. None of the road accidents involved physical injury.

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SEVESO II compliance Conducting a regulatory audit, a representative of the National Emergency Directorate required the company to draft process control procedures for instructing our Internal Defence Plan and for preparing affected parties in a differentiated manner. We have drafted the procedures and sent the document to the Directorate. We performed drills of our External Defence Plan, which relies on our Internal Defence Plan, jointly with the Civil Defence Unit of Tiszaújváros. We also participated in a meeting organised by Security and Defence under the title “Managing an Emergency at TVK Plc.”, which culminated in a successful drill of evacuating an office building. Fire safety As there were no fires at the TVK site during 2008, we managed to repeat our performance of 2004. Taking into account the flammable nature of the materials we process and the parameters of our process technology, this can be considered an outstanding achievement. Disciplined employees well versed and skilled in fire protection and, last but not least, the application of the best available technology (BAT) combined with maintaining the required high quality technical conditions are the keys to our success. We concluded an agreement with our fire fighting and technical rescue subsidiary (TMM T_zoltó és M_szaki Ment KLft.) about performing the technical supervision of our 184 km long ethylene pipeline to mitigate any potential risks that the public might be exposed to. We continued our proven method of involving employees and partner organisations in studying the actions required in an emergency and drawing the necessary conclusions. We have held 15 loss prevention drills simulating a variety of events at electricity units with extreme fire and explosion hazard. In addition to evaluating the drills on site, we also performed an annual review followed by drawing up an action plan designed to eliminate the deficiencies we experienced. Simultaneously, the annual drill of our Internal Defence Plan was also completed.

Labour practices and working conditions Recruiting, developing and retaining trained resources of high quality are key components in attaining our corporate strategic goals. We seek to increase employee loyalty, to expose employees to challenging tasks and to offer them opportunities in each operational area while offering the best available working conditions and remuneration. Moreover, our regular employee satisfaction surveys and human resource related indicators offer us continuous feedback about our HR performance and the areas that need to be developed. Complex Performance Management System (PMS) for management Our PMS harmonizes strategy with the business plan and the individual annual targets and performance of management level employees. PMS is multifaceted and is therefore intertwined with several other human resource processes: performance evaluation influences the annual amount paid in management incentives and the degree to which individual goals are attained is an important factor in the decision on increasing basic wages. PMS provides information for career planning and for drafting Individual Development Plans; hence it is an indirect tool for supporting managers develop their professional and management skills. Managers covered by PMS (as well as the teams they direct) contribute to corporate results through their own performance. PMS ensures that such contributions are in effect made in key areas and in line with the annual business plans. Moreover, PMS helps managers monitor their contribution to and their share from the successes of the company. A separate performance evaluation system based on quantified ratios has been developed for sales staff so as to give greater emphasis to the financial and efficiency indicators of the company and to strengthen employee loyalty. Performance Evaluation System (PES) We operate a comprehensive Performance Evaluation System (PES) covering every TVK employee in an effort to increase employee job satisfaction and motivation and to promote rapid adaptation to swift changes in the economic environment. The goal of the PES is to demonstrate existing relationships between corporate and individual performance. The most important feature of the PES is that it is not a system that has to be run, rather it is a tool designed to realise business objectives. And more importantly: being objective does not start at the time of evaluation, it begins at the time objectives are set. Under the PES, superiors evaluate the employee performance against the attainment of goals set in advance. Each employee has a uniform corporate level goal, two organisation level goals and two to three individual goals to attain. In 2008, 7% of basic annual wages were budgeted for the payment of incentives on the basis of performance evaluation. Human capital development With the strategic goals of the company in mind, we give high priority to equal treatment and ethical employment processes and in doing so outperform international labour standards. The achievements of 2008 are listed below: • We have successfully introduced our Performance Evaluation System (PES). • We continued our STAFÉTA (RELAY) program and rolled it out to 64 participants. • 78 advisors and line managers are enrolled for a two-year competence development program. • We are running a training course for chemical engineering technicians and 87 employees qualified in nationally listed training courses, and we have supported 24 colleagues taking part in higher education. The company operates a HAY job evaluation system. It means that job positions will always be used as the basis for the remuneration system. The largest benefit of the system is that it makes different remuneration systems used by different companies easy to compare. Our wage policy measures are determined by basic wage increases in line with the projected rate of inflation as well as by case by case wage increases associated with evaluating individual job

Number of fires and value of damage (value, year)
0 2003 2004 2005 2006 2007 2008
Number of Fire Value of Demage (HUF million)

10

20

30

40

50

To improve safety, we enhanced the operability of the protection system of our plants. Several of our plants have planned, expanded or modernised and installed fire protection equipment and tools. We pay extra attention to fire safety education and training, which is provided to both TVK employees and the employees of independent contractors operating on our premises. We conducted the theoretical courses and practical drills envisaged in the training plan of our volunteer firemen and prepared them for fire fighting contests. The fire squads of TVK also won several gold, silver and bronze medals at municipal and county-wide competitions organized by the Firemen’s Association of B.A.Z. County. The drills and contests helped us practice rapid and professional intervention in the case of fire. We participated in the work of the national and county level organisations of the Firemen’s Association in our capacity as firemen employed by a facility. One of our employees received a “County Fire Safety Award” for years of excellent performance in fire protection.

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positions taking labour market income levels into account and by the recognition of exceptional performance. Career Management A Career Management System (CMS) is a coordinated tool for planning and supporting the development of organisations and individuals based on the requirements lid down in our business strategy. CMS: • Ensures a formal procedure for targeted succession planning, which is repeated annually. • Leads to the creation of an internal “talent group” to ensure succession in the existing organisation and to support our growth strategy. • Supports the definition of organisational and individual development needs. • Supports planning intra-group movements and rotations. • Provides all employees affected by the process with clear guidelines and flexibility for moving down their career paths. Employing Fresh Graduates We continued fresh graduates program in 2008 as well, what is designed to offer job opportunities in a rapidly developing organisation operating in an international environment to career starters. The participants of this one-year program were selected from several applicants with tests and with the assistance of Assessment Centres. The program itself involves “on-the-job” training and other forms of development as well as events that promote seamless integration and support the attainment of the functional and human competencies needed for performing successfully. In the first year, participants have the option to rotate between various units of the organisation. When they do so, they always receive individually tailored challenging tasks and are thereby offered an insight into the operations of our company. Mentors help participants with integration as well as with personal and professional growth. Once the program is completed, participants and their managers decide jointly about how to progress at the company. Nine out of the 11 graduates who joined the program in 2007 were offered the option to conclude a fixed term employment contract with TVK and continue working with us in 2008. Nine fresh graduates joined the company under similar circumstances in 2009. Employing young talents We focussed sharply on university communities in 2008 in quite the same fashion as we ran our program for fresh graduates. Strategic recruitment and other activities performed at external partners, mostly training institutions, were connected to the education of students (as our colleagues ran training courses and held lectures). Several units of the company also received students for professional practice in the summer, several students contacted staff members to consult about their theses and we also provided financial and professional support to students of outstanding talent as part of our fellowship program. The off-site petrochemical departments of the Universities at the TVK site will promote cooperation in research and education and to support the succession of professionals at TVK in the future. In 2008, we spent HUF 39 million in vocational training contribution on supporting secondary schools and universities cooperating with us in the areas of education and research and providing assistance to train a second line of professionals for TVK. Training and development It is our basic philosophy that highly qualified and motivated labour fully committed to the company is one of the most factors contributing to the successful attainment of our strategic goals. The development of the company requires an increasing number of well-trained, wellinformed and talented professional people. The rapid changes of technology and the constant modification of job responsibilities require employees to acquire new trade related knowledge and skills much faster now than at any time in the past. We have a stake in developing strategic human resources, i.e. in getting the right people with right training to be at the right place at

the right time, which lends adaptability to and forms the basis of sustaining the efficiency and competitiveness of an organisation in the long run. Also, it leads to continuous personal growth and long term satisfaction. We have maintained our strategic goal of ensuring the availability of highly trained staff. Accordingly, our employees participate in professional training and competence building courses for individuals and teams. We give priority to conscious development programs and individual competence training programs give way to team based training covering and connecting employees from several units of the organisation. Emphasis is given to case studies and dialogue evenings by members of senior management, which complement training courses. In 2008, 66 of our newly recruited employees took part in labour and fire safety, environmental, quality and IT training courses. Our training programs, which we conducted with a total budget of HUF 175 million, were attended by altogether 1,874 people in 2008. Average per employee training costs reached HUF 150,000. Our RELAY program, which we launched in 2006 was continued successfully. The program is a conscious and orchestrated effort by the company to develop a second line of foremen and chief systems operators in our polymer and olefin plants. Program participants receive complex education, including training sessions and a rotation system. Rotation helps employees acquire several technologies operated outside their own plant and understand corporate level processes. Rotation is advantageous as it reduced monotony, creates wider opportunities for substitution, lends ease to organising work and increases the potential skills of the company and individuals. Rotation cycles last 5-10 days and a RELAY participant normally has to take part in 7-8 rotation cycles based on an individually tailored rotation plan. Altogether 113 rotation cycles were completed in 2008.

130 tvK annual report 2008

human focuS fejezet

131

Our Quality Management

Our Social Commitment

New challenges, like changes caused by globalization, sustainable development request the quality management organization to live up to new requirements, therefore we worded the quality aspect as one of the most important core values in the management and operation and in the relationship of our Company with its societal and economic environment. In line with this, we have significantly modified our regulations in 2008. In March 2008, SGS Hungária Kft. successfully audited the integrated management system operating at our company (ISO 9001, ISO 14001, OHSAS 18001). In case of our accredited laboratories the monitoring audit of the Testing Laboratory of the Technical Inspectorate and the monitoring audit of the Central Laboratory according to standard MSZ EN ISO/IEC 17025:2005 performed by NAT was successful. At the internal integrated system audits prevention and the propagation of “best practices” were emphasized. We have successfully improved our software supporting the operation of our integrated management system that enables us to carry out analyses from an electronic database that can be traced back to several years. Built on the remarks of our clients and suppliers we begin to develop further our integrated management system by introducing new systems and new system elements. In the frame of measuring customer satisfaction almost 500 partners were interviewed in 2008. The purpose of the survey was to identify the strong areas as well as the areas needing development and to monitor the effects of the corrective measures taken as the result of the survey. After the analysis of the information new action plans will be prepared. Resulting from our actions taken to promote innovation the number of ideas and proposals submitted by the employees in 2008 has grown significantly.

Our strategy brings the simultaneous achievement of business performance objectives, environmental and social goals into sharp focus. The environmental and social goals attached to our business performance objectives are upheld in our HSE policy and through the quality, environmental, health and safety systems we apply. The company attaches high priority to its staff commitments, to creating safe working conditions, to its environmental commitments, to its quality approach, to commitment to its employees and to its social responsibility. We also act responsibly in respect of our employees. We respect human rights as well as the values and diversity of local and national cultures. It is our goal to ensure that our employees enjoy the benefits of equal opportunity, continuous training and safe working conditions for their daily work. Social investment To ensure the availability of properly skilled professionals, we maintain a variety of close contacts with higher and secondary training institutions and help their teaching efforts and research work with significant funds. Four universities and four vocational schools received development support. Based on preparatory negotiations conducted in 2008, we concluded cooperation agreements with the University of Miskolc and the University of Debrecen about opening off-site petrochemical departments at TVK in 2009. Both universities have opened their departments to develop courses and offer training in chemistry, chemical engineering, chemical mechanical engineering and chemical technology. Sponsorship policy and principles We have traditionally attached high priority to educating future generations and to promoting healthy ways of living, to being responsible for our natural and social environment, to sciences and the arts. We aspire to sharing our resources with people who work professionally, are highly qualified and skilled and are capable of exceptional individual or team performance. We seek long term relationships giving priority to supporting sustained excellence in performance. Our sponsorship focuses on the region affected by our operations, namely Borsod County and particularly 31 settlements in the southern part of the county and Tiszaújváros. In terms of the types of supported activities, our preference is for culture and the arts, sports, education and the upbringing of children. When deciding on donations, we give prefer applications matching the principles described above to providing ad-hoc support. We pass our decisions along predetermined professional, strategic and ethical criteria and our social investment programs are assisted by independent expert committees. We manage our sponsorship and donation activities applying the principles of credibility, reliability and independence and the most severe ethical norms and we expect all of our employees and anyone we support to abide by the same principles and norms. Accordingly, we refuse to support political objectives and parties, governmental bodies and other organisations and events that violate human rights, the public good, public morals and good taste or represent any type of discriminative opinion.

132 tvK annual report 2008

our Social commitment 133

A non-exhaustive list of sponsored entities and individuals is provided below: Foundations: • For the Future of Tiszaújváros Foundation (with the Municipality of Tiszaújváros) • TVK for the Southern Borsod Region Foundation

• Miskolc National Theatre • Miskolc International Opera Festival • Tiszadob Piano Festival • Herman Ottó Museum • Hungarian Museum of Chemistry • Hungarian Chemists’ Association
Sports: • TVK-Mali Triathlon Club • Hungarian Triathlon Association • TVK Triathlon Holy Week and World Cup • Tiszaújváros Aquatic Sports Club – kayak-canoe • TVK Balloon Team – Sándor Végh, hot air balloonist • Júlia Sebestyén (TSC, figure skating) Besides the key programs, we are focusing on the training of young sportsmen, therefore we sponsored the sport clubs in Tiszaújváros (headcount proportionally) that are hold together the children. Our company spent HUF 66.7 million on sponsorship and support in 2008. Support is granted in each case with the voluntary participation of and upon an agreement between the parties according to predetermined conditions and objectives. When we cooperate, we mutually respect the independence, freedom of opinion, objectives and activities of the participants and refuse to accept or offer either indirect or direct unfair advantage.

Culture and science:

134 tvK annual report 2008

Performance Indicators

Economic power indicators

2004
Revenues (mHUF) Other revenues (mHUF) Operating cost (mHUF) Employee wages and benefits (mHUF) Payments to capital investors (mHUF) Payments to governments (mHUF) Financial assistance received from government (mHUF) Petrochemicals customer loyalty index(%) 175,883 81 1 164,541 1 1,138 53 6,988 1 1 n.a.

2005
249,693 1,718 238,275 10,121 0 5,952 3 9.56

2006
308,736 403 287,081 9,766 1,025 5,009 15 12.96

2007
337,646 808 305,481 10,134 0 9,526 0 13.28

2008
323,406 216 319,067 9,328 8,963 6,668 1 14.39

gri
EC1 EC1 EC1 EC1 EC1 EC1 ec4 PR6

2004 Water Drinking water consumption (m3) Technological water consumption (m3) Surface water withdrawal (m3) Ground water withdrawal (m3) Total water withdrawal (m3) Rainwater collected directly and stored (m3) Wastewater from another organization (m3) Total volume of recycled and reused water (m3) Total water discharge (m3) TPH (Total Petroleum Hydrocarbons) (ton) COD (Chemical Oxygen Demand) (ton) BOD (Biological Oxygen Demand) (ton) SS (Solid Substances) (ton) Spills and discharges Number of spills (pieces) Volume of spills (m3) HSE related expenditures Environmental investments (mHUF) HSE related penalties (mHUF) Environmental rule contravention (pieces) 193,310 5,715,218 n.a. n.a. n.a. n.a. n.a. n.a. n.a. 14,2 87 n.a. 4,978 0 0

2005 607,91 1 8 699,624 n.a. n.a. n.a. n.a. n.a. n.a. n.a. 26,7 277 n.a. n.a 0 0

2006 507,691

2007 437,691

2008 184,620 10,718,453 12 197,966 508,009 12 705,975 0 1 14,747 251 188,033 4 941,209 1 1,5 172 100 n.a 0 0

gri en8 en8 en8 en8 en8 en8 en8 en8 EN21 EN21 EN21 EN21 EN21 EN23 EN23

1 1,442,139 6,874,587 n.a. n.a. n.a. n.a. n.a. n.a. n.a. 22,5 275 162 n.a 0 0 n.a. n.a. n.a. n.a. n.a. n.a. n.a. 16 265 154 n.a 0 0

Environmental power indicators 2004 air co2(ton) co2 (under ETS) (ton) ch4 (ton) n2O (ton) Perfluorocarbons (ton) Hydrofluorocarbons (ton) Sulfur Hexafluoride (ton) Total direct GHG emission (ton) ODS (Ozone-Depleting Substances) (ton) So2 (ton) VOC (Volatile Organic Compounds) (ton) NOx (ton) CO (ton) PM (Particulate Matter) (ton) Hazardous air pollutants (HAP) (ton) Flared and vented gas (ton) 846,948 0 n.a. n.a. n.a. n.a. n.a. n.a. n.a. 21 3 448 35 1 1 n.a. n.a. 2005 1,299,877 78 n.a. n.a. n.a. n.a. n.a. 78 n.a. 24 8 453 47 14 n.a. n.a. 2006 2007 2008 1 132,731 1 132,731 n.a. n.a. n.a. n.a. n.a. 1 132,731 0 62 24 560 96 25 0,0727 9,380 gri EN16 EN16 EN16 EN16 EN16 EN16 EN16 EN16 EN19 en20 en20 en20 en20 en20 en20 en20

1 1 1,518 1 210,730 1 69 27 n.a. n.a. n.a. n.a. n.a. n.a. n.a. 69 n.a. 57 27 552 71 23 n.a. n.a. n.a. n.a. n.a. 27 n.a. 72 28 618 83 23 n.a. n.a.

78 0,27 n.a.

79 1,93 n.a.

49 1,02 n.a.

293,7 1,20 n.a.

36,7 0 0

EN30 en28 en28

136 tvK annual report 2008

performance indicatorS 137

Social performance indicators

2004
Employees Total workforce(Closing on 31st December)(person) Number of full-time employees (Annual average) (person) Number of employees laid off (person) Employee turnover rate(%) Absentee rate (AR)(%) Employees represented by trade unions (%) Safety Lost Time Injury (LTI) (pieces) Lost Time Injury Frequency(LTIF) TROIF (Total Reportable Occupational Illnesses Frequency) Number of fatalities for emloyees(pices) Number of fatalities for contractors(pieces) Number of fires(pieces) Fire damage(mHUF) Diversity Ratio of women in total workforce(%) Ratio of women in managerial position(%) Ratio of women in non- managerial position(%) Other social Total training cost / total FTE(HUF) Donations (mHUF) 1,571 1,686 298 17,7 26,3 64 7 2,37 0 0 0 0 0 32,7, 1 1,1 35,7 n.a. 70,4

2005
1,454 1,542 88 5,7 25,8 66,05 6 2,27 1 0 0 5 2,2 30,0, 7,7 32,4 n.a. 75,9

2006
1,200 1,396 282 20,2 18,9 64,5 5 2,08 0 0 0 4 43,51 31,9, 13,3 38,1 n.a. 90,8

2007
1,147 1,187 76 6,4 16,3 56,1 0 0 0 0 0 3 25,8 33,1 8,3 34,2 n.a. 88,2

2008
1,139 1,153 52 4,5 15,8 53 1 0,61 0 0 0 0 0 34,5 5,3 36,8 150,000 66,7

gri
LA1 LA1 la2 la2

la7 la7 la7 la7 la7

LA13 LA13 LA13 LA10

138 tvK annual report 2008

140 tvK annual report 2008

corporate governance

Corporate Governance

The members of the Board of Directors and their independence status (professional CVs of the members are available on corporate homepage):

TVK attaches high priority to applying a corporate governance system that meets even the most exacting expectations. Accordingly, in response to the Guidelines of Responsible Corporate Governance issued by the Budapest Stock Exchange, TVK has disclosed its corporate governance practices in a declaration each year since 2004. The Board of Directors accepts and does its best to observe the Guidelines in the course of running the Company and its operations.

Name

Beginning of assignment György Mosonyi Chairman of the Board 26.04.2002 Árpád Olvasó Deputy Chairman 29.08.2000 of the Board Michel-Marc Delcommune Board member 03.11.2000 Gyula Gansperger Board member 20.04.2006 Vratko Kassovic Board member 28.04.2005 Dr. Péter Medgyessy Board member 20.04.2006 József Molnár Board member 20.04.2001 Operation of the Board of Directors The Board acts and makes resolutions as a collective body.

Position

Independence status non-independent non-independent non-independent independent independent independent non-independent

The corporate governance of TVK complies with the requirements of the Budapest Stock Exchange, the guidelines of the Hungarian Financial Supervisory Authority and the capital market regulations in effect. Furthermore TVK regularly reviews the principles it applies in order to comply with international best practices in this area of the business as well. TVK has always recognised the importance of maintaining the highest standards of corporate governance. Among other things, the voluntary approval of the declaration on the Budapest Stock Exchange Corporate Governance Recommendations by the Annual General Meeting in 2006, before the official deadline, served as testament to the Company’s commitment to corporate governance. A separate section of the TVK website (www.tvk.hu) is devoted to corporate governance and is the page where the company publishes its corporate governance policy and Code of Ethics.

The Board adopted a set of rules (Charter) to govern its own activities when the company was founded (on December 31, 1991); these rules are regularly updated to ensure continued adherence to best practice standards. The Board Charter covers: • scope of the authority and responsibilities of the Board, • provision of information to the Board, the frequency of reports, • main responsibilities of the Chairman and the Deputy Chairman, • order and preparation of Board meetings and the permanent items of the agenda, and • decision-making mechanism, and the manner in which the implementation of resolutions is monitored. Report of the Board of Directors on its 2008 activities In 2008, the Board of Directors held 4 meetings with an average attendance rate of 90%. Alongside regular agenda items, such as reports by the Committees’ chairmen on the activities pursued since the last Board meeting, or an overview of capital market developments, the Board of Directors also individually evaluates the performance of each of the company’s business units.

Board of Directors
TVK’s Board of Directors acts as the highest governance body of the Company and as such has collective responsibility for all corporate operations. The Board’s key activities are focused on achieving increasing shareholder value, improving efficiency and profitability, and ensuring transparency in corporate activities. It also aims to ensure appropriate risk management, environmental protection, and conditions for safety at work. Given that TVK and its subsidiaries effectively operate as a single unit, the Board is also responsible for enforcing its aims and policies, and for promoting the TVK culture throughout the entire Group. The principles, policies and goals take account of the Board’s specific and unique relationship with TVK’s shareholders, the executive management and the Company.

Committees of the Board of Directors
Certain specific tasks are carried out by the Board’s Committees. These Committees have the right to approve preliminary resolutions concerning issues specified in the Decision-making and Authorities List, which sets out the division of authority and responsibility between the Board and the executive management. • The responsibilities of the Committees are determined by the Board of Directors. • The Chairman of the Board of Directors may also request the Committees to perform certain tasks. The members and chairs of the Committees are elected by the Board of Directors.

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corporate governance 143

Currently, the Board allocates responsibilities to the following Committee: Finance and Audit Committee: Members and dates of appointment (professional backgrounds of members are available on company homepage): Name József Molnár Michel-Marc Delcommune Vratko Kassovic Árpád Olvasó Position Chairman Member Member Member Beginning of assignment 26.04.2002. 26.04.2002. 28.04.2005. 26.04.2002.

Incentives provided for non-executive directors In addition to fixed remuneration, TVK operates an incentive scheme for non-executive directors, which allows the Company to motivate its directors, supporting the continued improvement in longterm Company performance, and value of the TVK shares. In addition, the aim of the scheme is to ensure that directors’ interests remain in line with the interests of the Company’s shareholders. The basis of the effective incentive scheme for non-executive directors was approved by the ordinary Annual General Meeting (AGM) in 2007. Fixed remuneration: A resolution of the Annual Ordinary General Meeting at April 19, 2007 provided that effective as of the day of the Annual General Meeting those Board members who are not employed by TVK Plc. or any other subsidiaries of MOL Group should receive the time proportionate net payment per year of their mandate as follows:

Responsibilities: The committee is responsible for promoting the efficiency of the Board regarding issues related to finance, risk management and financial audit as well as for matters designated to it by the Board. Report of the Audit Committee on its 2008 activities In 2008, the Finance and Audit Committee held 4 meetings with a 81% average attendance rate. The regular agenda items included the audit of all public financial reports, providing assistance with the auditor’s work and the regular monitoring of internal audit.

• Board members • Chairman

50,000 EUR/year 75,000 EUR/year

Other benefits: Non resident Board members who are non – Hungarian citizens and have to travel to Hungary to attend the meetings shall receive EUR 1,500 for a maximum of fifteen meetings attended in person. Incentive system for the top management The Board evaluates the performance of the management of the Company individually and at company level once a year and sets the responsibilities and the related targets of achievement for management for the given period according to the system of incentives. Operating a system of compensation and adopting practical solutions in line with the strategy of the company is a guideline for developing the structure of performance evaluation and remuneration in a way that it may be used efficiently for attaining the objectives of the Company whilst giving priority to motivating key employees in the organisation. In case of managers of the company, in all financial year, performance goals, relevant to the business strategy are determined, and these are evaluated by the one level higher manager, in case of the senior management it is done by the CEO. Detailed information on share-based payment plans can be found in the annual report of the company, at the financial statement part. Other fringe benefits: These include company optional benefits (Cafeteria), cars (also used for private purposes), life insurance, accident insurance, travel insurance, liability insurance, and an annual medical check up.

Relationship between the Board and the Executive Management
The Matrix of Decision Making Competencies (MDMC) specifies the powers and competencies delegated by the Board to the Management in an attempt to ensure the most efficient enforcement of the business, HSEQ, ethics, risk management and internal control policies specified by the Board. The objective of the MDMC is to maximise the shareholder value of the Company and to capture unambiguously the decision-making powers and competencies so as to reach operational and financial excellence. The role of the MDMC is to “translate” corporate governance rules by capturing the key decision making point in operating the business and the related competences in the organization. Hence the MDMC identifies the major control points required for efficient process development and operation. Senior management Members and dates of appointment (professional backgrounds of members are available on company homepage): Name Árpád Olvasó Gyula Hodossy László Piry Position Chief Executive Officer Chief Financial Officer, Deputy CEO Director of Polymer Marketing and Sales, Deputy CEO Tivadar Vályi Nagy Production Director János Bóta Petrochemical Technology and Project Development Manager Tamás Pénzes Human Resources Manager Beginning of assignment 01.07.2003 01.07.2007 07.06.2004 01.07.2007 01.08.2007 01.07.2004

Supervisory Board
The Supervisory Board is responsible for monitoring and supervising the Board of Directors on behalf of the shareholders. The Articles of Association of TVK provides that the Supervisory Board of the Company should have at least three, but no more than fifteen members. At present the Supervisory Board has five members. As provided in the Company Act, 1/3 of the members of this body include employee representatives, hence two members of the Supervisory Board of TVK represent employees and there are three non-executive members appointed by the shareholders.

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corporate governance 145

The members of the Supervisory Board and their independence status (professional backgrounds of members are available on company homepage): Name László Gyurovszky Position SB chairman SB member Tamás Magyar SB deputy chair SB member dr. Gyula Bakacsi SB member dr. György Bíró SB member Ildikó Keményné Újvári SB member Beginning of assignment 22.06.2007. 19.04.2007. 22.06.2007. 20.04.2001. 19.04.2007. 19.04.2007. 28.04.2000. Independence status independent non-independent (employee representative) independent independent non-independent (employee representative)

Report of the Audit Committee on its 2008 activities In 2008, the Audit Committee held 4 meetings with a 100% average attendance rate. In addition to the regular items on the agenda, including the audit of all public financial reports, providing assistance with the auditor’s work and the regular monitoring of internal audit, the Committee also devoted a considerable amount of time to the following topics: • control of financial and relevant reports, • observation of the effectiveness of internal audit system, • ensuring the independency and objectivity of the external auditor.

External auditors
The auditor is elected by the General Meeting of TVK. Ernst & Young Könyvvizsgáló Kft. acts as the auditor of TVK since 2003. The Ordinary Annual General Meeting held on April 17, 2008 elected Ernst & Young Könyvvizsgáló Kft. once again as auditor of the Company and an agreement was concluded for auditing the annual reports closing the business year of 2008. The engagement is in force until the conclusion of the Ordinary Annual General Meeting held in 2009 to decide on the approval of the 2008 annual reports. The audit agreement provides that Ernst & Young Kft. should audit the consolidated and nonconsolidated annual reports drawn up under the Accounting Act and the consolidated and nonconsolidated annual reports drawn up under International Financial Reporting Standards (IFRS, formerly IAS). The aforementioned financial statements have been audited as required by National Audit Standards, International Standards of Auditing and the provisions of the Accounting Act and any other acts and laws on auditing. The auditors ensure the continuous nature of performing the audit assignment by working on site and by participating at the meetings of key TVK bodies as well as through other forms of consultation. Furthermore, the auditor reviews the quarterly stock exchange flash report but issues no auditor’s statement, as flash reports are not fully audited. In 2008, Ernst & Young Kft. also delivered other services to TVK Plc as follows: • Supervised the data of TVK’s Hungarian and foreign subsidiaries supplied to the consolidation. This supervision was made only in case of the Hungarian subsidiaries as in case of the foreign subsidiaries the operational process became significantly simplified, therefore the control of the accounting process was made by the Accounting department of the company. • Supervised the company integrated system (BPCS) after the upgrade. Fees Paid to Auditors, 2007-2008 (HUF million)

In 2008, the Supervisory Board held 4 meetings with an average attendance rate of 100%. Remuneration of the members of the Supervisory Board According to the resolution of the Annual General Meeting held on April 19, 2007, effective as of the day of the Annual General Meeting the Supervisory Board members should receive the net payment per month of their mandate as follows: • Board members 1,000 EUR/year • Chairman 1,500 EUR/year Non resident Supervisory Board members who are non – Hungarian citizens and have to travel to Hungary to attend the meetings shall receive EUR 500 for a maximum of fifteen meetings attended in person. Audit Committee In 2007, the general meeting appointed the Audit Committee comprised of independent members of the Supervisory Board. The Audit Committee strengthens the independent control over the financial and accounting policy of the Company. The independent Audit Committee’s responsibilities include the following activities: • providing opinion on the report as prescribed by the Accounting Act, • auditor proposal and remuneration, • preparation of the agreement with the auditor, • monitoring the compliance of the conflict of interest rules and professional requirements applicable to the auditor, co-operation with the auditor, and proposal to the Board of Directors or General Meeting on necessary measures to be taken, if necessary, • evaluation of the operation of the financial reporting system, proposal on necessary measures to be taken, and • providing assistance to the operation of the Supervisory Board for the sake of supervision of the financial reporting system. Members of the Audit Committee and dates of appointment (professional backgrounds of members are available on company homepage): Name László Gyurovszky dr. Gyula Bakacsi dr. György Bíró Position AC chairman AC member AC deputy cahir AC member AC member Beginning of assignment 22.06.2007. 19.04.2007. 22.06.2007. 19.04.2007. 19.04.2007.

2007
Fee for the audit of TVK Plc. Other audit related services Tax advisory services Supervision of company integrated system Total 37.9 6.5 2.6 0.0 47.0

2008
39.0 6.9 0. 4.7 50.6

The Board of Directors do not think that any of the services rendered by Ernst & Young Kft. under the aforementioned titles jeopardise its independence as auditor.

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corporate governance 147

Relationship with the shareholders, insider trading
The Board is aware of its commitment to represent and promote shareholders’ interests, and recognises that it is fully accountable for the performance and activities of the TVK Group. To help ensure that the Company can meet shareholders’ expectations in all areas, the Board continually analyses and evaluates developments, both in the broader external environment as well as at an operational level. Formal channels of communication with shareholders include the Annual Report and Accounts and the quarterly results reports, as well as other public announcements made through the Budapest Stock Exchange (primary exchange) and the London Stock Exchange. Regular and extraordinary announcements are published on PSZÁF (Hungarian Financial Supervisory Authority) publication site and on TVK’s homepage. In addition, presentations on the business, its performance and strategy are given to shareholders at the Annual General Meeting and extraordinary General Meetings. Furthermore, investors are able to raise questions or make proposals at any time during the year, including the Company’s General Meeting. Investor feedbacks are regularly reported to the Board of Directors. TVK’s Investor Relation specialist is responsible for the organisation of the above activities as well as for the day-to-day management of TVK’s relationship with its shareholders (contact details are provided in the company’s homepage). Extensive information is also made available on TVK’s website (www.tvk.hu), which has a dedicated section for shareholders and the financial community. TVK Group is committed to the fair marketing of publicly-traded securities. Insider dealing in securities is regarded as a criminal offence in most of the countries in which we carry out business. Therefore, we require not only full compliance with relevant laws, but also the avoidance of even the appearance of insider securities trading and consultancy. TVK Group employees: • should not buy or sell shares in TVK or any other company while in possession of insider information, • should not disclose insider information to anyone outside the company, without prior approval, • should be careful, even with other TVK Group employees, should disclose insider information to a co-worker when they have permission to do so and if it is necessary to do their job, • should protect insider information from accidental disclosure.

Exercise of shareholders’ rights, general meeting participation
Voting rights on the general meeting can be exercised based on the voting rights attached to shares held by the shareholders. Every ordinary share entitles the holder thereof to have one and one hundredth vote. The actual voting power depends on how many shares are registered by the shareholders participating in the general meeting. A condition of participation and voting at the general meeting for shareholders is that the holder of the share(s) shall be registered in the Share Register. The depositary shall be responsible for registering the shareholders in the Share Register pursuant to the instructions of such shareholders in line with the conditions set by the general meeting invitation. The conditions to participate in the general meeting are published in the invitation to the general meeting. Invitations to the general meeting are published on company homepage. The ordinary general meeting is usually held in late April, in line with the current regulation. The ordinary general meeting, based on the proposal of Board of Directors approved by the Supervisory Board, shall have the authority to determine profit distribution, i.e. the amount of the profit after taxation to be reinvested into the Company and the amount to be paid out as dividends. Based upon the decision of the general meeting, dividend can be paid in a non-cash form as well. The starting date for the payment of dividends shall be defined by the Board of Directors in such way as to ensure a period of at least 10 working days between the first publication date of such announcement and the initial date of dividend distribution. Only those shareholders are entitled to receive dividend, who are registered in the share register of the Company on the basis of shareholders identification executed on the date published by the Board of Directors in the announcement on the dividend payment. Such date relevant to the dividend payment determined by the Board of Directors may deviate from the date of general meeting deciding on the payment of dividend.

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corporate governance 149

Integrated Risk Management

The goal for risk management in TVK calls for making corporate operations as secure as possible. The priorities of the risk management policy of the company involve all the risks associated with its business. The risk policy covers for instance the management of currency rate and world market price risk, as well as property, business interruption, business, liability, customer, technical, safety and environmental risks.

Since 2006, the Enterprise Risk Management (ERM) system has been used to manage risks at MOL Group level. The ERM is a modern risk management concept that also contributes to boosting corporate value. The central idea behind the concept is the need to apply a common method and a consolidated way to calculate, manage and disclose in the reports a variety of (financial, operating and strategic) risks. During the ERM process potential risks are identified and the risk benefit relationships of individual divisions, projects and decisions are rendered comparable, which contributes to developing a culture of risk awareness within the organization. The measurement of risks facilitates the identification of the root causes of risks and contributes to a greater awareness of different risk types. As a result, senior management can get a firmer grip on the risks that influence corporate profits the most and can determine the elements of risk to retain and the ones that require a variety of risk mitigation methods. The ERM also sets the framework for developing business continuity plans, crisis management and other risk management activities. Preparing the framework of BCM - Business Continuity Management – besides the high operational risk branches – began at MOL Petrochemical Division, at the end of 2007, and finished in the first half of 2008. Currently the second phase in under working out. Training and pro-activity to handle unexpected operational breakdown makes shorter not only the period between breakdown commencement and operational renewal but even point to issues and areas that should be developed.

Moreover, if risk appetite is well-defined, ERM helps set up a business portfolio with optimum risk benefit features by taking risk survey results into account in the decisions on capital allocation. The prices of the most important feedstock used by the company and the olefin and polymer products produced by TVK are pegged to the global market prices of the same products. Sales income depends heavily on the position of the HUF in the band of intervention, i.e. the EUR/ HUF rate, whilst purchases are determined first of all by the USD rate. In 2008, TVK did not conclude any forward, option or other derivative transactions to hedge against exchange rate risk. The loan taken out by the company was denominated in EUR to reduce the exchange rate risk. The company had no open foreign exchange futures positions on December 31, 2008. The company covers most of its trade accounts receivable with credit insurance to mitigate liquidity risk and it carefully examines the conditions of the prospective customer and assesses whether or not the conditions for continuous payment are given before signing a new contract. In summary, we can state, that TVK handles the basic, daily financial risks (for example goods market, exchange rates, interests) on MOL Group level.

150 tvK annual report 2008

integrated riSK management

151

Board of Directors

MOSONYI, György (60)

OLVASÓ, Árpád (50)

DELCOMMUNE, Michel-Marc (61)

GANSPERGER, Gyula (46)

Chairman of the Board since April 26, 2002 CEO of MOL Group Qualified Chemical Engineer Mr. Mosonyi graduated from the Faculty of Chemical Engineering of University of Veszprém in 1972. Starting 1974, worked for the Hungarian representation of Shell International Petroleum Co. (SIPC), where he was appointed commercial director in 1986. In 1991, he worked at the London head office of Shell. Between 1992 and 1993, he was the managing director of Shell Interag Kft. Between 1994-1999 he was President-Chief Executive Officer of Shell Hungary Rt. During the same period he became the Chairman of Shell’s Central and Eastern European Region and also, in 1998, the Chief Executive Officer of Shell Czech Republic. He is the CEO and member of the Board of MOL Plc. since July 1, 1999. He is the Chairman of TVK Plc. Honorary President of the Association of Joint Ventures and vice chairman of the Hungarian Chamber of Commerce and Industry, as well as MGYOSZ.

152 tvK annual report 2008

Deputy Chairman of the Board since April 26, 2002; Member of the Board since August 29, 2000 CEO of TVK Plc. Qualified Chemical Engineer, MBA Mr. Olvasó qualified as chemical engineer at the Chemical University Veszprém in 1983 and was awarded a Diploma in Management Studies at Buckinghamshire College – SZÁMALK in 1992. He received post-graduate degree at the College of Petroleum and Energy Studies in 1993 and an MBA degree at Brunel University – SZÁMALK in 1995. Worked for Dunai Kõolajipari Vállalat as plant engineer, operator, shift manager and as deputy plant manager between 1983 and 1992 to move on to the positions of plant manager and later project manager at Danube Refinery of MOL Rt. between 1992 and 1995; he acted as first consultant and project manager for Oracle Hungary from 1995 to 1997. Starting 1997, he worked as manager for partner relations at MOL Group DS until his appointment as head of the Chemical Division in 1999 and in turn as Director of Chemical Portfolio Management in 2001. The CEO of TVK Plc since July 1, 2003. The director of the Petrochemical Division of MOL Group since March 8, 2006. Since 1997, Mr. Olvasó has been member of the Presidium of the Hungarian Chemical Industry Association where he has acted as president since December 15, 2004. The General Assembly of APPE elected Mr. Olvasó a Member of the Board on 2nd June 2005. Mr. Olvasó was a Member of the Board by the General Assembly of CEFIC between 2006 and 2008. As of September 12, 2008 he is honorary associate professor at Pannon University of Veszprém.

Member of the Board since November 3, 2000 Chief Advisor to the President of MOL Group since July 1, 2006 Qualified Chemical Egineer, MBA MOL Group Chief Financial Officer since 11 October 1999, Director of Strategy, MOL Group since September 2, 2004 until July 1, 2006. Member of the Board of Directors of MOL Group since 28 April 2000 until 24 April 2008. Took a degree in Chemical Engineering at the University of Liege, Belgium and holds an MBA from Cornell University, New York. Mr Delcommune joined the PetroFina Group in 1972. Since 1990 he has been CFO. From 1999 he served in addition as human resources director and handled the successful merger of Fina and Total. He is a member of the International Advisory Board of Cornell University Business School and also a member of the Board of Directors of TVK Plc., Slovnaft a. s. and JKX Oil and Gaz. He is a Belgian citizen.

Member of the Board since April 20, 2006. Managing Director of Constans Invest Ltd Qualified economist. Mr. Gansperger graduated in 1986 from University of Economics Budapest, Department of Finance. He obtain his professional expertises between 19861987. at Elektrocoop Company as Executive Officer, between 1987-1990. at CET Budapest Tervez Rt. as Chief accountant, between 1990-1998. at TAXORG Könyvel és Adótanácsadó Kft. as Managing Director, between 1998-2001. at Hungarian Privatization and State Holding Company as Chairman and CEO, between 2001-2002. at Budapest Airport Pte. Ltd. as Chairman and CEO, between 2003-2005. at Wallis Plc. as CFO. He was the Chief Executive Officer of Wallis Ltd. between 2006-2007 and then, until December 2008 the Vice President of KÉSZ Holding Private Limited Company, member of the Board of Directors. At the present he is the managing director of Constans Invest Ltd. Main Titles: 2008 - Constans Invest Ltd., Managing Director, 2006 - TVK Plc., member of the Board of Directors, 2005-2007 - Wallis Plc., member of the Board of Directors, 2005-2007 - Graboplast Plc., member of the Board of Directors, 2001-2003 -MATÁV Ltd., member of the Board of Directors, 1998-2000 - Hungarian Post Co. Ltd., member of the Board of Directors, 1995-1998 - Hungarian Privatization and State Holding Company, member of the Supervisory Board.

board of directorS 153

KASSOVIC, Vratko (65)

Dr. MEDGYESSY, Péter (67)

MOLNÁR, József (53)

Member of the Board since April 28, 2005 CEO, Slovnaft a.s. until March 6, 2006 Qualified Chemical Engineer Mr. Kassovic graduated as a chemical engineer from the technical university of Bratislava in 1967. He joined Slovnaft in 1969 and filled several positions until he was appointed as CEO in January 2002. Mr. Kassovic has been the director of the Petrochemical Division of the MOL Group since October 2003. On March 6, 2006, Mr. Kassovic has retired.

154 tvK annual report 2008

Member of the Board since April 20, 2006. Former prime minister, Qualified economist Mr. Medgyessy graduated from Budapest University of Technology and Economics, Department of Theoretical Politics and Economy in 1966. Between 1966-1982 he worked at the Ministry of Finance in different positions. Between 1982-1986 Deputy Minister of Finance. In 1987 Minister of Finance. Between 1988-1990 Deputy Prime Minister, responsible of economic affairs in the government at the time of the change of regime. Between 19901994 President and Director General of the French Paribas Bank Ltd. in Hungary. Between 1994-1996 President and Director General of the Hungarian Investment and Development Bank Ltd. Between 1996-1998. Minister of Finance. Between 1998-2001 Chairman of the Board of Directors of Inter Európa Bank and Vice President of Atlasz Insurance Ltd. Between 2002-2004 Prime Minister of the Hungarian Republic. On August 25, 2004 he resigns for the sake of maintaining the coalition. Extraordinary and Plenipotentiary Ambassador of the Republic of Hungary between October 14, 2004 and May 31, 2008. Other professional and public activities: 1973-1977. Member of the Board of the International Institute for State Finance, 1994-1996. Chairman of the Hungarian Society of Economics, 19941996. Member of the Counsellors’ Committee of the World Economic Forum in Davos, 1995-1996. Member of the Board of Directors of the Hungarian Banking Association, 1998-2000. Member of the Hungarian Atlantic Council, 1998- Vice President of the Commercial, Industrial and Cultural Chamber of Central European and Gulf Countries, 2006Member of Comité Européen d’Orientation founded by Jacques Delors, 2008- Chairman of HungarianHong Kong Partner Association

Member of the Board since April 20, 2001 CFO, MOL Group Qualified Economist Mr Molnár graduated in 1978 and held various middle tier management positions at Borsodi Vegyi Kombinát, the legal predecessor of BorsodChem Zrt. Participated in the reorganisation of BorsodChem and the preparation for listing its shares in the capacity of CFO in 1991. He was responsible for finance, accounting, controlling, IT, acquisitions and divestment jobs as well as for controlling subsidiaries at the company and in turn at BorsodChem Group until April 18, 2001. He acted as CEO of TVK Rt. until April 23, 2001 until his appointment as Director of Planning and Controlling at MOL Group on July 1, 2003. He moved on to the position of CFO on September 2, 2004. He was the member of the Board of Slovnaft a.s. between 2004-2008.

board of directorS 155

Top Management

OLVASÓ, Árpád (50)
Deputy Chairman of the Board since April 26, 2002; Member of the Board since August 29, 2000 Chief Executive Officer Qualified Chemical Engineer, MBA See CV in the section on the Board of Directors

PÉNZES, Tamás (38)
Human Resources Manager Psychologist Mr. Pénzes graduated from the faculty of psychology of the University of Debrecen as a psychologist specializing in labour and organization psychology and mathematical modelling. During his academic years, he researched corporate cultures, performed statistical analyses and worked for an HR consulting company as a specialist of recruitment and selection. He has been member of the TVK HR team since 2002 and was appointed HR manager in July, 2004. Mr. Pénzes teaches at the psychology department of the University of Debrecen. He received MBA degree at Durham University in 2008.

PIRY, László (42)
Deputy CEO, Polymer Marketing and Sales Mechanical engineer, DMS

VÁLYI NAGY, Tivadar (53)
Mr. Piry graduated from the Budapest Technical University as a mechanical engineer in 1991 and obtained a diploma in management studies at Euro Contact Business School in 1998. Worked for Dow Chemicals as an engineer and sales executive to move on to regional sales and marketing positions after 1991. He was appointed as director responsible for sales of the Diversey Lever Division of Unilever in 1998. He acted as managing director at the same company starting 2001. In 2002 he took over the position of managing director at the Sloven subsidiary of Unilever and was in charge of the Croatian market starting 2003. Mr. Piry was appointed deputy CEO responsible for Polymer Marketing and Sales at TVK Plc. on June 7, 2004. Director, Production since July 1, 2007 Qualified Chemical Engineer Mr. Vályi Nagy graduated as a chemical engineer at the Mineral Oil and Coal Technology faculty of the University of Chemical Engineering in Veszprém in 1982. He joined TVK in 1978 and worked as plant engineer in various polymerisation plants of the Company before 1994. He acted as project manager in the implementation jobs of the ERP application to move on to managing the economics of a business unit starting 1995. Later on was in charge of planning an analysis in the Petrochemical Division. Mr Vályi Nagy has been chief controller of the Company since 2000. He worked as Deputy CEO, Chief Financial Officer between January 1, 2005 and July 1, 2007. He was appointed TVK’s Production Director on July 1, 2007.

HODOSSY, Gyula (38)
Deputy CEO, Management and Finance since July 1, 2007 Qualified economist Mr Hodossy started his career in 1989 at TVK’s Customs and Material Acceptance. Graduated from the Budapest College of Finance and Accounting in 1995 and obtained a Diploma in Management studies at Euro Contact Business School in 2002. From 1995 continued his work as an analysing economist at the Controlling Office. He was appointed the group leader of Inventory Management in 1997. From January 2001, he acted as the economic manager at the Olefin Business Unit. In July 2002 he took over the position of the head of the Internal Audit, then from January 2004 he was appointed the head of Energy Supply and Maintenance Management. Since July 1, 2007 he has been acting as Deputy CEO, Chief Financial Officer of TVK Plc.

BÓTA, János (47)
Director of Petrochemical Technology and Product Development since August 1, 2007, Chemical engineer Mr. Bóta graduated as chemical engineer from the Process Control Faculty of the University of Veszprém in 1985. In 1994 he has received engineer-manager degree at the University of Miskolc. He worked at TVK since 1985. For ten years he worked in various positions at the Production Unit (HDPE-1 and PP-3 Plants), between 1989 and 1995 he was plant manager. From 1995 he was the sales manager of the HDPE Business Unit, from 1998 worked as PP business unit director. From 2000 he was in the position of marketing and sales manager, from 2002 he held the post of technology development manager. From August 1, 2006 for one year he worked at the Netherlands office of Fluor Company, as process engineering manager. Since August 1, 2007 he is the Director of Petrochemical Technology and Project Development.

156 tvK annual report 2008

top management 157

Structure of Organization of TVK Plc.

Supervisory Board

ceo

Secretariat

Security and guarding

GYUROVSZKY, László (50) Chairperson of the Supervisory Board since June 22, 2007 Member of the Supervisory Board since April 19, 2007 Financial consultant, crisis-manager, Engineer He is graduated as an engineer from the Slovakian Technical University of Bratislava in 1983. Between 1983 and 1990 he worked as electrical engineer at Duslo Sala – Slovakian chemical company. Between 1990 and 1992, as a journalist he published political and economical articles. Between 1992 and 1998, as a businessman, he dealt with the sale of sport and mobile communication articles. Between 1998 and 2002 as a Member of the Parliament of the Slovak Republic, took part in implementing the reforms of the Slovakian Economy and in the work of the Budget and Finance Committee of the Parliament. From 2002 until 2006 he was a minister of the Regional Development and Construction of the Slovak Government. He is a member of TVK Plc’s Supervisory Board since April 19, 2007 and Chairman of it since June 22, 2007. He is the Chairman of TVK’s Audit Committee since June 22, 2007. MAGYAR, Tamás (40) Deputy Chair of the Supervisory Board since June 22, 2007 Member of the Supervisory Board after March 13, 1998 Chief Service Manager, TVK Plc. Energy Supply Electric Product Engineer
Human Resources Directorate

Business Analysis and operation support

Internal Audit

SCM coordination

Legal Office

Petrochemical SD & HSE partner

Corporate Services and functional SD & HSE partner

Olefin Reconstruction and development project

SD & HSE central team and project management

Petrochemical process and project development

Operations Directorate

Polymer Marketing Sales Directorate

Business Management and Financial Directorate

Product and applications development Production technology and technology develompnet Project development

Central Duty

Strategic marketing

Treasury

Business HR partner group

Production Accounting

Sales

Controlling

Functional HR partner group

Mr. Magyar graduated as electric product engineer from Kandó Kálmán Technical College for the Electric Industry in 1989. He worked for TVK at the Electricity Division and at the Electric Network Plant between 1989 and 1993 to move on to the post of product engineer at the Technical Department where he worked between 1993 and 1994 and to service manager at the High Voltage Unit between 1994 and May 1997. He acted as head of the Electric Maintenance Unit of the Energy Supply Division between 1997 and 2000. Mr. Magyar has been service manager and service technologist at the Electricians Service Unit since 2000. Mr. Magyar is the member of TVK Plc’s Supervisory Board since March 13, 1998. He was the Deputy Chairman of TVK Plc’s Supervisory Board between August 29, 2000 and November 18, 2003. Dr. BAKACSI, Gyula (50) Member of the Supervisory Board since April 19, 2007 Head of department, professor, at the Corvinus University of Budapest Head of department, professor of the Sapientia Hungarian University of Transylvania Economist, doctorate degree, candidate for Economics Dr. Gyula Bakacsi is the head of department, professor, at the Corvinus University of Budapest, Faculty of Economics, Faculty of Organisational Theory. He is the head of department, professor of the Sapientia Hungarian University of Transylvania, the Faculty of Economics and Human Sciences, Business Sciences. He is graduated in 1983 at the Faculty of Industry of the Marx Károly University of Economics in Budapest. He got his doctorate degree in 1988, candidate for Economics degree in 1994. Between 1983 and 1985 he worked at the MTA-MKKE (Marx Károly University of Economics) as science associate at the Coordination Secretary of Faculty „Socialist Company” National Perspective Scientific Research. Between 1985 and 1990, he was assistant lecturer at the Faculty of Industrial Business Organisation at MKKE. Between 1990 and 2004 he was adjunct, from 1994

Production

Logistics Operation

Competence development group

Petrochemical Asset Management and Energy supply

Logistics management

TVK Information services

HR administration group

Quality Control

Purchasing

Communication

Investment

Administration

Warehousing and inventory management

Organization planning & process management

Access management

158 tvK annual report 2008

SuperviSory board 159

Report by the Supervisory Board on the Regular Annual General Meeting of TVK Plc. of 16th April 2009 docent at the Faculty of Organisation and Management Theory at the University of Economics, Budapest. Between 2000 and 2002 he was deputy rector of the Faculty of University Politics and Development at the University of Economics and State Administration, Budapest. From 2003 he is a head of department of the Business Sciences at the Csíkszereda Unit of the Sapientia Hungarian University of Transylvania. In 2004, he was the deputy rector of the University, between 2004 and 2008, he was the rector of the Faculty of Economics and Human Sciences. From 2005, he is the head of department, professor, at the Corvinus University of Budapest, Faculty of Organisational Theory, and deputy director of the Management Sciences Institution. From 2003, he is the chairman of the Economics Sciences Professional Committee of the National Scientific Student Association. From 2004, he is a corporate member of the Local Government of Martonvásár. From 2005, he is the Chairman of the Supervisory Board of the PEM Zrt. He is the Deputy Chairman of TVK’s Audit Committee since June 22, 2007. Dr. BÍRÓ, György (54) Member of the Supervisory Board since April 19, 2007 Director of Civil Sciences Institution of the Faculty of Law, at the University of Miskolc Lawyer He graduated as lawyer at the Faculty of Law at the József Attila University of Sciences in 1978. From 1978 he worked at the Diósgyôri Gépgyár as legal advisor. Since 1989 he works as a lawyer, since 1997 he is the deputy chairman of the Bar of Borsod-Abaúj-Zemplén County. He works at the University of Miskolc, between 1982 and 1984 he was assistant, and until 1993 adjunct. Between 1993 and 1999 he was professor, head of department. Since July 1, 1999, he is head of department of the Faculty of Civil Law, at the University of Miskolc. He is the member of TVK’s Audit Committee since April 19, 2007. KEMÉNYNÉ ÚJVÁRI, Ildikó (56) Member of the Supervisory Board since October 10, 1999 Laboratory engineer in the Polymer Quality Control Department of of TVK Plc Chemical engineer Mrs. Kemény graduated as chemical engineer from the University of Light Industrial Technology in Kiev 1976. She joined the Pigment Plant of TVK in 1976. Worked at the LDPE plant between 1986 and 1995 and as senior quality controller in the QC department of the HDPE Business Unit starting 1995. She acted as engineer and unit manager at the PE laboratory of the Polymer Business Unit between 2001 and 2003. Mrs. Kemény has been working as laboratory engineer in the Quality Control Department of the Polymer Production since 2003.

Throughout the business year of 2008, TVK Plc’s Supervisory Board performed its activities in the form of regular board meetings. The Supervisory Board presents the General Assembly with its present business report, pertaining to the business year of 2008, based on the report of the Board of Directors (BOD), the independent auditor’s report and its continuous review of the operation of the cooperation. TVK Plc. experienced the business year of 2008 in an intensely volatile business environment, changing continuously and in wide ranges. The revenue making capabilities of the Corporation were greatly limited by global recession, by the unprecedented price increase of the raw materials of the chemical industry and the reduction of the prices of polymer products. Negative effects were offset by the strict and consistent cost reduction programme initiated by TVK’s management; the Corporation has succeeded in retaining its market share and its regional leadership, regardless of the harsh market environment. An additional benefit is provided by the fact that TVK has successfully participated in the work of the group members aiming at utilising synergies. Integration within the MOL Group provides TVK with multiple benefits. Among others, it ensures reliable raw material supply and the disposal of by-products, as well as the optimum operation of commercial routes. According to the opinion of the Supervisory Board, the BOD’s 2008 operation and actions are in line with the laws, with TVK Plc’s statutes and bylaws. The Corporate information systems and bylaws ensure the transparency and continuous control of Corporate operations. During the operation of the Corporation each shareholder received equal treatment as required by law. The Supervisory Board was kept informed by the BOD of the Corporation through the Chief Executive Officer and about the steps taken to implement its strategy. In the opinion of the Supervisory Board, the 2008 work of the BOD was successful. The Supervisory Board recommends the Member’s Meeting to accept TVK Nyrt’s 2008 annual report prepared according to the Hungarian Act on Bookkeeping with a balance sheet total of 194,456 million HUF and after-tax revenues of 675 million HUF, as well as the TVK Group’s 2008 consolidated annual report with a balance sheet total of 209,781 million HUF and a net result of -146 million HUF. The Supervisory Board approves the recommendation of the BOD regarding the utilisation of the 2008 results after tax. The Supervisory Board supports the election of the Company’s auditor for 2009 and the establishment of its remuneration. The Supervisory Board reviewed the recommendation of the Board of Directors concerning the amendment of the statutes, and recommends it for approval for the General Assembly.

László Gyurovszky Chairman, Supervisory Board

160 tvK annual report 2008

report by the SuperviSory board 161

Corporate Information
Date of incorporation of TVK Plc.: December 31, 1991. Registered by the Borsod-AbaújZemplén County Court of Justice acting as Court of Registration on 23 March 1992. with effect as of 31 December 1991. (Date of charter: December 31, 1991., initial date of operation: January 1, 1992) Legal predecessor: Tiszai Vegyi Kombinát Registration number: Cg. 05-10-000065 The Annual Ordinary General Meeting modified the effective Articles of Association on April 17, 2008. The Articles are available for inspection and may be ordered at the head office of the Company and is available for downloading at the Company web site (www.tvk.hu). Capital issued: As of December 31, 2008 the capital of the Company included 24,290,843 ordinary shares with a face value of HUF 1,010, each. The capital of the Company upon foundation amounted to HUF 24,533,751,430. The Registrar of the Company The Board of Directors of the Company keeps the Share Register of registered shares and their holders. Issues related to TVK shares are handled by the Treasury Office of TVK, located at TVK’s registered office in Tiszaújváros: Tisza Chemical Group Public Limited Company Mailing Address: H-3581 Tiszaújváros, Pf. 20 Phone: +36 (49) 522-377 Fax: +36 (49) 521-903 E-mail: reszvenyiroda@tvk.hu TVK Plc. has no treasury shares. Shareholders with more than 5% Interest in the Equity Capital total on December 31, 2008

Shareholder
MOL Hungarian Oil and Gas Plc. Slovnaft, a.s.

Quantity (of shares)
21,083,142 1,959,243

Interest (%)
86.79 8.07

Voting ratio (%)3,4
86.79 8.07

Notes: In accordance with the resolution of 2007 Annual General Meeting, every ordinary share with a par value of HUF 1,010 (i.e. one thousand ten forint) entitles the holder thereof to have one and one hundredth vote. Please note that in Hungary, the Share Register does not fully reflect the ownership structure, as registration is not mandatory. Most Important Data of the TVK Share

2004
Number of shares (on December 31) Highest (HUF) Lowest (HUF) On December 31 (HUF) Other Information Capitalisation (HUF million) (on December 31) Annual turnover (HUF million) Average daily turnover during the year (HUF million) Dividend per share (HUF) 122,628 5,432 52 24,423,843

2005
24,423,843

2006
24,290,843

2007
24,290,843

2008
24,290,843

The Securities of the Company are Traded in the Following Foreign Markets

Closing Price of the TVK Share on the Budapest Stock Exchange: 5,375 3,400 5,060 5,890 4,605 5,240 5,995 4,855 5,345 8,490 5,250 7,010 7,060 2,405 2,405

Market type
OTC organised OTC not organised OTC not organised

City
London New York Frankfurt

Date of listing
August, 1996 August, 1996 August, 1996

Category
International Order Book portal Freiverkehr

126,990 4,758 19 42

129,835 3,987 16 -

179,752 21,424 85 369

58,420 5,637 23 n.a.

Ownership Structure as per the Share Register

Shareholder
Domestic institution/company Foreign institution/company Domestic individual Foreign individual Employees, senior officers Treasury shares Shares held by unidentified parties total

31 December 2007
Interest Voting Ratio (%) (%)3,4 87.09 8.14 0.27 0 4.5 100 87.09 8.14 0.27 0 4.5 Quantity (of shares) 21,154,466 1,976,426 65,71 1 941 1,093,299

31 December 2008
Interest Voting ratio (%) (%)3,4 88.63 9.95 1.40 0.01 0.01 100 88.63 9.95 1.40 0.01 0.01 100 Quantity (of shares) 21,530,125 2,416,138 339,587 2,391 2,602 24,290,843

100 24,290,843

162 tvK annual report 2008

corporate information 163

Glossary of Terms
Elected Officers and Top Management and Treasury Shares Held on December 31, 2008

Type (1)
BoD BoD BoD BoD BoD BoD BoD Sb

Name
György Mosonyi Árpád Olvasó Michel-Marc Delcommune Gyula Gansperger Vratko Kassovic Dr. Péter Medgyessy József Molnár László Gyurovszky

Position
Chairman of the Board Deputy Chairman of the Board Board member Board member Board member Board member Board member SB chairperson SB member SB deputy chair SB member, employee representative SB member SB member SB member, employee representative Chief Executive Officer Chief Financial Officer, Deputy CEO Director of Polymer Marketing and Sales, Deputy CEO Production Director Petrochemical Technology and Project Development Director Human Resources Manager

Beginning of Assignment
26.04.2002 29.08.2000 03.1 1.2000 20.04.2006 28.04.2005 20.04.2006 20.04.2001 22.06.2007 19.04.2007 22.06.2007 20.04.2001 19.04.2007 19.04.2007 28.04.2000 01.07.2003 01.07.2007

End / Termination/ Term of Assignment
19.04.2012 19.04.2012 19.04.2012 20.04.201 1 19.04.2012 20.04.201 1 19.04.2012 19.04.2012 19.04.2012 20.04.201 1 20.04.201 1 19.04.2012 19.04.2012 28.04.2010 Indefinite term Indefinite term

Shares Held (qty)
0 0 0 0 0 0 0 0

BAT (Best Available Technique) Application of the best practice in a certain area HSE The Health, Safety and Environmental Protection organization of TVK EC number (European Chemical number: EINECS, ELINCS or NLP) An EU registration number assigned to chemical substances classified in the “European Inventory of Existing Commercial Chemical Substances Information System” (EINECS) before 1981 or in the “European List of Notified Chemical Substances” after 1981 or as “No Longer Polymers” (NLP, a special regulatory category of the EU EBITDA Earnings before interest, taxes, depreciation and amortisation (the sum of operating profits and depreciation) EMAS (Eco-Management and Audit Scheme) As a system of environmental management and certification in the European Union, EMAS offers voluntary participation. Ethylene The first member of the alkene homologous series, empirical formula: C2H4. There is double bond between the two carbon atoms. ÉKÖVÍZIG Northern Hungarian Environmental and Water Management Authority ÉKTVF Northern Hungarian Directorate of Environmental Protection, Nature Conservation and Water Management Frequency of Intense Exposures Number of reported intense exposures per 1 million hours worked GRIG (Global Reporting Initiative Guideline) A process that affects several stakeholders and an independent institution with the mission to develop and disseminate globally acceptable guidelines for sustainability reports. HDPE High Density Polyethylene Homopolymer Polymer constructed of identical monomers IPPC Integrated Pollution Prevention and Control ISO 9001:2000 A standard applicable to quality management systems. The part after the colon shows the date of publishing.

Sb Sb Sb Sb Sp Sp

Tamás Magyar Dr. Gyula Bakacsi Dr. György Bíró Ildikó Keményné Újvári Árpád Olvasó Gyula Hodossy

0 0 0 0 0 0

Sp

László Piry

07.06.2004

Indefinite term

0

Sp

Tivadar Vályi Nagy

01.07.2007

Indefinite term

0

Sp

János Bóta

01.08.2007

Indefinite term

0

Sp

Tamás Pénzes

01.07.2004

Indefinite term

0

(1) Employee in strategic position (SP), Member of the Board of Directors (BoD), Member of the Supervisory Board (SB)

164 tvK annual report 2008

gloSSary of termS 165

ISO 14001:2004 The standard applicable to environmentally oriented management systems. COD (chemical oxygen demand) A measure of the level of pollution in waste water, or the quantity of oxygen required for the chemical oxidation of the components of organic substances in a unit of waste water Copolymer Polymer constructed of two or more different monomers LDPE Low Density Polyethylene LTI (Lost Time Injury) Injuries leading to lost working hours LTIF (Lost Time Injury Frequency) The number of incidents of lost time injury (LTI) per one million hours worked MDPE (Medium Density Polyethylene) Medium Density Polyethylene Monomer The basic material of the process of polymerisation TIP Technical Intervention Plan Olefin A member of the alkene homologous series with dual bond. Empirical formula CnH2n. PE 100 Bimodal HDPE pipe grade raw material. Gas and drinking water pipes made of bimodal HDPE have a useful life of minimum 50 years with circumferential stress at 10 MPa. Polyethylene A polymer made up of ethylene monomer, which may contain monomers other than ethylene known as comonomers. Polymer A complexity of repeating units of organic or inorganic macromolecules Polypropylene A polymer made up of propylene monomer, which may contain monomers other than propylene known as comonomers. Propylene The second member of the alkene homologous series, empirical formula: C3H6. There is a single double bond between two carbon atoms.

PSM Process Safety Management REACH (Registration, Evaluation and Authorization of Chemicals)) A new EU directive concerning the registration, evaluation and authorization of chemicals SCM Supply chain management TQM (Total Quality Management) Total Quality Management is a management method, philosophy and corporate practice, which uses available human and material resources at the highest level of efficiency to achieve corporate goals. TRIPOD A software based method of investigating the cause of accidents TROIF (Total Reportable Occupational Illness Frequency) Total reportable occupational illness frequency per one million hours worked Hazardous wastes Wastes showing one or more of the features listed in Annex 2 of Act XLIII of 2000, or containing such substances or components and representing a health or environmental hazard because of origin, composition or concentration. VOC Organic compounds volatile at room temperature, hydrocarbons

166 tvK annual report 2008

gloSSary of termS 167

Shareholder Information

Statement of Responsibility

Head Office Tisza Chemical Group Public Limited Company (TVK Plc.) Registered office: 3581 Tiszaújváros, TVK-Ipartelep, TVK Head Office, Lot number 2119/3 Building 136, Hungary Mailing address: H-3581 Tiszaújváros, P.O.Box 20, Hungary Central phone: +36 49/522-222 Central fax: +36 49/521-322 E-mail: tvkinfo@tvk.hu Web-site: www.tvk.hu For Disclosures to Investors, Annual Reports, Flash Reports, Financial Figures Contact Tisza Chemical Group Public Limited Company (TVK Plc.) H-3581 Tiszaújváros, P.O.Box 20, Hungary Phone: +36 49/522-377 Fax: +36 49/521-903 E-mail: bki@tvk.hu For Information on Shares, Share Administration, Share Registration Contact Tisza Chemical Group Public Limited Company (TVK Plc.) H-3581 Tiszaújváros, P.O.Box 20, Hungary Phone: +36 49/522-377 Fax: +36 49/521-903 E-mail: reszvenyiroda@tvk.hu For Information on Trading the Shares, Contact Budapest Stock Exchange Ltd. H-1062 Budapest, Andrássy út 93. Phone: +36 1/429-6636 Fax: +36 1/429-6654 GDR Information The Bank of New York Depositary Receipts Division 101 Barclay Street, 22nd floor New York, NY 10286, USA Tel: +1 212-815-2293 Fax: +1 212-571-3050 Place of Publishing Announcement In the context of the regulations on public limited companies, the Company shall publish its announcements at the places stipulated by the law and the stock exchange regulations, whereas the announcement stipulated by law in connection with the operation of the Company shall be published on the website of the Company (www.tvk.hu) on one occasion. Disclosure places: • the website of TVK at /www.tvk.hu/, • the website of the Budapest Stock Exchange at /www.bet.hu/ and • the website of the London Stock Exchange at /www.londonstockexchange.com/ • the website of Capital Market Disclosures, operated by PSZÁF at /www.kozzetetelek.hu/.

Statement of reSponSiblit y to be Attached to the 2008 Annual Report of Tisza Chemical Group Public Limited Company
We the undersigned representatives of the issuer, Tisza Chemical Group Public Limited Company (TVK Plc., the Company) of TVK equity shares (ISIN: HU0000073119) hereby declare in our capacity as fully authorized persons to act for and on behalf of TVK Plc. that the Company assumes unlimited liability under the provisions set forth in 53 § (1)-(2) of Act CXX of 2001 on the Capital Market that the data disclosed in the 2008 Annual Report as published are true and fair and the Annual Report does not conceal any facts of material importance for evaluating the issuer. Furthermore, Tisza Chemical Group Public Limited Company is liable for indemnifying proven damages, if any, arising from its failure to make regular and extraordinary disclosures or from any misstatements therein.

Tiszaújváros, April 16, 2009

Árpád Olvasó Chief Executive Officer

Gyula Hodossy Deputy CEO Chief Financial Officer

168 tvK annual report 2008

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Questionnaire
Please print, fill in and return to our address the following questionnaire. Thank you for helping us to improve the content and aesthetic quality of future reports with your observations and recommendations. Attention: Gábor Pálffy Address: TVK Nyrt. 3581 Tiszaújváros, Pf. 20 Telephone: +36 49 522-917 • Fax: +36 49 521-018 From: Telephone: Date: Company: Fax:

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poorer than average

unacceptable

interesting: our business management system labour safety ratios fire safety ratios other:

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170 tvK annual report 2008