tvk annual report...2 tvk annual report 2011 3 content 6 tvk at a glance 9 key financial and...

MeMber of the Mol group

economic, Social and enviromental performance

TVK Annual Report

TVK Annual Report 20112 3

Content

6 TVK at a glance 9 Keyfinancialandoperatingdata 10 Chairman’sletter 12 Overviewoftheenvironment

16 Ourmainstrategicgoalsandresults 20 Consolidatedcompanies 22 Ourproduction 26 Oursales

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Ourbusinesses

Financialandoperationalperformance

Sustainability

Corporate governance

30 Managementdiscussionandanalysisontheresults 40 ConsolidatedFinancialStatements 42 Independentauditors’Report 45 Keycorporatedata

113 Mainresultsandgoals 118 Protectingtheenvironment122 Humanfocus127 OurIntegratedManagementSystems128 Oursocialcommitment130 Performanceindicators

136 Corporate governance144 ElectedofficersofTVKPlc.150 ReportbytheSupervisoryBoard 151 StructureoforganizationofTVKPlc.154 Corporateinformation157 Glossaryofterms 161 Contactinformation 162 Statementofresponsibility 163 Questionnaire

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It documents our economic,

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in 2011

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Enhancingour competitivenesswehighly leanon theMOLDownstreamDivision integration synergies: the secured feedstocksupply,therobustfinancialbackgroundandstrongpositionintheregionalmarkets,togetherwiththecompetitiveproductsoftheoptimizedproductioncapacities.

In 2011, the petrochemicalmarkets in Europewere poisoned by the general negative sentiment on economic outlook.Whilsttheglobaleconomyisgrowing,economiesinEuropearehitbythecreditcrunchandeconomicrestrictions,whichhadanimmediateeffectontheplasticsmarkets.Afterasteadyfirsthalf,theEuropeandemandforpolymershasslumpedconsiderably in2011,duetotheeconomicproblems inEuropewhichsuppressedbuying,whilst theannualaverageofthequotedpricefornaphthahasgraduallyincreased,alongwiththecrudeoilprice.Theannualaverageofintegratedpetrochemicalmarginhititseverlowestlevelandshrunkby14%from2010.

TVKcancopewiththesebusinesschallenges,duetoourstablepositionintheregionalpolyolefinmarketsandbypayingparticularattentiontothecontinuousimprovementofourproductqualityandcustomerportfolio.Thisattention-alongwiththeimplementationofourenergystrategyandcostcuttingactions–andthegoodstateofproductionfacilitiescanguaranteetheefficientoperationfortheforthcomingyears.

InoursalesandmarketingactivityweintendtostrengthenourpositioninCentral-EuropethatiscoreregionforrefinedproductsofMOLDownstreamaswell.Alongtherapidgrowthpotentialanticipatedinregionalpolymerdemand,theattractivenessofproximatemarketscanbederivedfromtheoutstandingknowledgeofspecificeconomicandinfrastructuralcharacteristicsintheregion,fromlogisticadvantagesandthepotentialtobuildstrategiccustomerrelationships.Beyondtheproductionofhighqualityproducts,ourmostrelevantcompetitiveadvantagesaresalesandmarketingservices,customercareandsupportaswellasproductionfacilitiesthatprovidepermanentsupply.

In2011weimprovedoursalesperformancebyachievinghigherpricelevels,howeverourpolymersalesvolumedeclinedslightly,by2%.Welayparticularemphasisonbetterunderstandingofcustomerrequirementsandbuildingstablebusinessrelationsinordertoimproveasustainablebusinessmodelandtomitigatecommercialrisksinaddition.

Theperformanceofwellpreparedandcommittedprofessionalstaffcanguaranteethesustainabilityofourbusinessdevelopment.Wecontinuedevelopmentinthefieldsofenvironmentalprotection,socialresponsibilityandattitudeofbusinessethics,whichcanprovidefirmbasistoourbusinessoperation.WetakeanactivepartinchemicalindustryassociationsandinprofessionalpreparatoryworksofregulationsintheEuropeanUnion.

Wecontinuetofocusonoperationalsafetyinourindustrialprocesses.OurProcessSafetyManagement(PSM)system-introducedintheprecedingyear-isrevealingandinvestigatingoperationalrisks,eventsandmonitorsthepreventiveandcorrectiveactions.ByPSMapproachintheoperationandthroughPSMauditsconductedatproductionunitsweintendtoincreaseoperationalsafetyinourpetrochemicalprocesses.ThePSMsystemweintroducedisbasedonDupontPSMmethodology.

MissionOurcompanyofferspetrochemicalproductsofexcellentqualityandhighlevelservicestoitscustomers.Ourproductsarefundamentalforawiderangeofindustrialapplicationsandfortheproductionofavastnumberofconsumergoodsthatareessentialtoeverydaylifeandprovidemorecomfortandplenitudeinpeoplelife.Usingourproducts,manyindustrialsectors(forexampleautomotiveindustry,buildingindustry)areabletoreducethelevelofCO2emissionoccurringduringusingtheirproductsandconsumables,soweendorsethebattleagainstclimatechange.Continuousimprovementandqualitymanagementinthewidestsensearetheessentialpartsofourbusinessphilosophy.

AsasignificantbusinessplayerinHungaryweexpressoursocialcommitmenttowardstheproperandwidersocietyinmanyareas.FocusingontheSouthernBorsodRegionofHungary,thatisaffecteddirectlybyouractivity,weplayimportantroleinhealthpromotion,talentmanagementandeducationdevelopment.Withaimingtoestablishlongtermrelationship,wehelporganizationsachieving

our core lines of businessWesupplypolymerproductsincompetitivequalitymainlytoEuropeanplasticprocessingcompanies.Beyondourmainprofile,wesellolefinsandotherpetrochemicalco-productstoregionalchemicalandoilcompanies,sotoMOLaswell.Ourcoreactivityincludestwomajorproductionlines:

•Olefinproduction:theproductionandwholesaledistributionofethylene,propyleneandotherco-productsofolefinproduction.Ourpetrochemicalfeedstockissuppliedfromtwosources:majorityofthatisproducedbyMOLRefiningbusinessunitandtheremainingpartisprocuredbyCommercialbusinessinMOLDownstream.Wesellthesignificantpartofourolefinco-productstoMOLRefiningSegment,theamountisapproximatelyonethirdofourfeedstockused.Themajorityoftheseco-productsareusedinthearomaticproductionandprocessedtofuelcomponents.Ourtotalethylenecapacityis660ktperannum.

•Polyolefinproduction:theproductionoflowandhighdensitypolyethylene(LDPE,unimodalandbimodalHDPE)andpolypropylene(PPcopolymerandhomogeneouspolymer).OurannualcapacityincaseofLDPEis65kt,incaseofHDPEis420ktandwehave280ktPPcapacity.

Wesupplyourpartnerswithpolymerproductsviaourownsalesnetwork.TVKoperates100%ownedsalessubsidiaries inthreecountries–Poland,FranceandUkraine.Above this,oursalesactivity isalsoconducted throughMOLsubsidiaries inAustriaandRomania,whereweexploitsynergiesfromthepresenceofotherMOLbusinesses.FromDecember2011,wealsomergepetrochemicalsalesactivitytothe localMOLsubsidiaries inGermanyandItaly.Salesaswellascustomersupport intechnical issuestothekeyaccountsandonothermarketsaremanagedfromTVKandSPC.WesupplyfeedstockespeciallytoEuropeansmallandmediumsizeplasticconverters–98%ofourpolymerproductshavebeenplacedinEuropeanmarketsin2011.

Our major goals – competitiveness, efficiency, profitabilityOurprimeobjectiveismaintainingourpetrochemicalleadershipintheCentralandEasternEuropeanpolymermarketswherewedemandgrowthperspectivesexceedsWesternEuropeanfigures.

Tisza Chemical Group Public Limited Company (hereinafter tVK plc. or tVK), located in tiszaújváros - is the largest chemical enterprise in Hungary by sales revenue.Along with Slovnaft Petrochemicals, s.r.o. (hereinafter SPC) – fully owned by Slovnaft, a.s. in Bratislava - TVK is composing the petrochemical business unit in the Mol Downstream Division, which holds leading position in petrochemical sector in the Central eastern europe and is one of the ten largest polymer producers in Europe. TVK and its Slovakian partner, SpC are operated in integrated manner, benefiting from joint optimization of production and integrated polymer sales. TVK has more than four decade experience in producing commodity polymers in competitive quality for the plastics processing industry, which products are fundamental for a wide range of industrial application and for production of a huge number of consumer goods that are essential to our everyday lives.tVK shares are listed and traded on the budapest Stock Exchange and on the International Order Book of the london Stock exchange.

TVK at a glance


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outstandingresultincultureandsciencedevelopment.Weareproud of thatwe keep relationships for decadeswith culturalorganisations and festivals having international fame and theWorldCupseriesthatincludessportfestivalaswell.

As member of the MOL Downstream Division, we conduceto enhance competitiveness and profitability in the refiningbusinessandwecanmutuallymitigatetheriskprofileaswell.

Core values•Wecommittedtoresponsiblystandupforhealth,safetyandournaturalenvironmentprotection.

•Ouroperationiscompetitiveandvaluecreating.Ourbusinessmoves are based on long term and fair business relations,whereweconsistentlykeepourethicalnorms.

•We are engaged to improve customer orientation –commitment to continuous improvement of service quality,providedtocustomers.

•Quality consciousness, endeavour to operational excellenceand the innovative approach are immersing our day-to-dayoperation. Accordingly our highly qualified, creative andmotivatedemployeescanparticipateinshapingthefutureofourcompany.Thisactivecontributioncomesfromopenand

cooperativeatmosphereandcorporateculturethatrespectsforlocalandnationalcharacteristics.

• Focusingonpeople:althoughtheindustryweworkiniswidelyknown for its high operational risks, ourwork-related injurystatistics show that we are in control of our operations intermsofhealthandsafety.

Ourcorporatevision,whichalsoreflectstheoutlinesofourcorevalues,takesshapeinanawarenessofourbusinessenvironment,resourcesandcapabilities.

VisionWeare to retain our leadership in the regional petrochemicalindustrybycontinuouslydevelopingouroperatingefficiencyandthecompetitivenessofourassets.Astheleadingregionalpolymerproducer,wearecommittedtopursueouractivitiesaccordingto the business philosophies of continuous development andoperational excellence. Our high quality portfolio of products- optimized in line with customer requirements - provide afirm basis for exploiting the opportunities arising from thesurge of demand for polymers in Central and Eastern Europe.We are building on the advantages, emanating from strategicpartnerships based on mutual benefits. Our corporate socialresponsibility guarantees that we are creating value for allstakeholders.

Key financial and operating data

tVK group, IfrS, consolidated, audited2010 2011 Change 2011

(HUF million) (HUF million) 2011/2010 (%) (EUR million)

Netsalesrevenue 365,185 411,462 13 1,322

Profit/Loss(-)fromoperation 800 (5,902) - (19)

Depreciation,amortizationandimpairment 13,012 13,331 2 43

EBITDA 13,812 7,429 (46) 24

Netfinancialgain/expense(-) (2,807) (4,981) 77 (16)

Profitbeforetax (1,989) (10,883) 447 (35)

Netprofit/loss(-) (1,170) (11,226) 859 (36)

Capitalexpenditures 7,085 6,495 (8) 21

Shareholders’equity 136,241 122,952 (10) 395

Sharecapital 24,534 24,534 0 79

Non-currentassets 131,462 125,186 (5) 402

Totalliabilities 74,431 86,078 16 277

Totalassets 210,672 209,030 (1) 672

Major ratios 2010 2011

EPS–earningspershare(HUF/share) (48) (462)

ROE–Returnonowner’sequity(%) (0.86) (9.13)

ROA–Returnonassets(%) (0.56) (5.37)

Closingheadcount 1,140 1,116

Numberofshares 24,290,843 24,290,843

Production and sales data 2010 2011

Ethyleneproduction(kt) 595 588

Polymerproduction(kt) 751 735

Polymersalesforeign(HUFbillion) 61 69

Polymersalesdomestic(HUFbillion) 165 184

Polymersalesrevenue(HUFbillion) 226 253

Closing price of tVK shares on the budapest Stock exchange 2010 2011

-Highest(HUF) 3,780 3,540

-Lowest(HUF) 2,760 2,150

-OnDecember31(HUF) 3,300 2,240

Capitalisation(onDecember31closingprice,HUFmillion) 80,160 54,412

Note:TheEUR/HUFmidFXratequotedbytheNationalBankofHungaryforDecember30,2011was:311.13


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Chairman’sletter

Irrespectiveofongoingmarketprocesses,thereorganisationwasa logical and obvious step to make. The petrochemical plantsreceive their rawmaterial supplies fromMOLGroup refineries,whichsupplyenergies, too, ifnecessary.A largepartof theby-productsgeneratedintheoperationsoftheolefinplantsproducingethylene and propylene is recycled back to the refineries forfurtherprocessing.Ahigherdegreeofintegrationallowsahigherlevelofoperationflexibility,securesasteadyfinancialbackgroundforthehighlycyclicpetrochemicalsbusiness.Oneofthebenefitsof the integrated operations is that similar activities includingmaintenance,energymanagement,logistics,salesandmarketingcanbecoordinatedmoreeasily.

Inthelightoftheextraordinarilydisadvantageousenvironmentinthesecondhalfoftheyear,therealizationofayearlysalesvolume,almostashighasin2010,wasanextraordinaryachievement,eventhougha lowermarketdemandlessenedourpolyolefinsales inthesecondhalfoftheyear.Atthesametime, itmeantthatweweresuccessfultomaintainorevenslightlyincreaseourexistingsharesinthemostimportantmarkets.

Since the highest permanent item of our costs is the costs offeedstockandenergies,wecontinuedourprogramsto improveenergy efficiency and reduce carbon dioxide emissions. Theseactionshelpedus cut our emissions by 2%at the endof 2011.Besides, we submitted our audited emission data to theevaluating organisations in September 2011 in preparation forataxationsystemtobeintroducedinrelationtotheamountofcarbon dioxide emissions (ETS) later on. These data will makea basis for the specification of the free quotas to be allocatedfrom2013onwards. Inorder tomaintain the levelsandqualityofouroperations,wecontinuedourprojects including theoneassociatedwiththerevampoftheOlefin-1Plant.

Themostunfavourableprocessesevolvinginthesecondhalfof2011madeourfinancialresultsturntothenegative. Inspiteofthis–owingtotheintegrationandthebackgroundofMOLGro-upmembership–wesucceededtokeepourfinancesstableandmaintaintheoperabilityoftheCompany.

Analysesdonotexpectasignificantimprovementtocomeinthe

Europeaneconomiesintheforthcomingthreeorfouryearsintermsofmarginsdecidingpetrochemicalprofitabilityandthedemandforplasticsinthefirstplace.Therefore,attheendof2011,weworkedupafouryears’programtoimproveefficiencyandintegrateditintotheprogramoftheDownstreamDivision.TheprogramisintendedtohelpusimprovetheefficiencyandprofitabilityofourpetrochemicalsoperationsbyanamountworthmorethantenbillionHungarianforintsonayearlyaverage.Thiswillhelpusbeamongthebestcompaniesrepresenting25%oftheEuropeanpetrochemicalsector.

Oneoftheachievementsin2011wasthatwedidnotletupourcommitmenttothestrictobservationofthesafetyandenvironmentalrulesdespitetheunfavourablebusinessenvironment.Thisallowedustokeepoursafetyfiguresatalevelnearzero,anexcellentachievementevenwhentheyarecomparedtointernationalfigures.

Ourhighlyskilledandcommittedemployeesandtheirdisciplinedworkhavetheirfairshareinourachievements.Hereby, IwantthankalltheemployeesofourCompanyfortheirresponsibleanddedicatedwork,whichcontributedtotheCompany’sperformancein2011.

Inviewofthetasksandchallengeslyingaheadofus,weknowthatweareexpectedtoworkevenharderin2012.Therefore,Iaskallthecolleaguestoperformtheirassignmentsto120%in2012,iftheyperformedthemto100%in2011.

György MOSONYIChairmanoftheBoard

Thegloomypredictionsconcerning theglobaleconomyin 2011 were right unfortunately, because the worldeconomy presented an overall growth of only 3.8%in comparison to 5.2% in 2010. In the markets ofthe continent, an even worse situation was stronglyinfluencedbyanincreasingcrisis inthecountriesoftheeurozone.WesawanexpandingworldeconomyaswellasadualfacedEuropewheresomeofthecentraleasternEuropeancountriesproducedagrowthneartheaveragegrowthof theworld economy,while growthwasmuchmoremodestintherestofthecentraleasternEuropeancountriesandinEUmemberstates.Evenworse,alarge-scalecreditcrisishittingthebiggerpartoftheEurozoneandtheausteritymeasuresintroducedtheremadetheirforcefulandnegativeimpactsontheplasticsmarkets.

Arelativelystablesupplyanddemandinthefirsthalfofthe yearwas followed by a significantly lower demandfor polymers, while the quoted price of naphtha keptincreasing high, as mineral oil prices went higher andhigher in 2011. These processes made petrochemicalmargins–havingbeensufficienttokeepoperationsnearattheirbreak-evenpointsinthefirsthalfoftheyear-sinktodropfinallytoahistoricalrockbottominthesecondhalf.Whenitiscomparedtothemarginlevelsin2010,thedropcameto14%onayearlyaverage.

Underthesecircumstances,survivalandthemaintenanceofoperabilityof the facilities,bothofwhichseemedtobeatstake,weretheprimaryobjectivesformostplayersofthepetrochemicalmarketsinthesecondhalfof2011.Inthelastmonthsoftheyear,ourcompetitorsbegantoshutdowntheir facilitiesandsuspendedoperations forshorter or longer periods. Under these circumstances,the decision made for TVK and the PetrochemicalBusiness Line of the MOL Group to reorganise theiroperations as of early June looked timely in order tointegratepetrochemicaloperationsintothestructureoftheDownstreamDivisionofMOLGroup.


PETROCHEMICALTRENDS

In2011,theaveragequoted(FOBmed)priceofnaphthawas906USD/t,theaveragequotedprice(CIFmed)ofgasoilwas937USD/t.Thenaphtha showeda yearon year increaseof 31%whilst thepriceofgasoila39%growth.

The prices quoted in the European markets for the polymerproducts produced by TVK (ICIS’ lor fd NWE low spot, EUR/t)increasedinthefirstquarterof2011asthefeedstockpricesgrew,andfromAprilshowedaslightlydecreasingtendencyintheyear.For theyearasawhole, theaveragequotedpriceof LDPEwashigher by 3%,whiles the HDPE price increased by 16-17%, andthatofpolypropylenewerehigherby6-7%yearonyear.In2011,the average quoted price of LDPEwas 1,243 EUR/t, the blownHDPEgradewas1,169EUR/t,whilstPPhomopolymerraffiaandcopolymergradeswere1,209and1,274EUR/t.

TheHUFweakenedby1%againsttheEURandstrengthenedbynear3%againsttheUSD,whiletheEURdecreasedby5%againsttheUSD.

Asaconsequenceofthechangesinthefeedstockprices,quotedpolymer prices and EUR/USD exchange rates, the integratedpetrochemicalmarginintheaverageof2011decreasedby14%inHUF-andEUR-termsyear-on-year.

Overviewoftheenvironment

MACRO eCONOMIC eNVIRONMeNT

World economy: decelerating growth2011 saw a marked but not very surprising slowdown in the global economy following the unsustainable boom of 2010. The winding down of stimulus packages across the globe and concerns regarding the future of the eurozone left their imprint on global economic performance which only grew by 3.8 percent in 2011 versus 5.2 percent in 2010, a broadly-based loss of momentum, especially at the end of the year. The advanced economies grew by 1.6 percent in 2011 while emerging countries experienced a hefty 6.2 percent growth. The International Monetary Fund (IMF) estimates that further deceleration will come in 2012 as the eurozone slips into recession, while developing economies will also slow down due to a worsening external environment and a weakening of internal demand. the IMf forecasts global gDp will grow by 3.3 percent, mostly driven by the developing regions. Central & Eastern Europe, however, will only expand by 1.1 percent in 2012, mainly due to adverse knock-on effects from the euro area trade and financial channels. there is also a downside risk to global growth if the eurozone crisis worsens.

CEE: two-speed recovery with The CEE region’s two-speed recovery continued in 2011 withPoland,SlovakiaandRomaniaperformingstrongly,whileCroatiaand Hungary, among others, continued to lag behind. Overall,theregionexpandedby5.1percentin2011accordingtotheIMF.Attheendof2011,theregionexperiencednetcapitaloutflowsfor the first time since 2009 and Western banks were alsodeleveragingwhichcreateddeterrentsforgrowthprospects.DuetohighexposuretoEurozonestress,Central&EastEuropeanGDPgrowthisprojectedtoslowdowndramaticallyin2012to1.1per-cent,withsomecountriesfallingbackintorecession.

Hungary:slowrecoveryTheHungarianeconomygrewby1.7percent in2011,accordingtopreliminarydatabytheHungarianStatisticsOffice,supportedsolelybyexports,whiledomesticdemandcontractedstillfurther.ExternalfinancinguncertaintiesforcedtheGovernmenttorequestIMFsubsidy.Negotiationsarenowinprogressbutthepotentialtermsofaloanarestillinquestion.

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Ourbusinesses


approach,aregenerating further importantbenefits forMOLPetrochemicals.

2011 main resultsAfter a reasonable increase in the first half of 2011, quotedpolymerpriceswereoncontinuouslydecreasingfortherestoftheyear.FromJanuarytoDecember, theLDPEshrunkby26%,HDPEby14%andPPbyapproximately20%.PolymerproducersinEuropewereonthevergeofprofitableoperationorbeneath.Asconsequence,polymeroutputinEuropehasslowedmarkedlybytheyearend.So,wehadtoconcentratemainlyonmaintainingouroperationandfinancialstability.

Against the unfavourable business environmentwewere abletopermanentlysupplyourcustomerswithoutrelevantcapacitycut, while our European competitors cut capacities and shutdownplants, due topoor profitability andweakdemand.Our‘crudetoplastic’optimizationthroughthesupply-chainprovidedusthenecessaryflexibilitytokeepourunitsoperational inthesecondhalfoftheyear.

Improving olefin salesOur Petrochemical business is an active player in the regionalolefinbusiness-throughincreasingolefinandolefinby-productssalesoftheolefinplants.Duetothis,wecanimprovethecapacityutilizationoftheolefinplants,whicharestrategicassetsinourpetrochemicalbusiness.

• Borsodchem, our strategic partner in the olefin business inHungaryhastakenoverthenegotiatedquantity in2011andhasincreasedthevolumeofethylenepurchasesby12%.

•Passingover the secondyearof the crudeC4 sales contractwithourPolishpartner,Synthos–wehavemorethandoubledtheC4supplyvolumes.

•Pyrolysisoil(taroil)saletothethirdparty’scarbonblackunitin Tiszaújváros has improved by approximately one-third in2011.

Continuation of the sales and marketing strategy implementationSalesandmarketingstrategycanbecharacterizedbytwomajorgoals – geographical focusing and differentiation in customerservices. Exploiting our favourable geographic location wehaveadvanced in implementingoursalesstrategy,at thefieldoflogistics,productdevelopmentandtightcustomerrelations,aiminghigherfocusonmarketsinCentralEurope.

DemandforpolyolefinhaschangeditsgrowingtrendinEuropeandconsiderablyslumpedinthesecondhalfof2011.Ourpolymersalesdroppedinthesecondhalfoftheyearaswell,andannualaverageintegratedmarginwasbelowtheprecedingyears’level.AlthoughweakUSDmitigatedtheeffectofincreasingfeedstockcostuntilthefourthquarter,profitability inthepetrochemicalbusiness had significantly decreased due to the unfavourableexternalenvironment.

In 2011 we have slightly (by one and a half percent)improvedour total polymer sales andby improvingourcustomer portfolio we further reduced the ratio ofsales tonon-coredestinations to 5%.Weadjustedourproductportfoliotothemarkets,weincreasedtheratioof polypropylene to 38%, while polyethylene productshadadecreasedratio,LDPEproductsrepresented9%andHDPEproducts53%inourtotalpolymersales.In2011wehavesubstantiallyimprovedoursalesperformancebyachievinghigherpricelevels,comparedtothequotedprices.

In 2011 our polymer sales volume has slightly decreased,howeverwe further reduced to 5% the ratio of sales to non-core destinations by improving our customer portfolio. Weadjusted our product portfolio to the markets, we increasedtheratioofpolypropyleneto38%,whilepolyethyleneproductshad a decreased ratio, LDPE products represented 9% andHDPEproducts53%inourtotalpolymersales.In2011wehavesubstantially improved our sales performance by achievinghigherpricelevels,comparedtothequotedprices.

Successful cleaning and maintenanceIn 2011 we carried out all the technology-cleaning workplannedatourpolymerunits.Thecleaningandmaintenanceworks were successfully completed covering the plannedtechnical content and the total petrochemical maintenancespendingwaswithinthebudget.Olefinunitswerescaledbackfromthefourthquarterof2011,asconsequenceoflowmarginenvironment.

We plan major reconstruction in TVK Olefin-1 unit in 2012and general overhaul in thepolymer units.Ourwell-managedmaintenanceactivitiesgiveagoodbasisforexcellentoperationalreliabilityaswellasforexploitingbusinessopportunitieswhensituationinthemarketsturnsfavourable.

InAugust28,allTVKunitshadanemergencyshutdowns,duetovoltagebreakintheelectricalsystem.Ourup-to-datecontrolsystems and the skilled operator staffwere prepared andwe

Maintain our leadership on the regional petrochemical market by continuously improving our operating efficiency and thecompetitiveness of our assets, as well as implementing theplannedmaintenanceandstrategicdevelopmentprograms:

Entering to the butadiene extraction: beyond the profitgenerationpotential,emanatedfromourpositiveoutlookofthebutadienemarket, the start of butadiene production providesus a furtheroption to enter to the attractive segmentsof thesynthetic rubbermarket. Thismarket is driven by automotiveindustryapplications.TiszaújvárosandBratislavasitesareunderinvestigationtoimplementthe130kt/yearextractionunit.

The renewal of LDPE production at our co-partner, SPC:weareatamilestoneinthemodernizationprogram,introducedatourassociatedcompany,SPCin2007.InordertofirmLDPEmarketposition,westartedtheimplementationofanew,220kt/yearcapacityLDPEunit.Steamcrackerreconstructiontobelaunchedfrom2012willestablishasolidbasisforthedevelopment.

We continue on our energy saving and emission reduction program:wherewewillrevealpotentialsavingopportunitiesintheprocessing technologyand thecontrol systemsaswell.Asresult energy efficiency and sustainable development actionswillbedefinedand implementedtoachievethetargets,set inour energy strategy. Through identifying and implementingfurtherenergyefficiencyprojects,importantstepsaretakentocomplywithenvironmentalrequirements.

Focused polymer sales by improving our polyolefin marketpositions in Central Europe by product developments tailoredtocustomerrequirements.Throughimprovingoursalesservicesandoptimizingourcustomerportfolio.

Exploit Downstream integration benefits: utilize the largestpossible extent the synergies emanating from cooperationwithotherMOLDownstreambusinessestoachieveacommonoptimum.

By implementing these development objectives, ourPetrochemical business will retain its leading position in theregionalpetrochemicalindustry.

tVK as member of the petrochemicals business in Mol DownstreamBenefitsfromtheintegratedoperation:Accordingtoour‘crudetoplastic’philosophyweoptimizeourrefiningandpetrochemicalproductionthroughthewholehydrocarbonvaluechain,whichnot onlymaximizes our profitability, but also reduces the riskat group level. Integration between petrochemical plants andrefineriesimprovesthecompetitivepositionforbothsides.Ourbusinessrepresentscaptive-marketforMOLRefiningbusinessbypurchasing13%or2.3milliontonsofMOLrefinedproductsalesaspetrochemicalfeedstock.Thisconnectionwithpetrochemicalplants provides higher operational flexibility toMOL Refining.MOLGroupmembershipprovidesastrongfinancialbackgroundtothecyclicalpetrochemicalbusinessaswell.

The harmonized production, feedstock supply, maintenanceshutdowns and common investment in technology are themajorsynergicbenefitsderivingfromtheintegrationbetweenTVKandSPC.Thetotalpolyolefinproductioncapacityexceeds1.2milliontonesinthetwositesthatprovidesleaderpositionin polyolefin production in Central Europe and representsconsiderable market share in Europe. Sales, marketingand logistics operation that we perform under integratedmanagement and develop according to a coherent strategic

Our competitive strength is supported by our geographical position and efficient production capacities with a well-balanced product and customer portfolio, as well as refinery integration.

Considering our present competitive position and our expectations for the business environment, our main strategic objectives are as follows:

Ourmainstrategicgoalsandresults

Ourbusinesses


managed to minimize the downtime. However our polymerproduction declined slightly –mainly due to the unfavourablebusinessconditions-polymervolumesproducedtogetherwithSPCwasovertheamountof2011.

Achievements in energy saving and emission reductionWe achieved 2% emission reduction by end of 2011, viasustainableimprovementactionsandindividualenergyprojects.Thiswillfurtherimprovethecostefficiencyoftheoverallenergyprocesstothebenefitofenvironment.

ThetaxationregimetobeimposedbytheEuropeanUniononCO2 emission(ETS)hasputfurtheremphasisonenergyconsumption,since it is our largest cost component that is susceptible toinfluence. By September 2011 we collected and audited ouremissiondata,whichissubmittedtothebenchmarkthatwillbethebasisoffreequotaallocation,tobedistributedfrom2013.

facing future challengesInthefuturepetrochemicalindustryremainsincreasinglyglobaland competitive, setting further challenges in the business.To keep and further strengthen competitive advantages, weare committed to continue with the implementation of ourstrategic development targets and seeking for new businessopportunities. The review of strategic development options isregularprocedureatPetrochemicals.

Ourprimerobjectivefortheforthcomingstrategicperiod istoimplement the strategic development projects within budgetandputthenewunitsonstreambythedeadlineset.

InoursalesandmarketingwewillfocusonCentralEurope,wherewe gain explicit benefit from the advantageous geographicalposition, the favourable logistics costs and from the betterunderstandingofcustomerneeds.

We further develop our successful method of active productand customer portfolio management, which is supported bya systemdesigned tooptimize thewhole supply chain (SupplyChainManagement).

MOL Downstream integration benefits, the excellent location,thewellbalancedproductandcustomerportfoliosarethekeyelementsthatcandetermineourcompetitivepower.

We give high priority for protecting our environment. In thisregard,wewishtoliveuptoourcorporatesocialresponsibilitybykeepingourplantsatahightechnical levelandbydoingsoreducingsecurityandenvironmentalrisksaswellasbyoperatingour environmental protection system that outperformsregulatoryrequirements.

Commitment to improve energy efficiency is deeply rooted inour strategic thinking. In response to the thriving importanceof environmental protection and increasing energy prices, weareconsequentlyimplementingourenergystrategyformulatedin2008.Ourtarget istoachieve11%(192kt)reductionoftheannual CO2emissionby2015,onthebasisofemittedquantitiesin 2008. In order tomeet the energy strategy objectives, weplantorealizeUSD17million/yearaverageenergycostssaving,including84kt/yearaveragereductionofCO2emissionthroughenergy efficiency development actions implemented between2011and2015.

As regards the long term future, we are confident that polymers and other petrochemical products can play an important role in making people’s lives more perfect without increasing carbon dioxide emission that influence climate change significantly. Our mission is to make this opportunity real.

Ourbusinesses


TVK consolidated companies include strategic trading subsidiaries as well as companies that are indispensable for supportingoperations.InDecember2011,TVKPlc.hassoldtwo100%consolidatedforeigntradesubsidiaries,TVKItaliaS.r.l.andTVKInterChemolGmbHtoMOLPlc.

Main figures of consolidated companies

Consolidatedcompanies

tVK Italia S.r.l.** tVK uK ltd.* tVK InterChemol gmbh** tVK france S.a.r.l. tVK polska Sp. z o. o. tVK ukraina tov TVK Ingatlankezelő Kft. TVK Erőmű Kft. Tisza-WTP Kft.

LineofBusiness SellTVKproductsinItaly SellTVKproductsintheUnitedKingdom

SellTVKProductsinGermany SellTVKproductsinFrance SellTVKproductsinPoland SellTVKProductsinthe

UkraineLeaseandoperatereal

estatePowerandsteamproduction

anddistributionSupplyofrawandfeed

water

YearofFoundation 1994 1996 1997 1997 1998 2005 1998 2001 2002

Premises Milan London FrankfurtamMain Paris Warsaw Kiev Tiszaújváros Tiszaújváros Tiszaújváros

Equitycapital - GBP200,000 - EUR76,225 PLN109,000 hryvnia33,996 HUF2,070million HUF2,630.1million HUF455million

TVKstake - 100% - 100% 100% 100% 100% 26% 0%,nonacquiredaffiliate,fullyconsolidated

Co-owner - - - - - - - ÉMÁSZNyrt. SinergyKft.

2011 Financial Figures (unconsolidated, HUF million)

Owner’sequity - 24 - 73 144 90 2,290 625 404

Salesincome 541 0 3,103 187 523 121 462 16,517 1,108

Netprofit/(loss) 66 0 38 48 115 40 76 (370) 2

*DissolutionprocessbeginonJuly1,2009**CompanyhasbeensoldinDecember2011

Ourbusinesses


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 for TVK. 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 for biologically degradable products. Our current production processes and each development must be based on scientific results and the best available technology.

Ourproduction

Competitive advantages According to our ‘crude oil to plastic’ philosophywe optimizeour petrochemical and refining production through thewhole hydrocarbon value chain, which not onlymaximize ourprofitability but reduce the risk on group level. We exploitsynergiesfromintegrationtoenhanceouroperationalexcellenceconsideringcoordinatedplanning,feedstocksupplywithrefiningandsharedserviceswithinMOLGroup.Theseelementsprovideussignificantbenefitsandflexibility.Ourgeographical locationalsogivesacompetitiveadvantage,offeringlow-costaccesstothefastgrowingpolymermarketsofCentralEurope.Wehaveacompetitiveassetbasewithawell-balancedproductportfolio.Our highly talented staff has capabilities and experiences tomanagemosteffectivelyouroperationandtofacethechallengesaswell.

Reconstruction and development program In2011,themajorpartsof investmentswerethemaintenanceprojectsrenovationsinanamountofHUF4,449millionandtheefficiency improvement individual projects in a value of HUF1,454million.ReconstructionprojectofOlefin-1PlantwasgoingoncontinuouslywithaHUF516millionCAPEXbesidescarryingouttheplannedtechnicalcontents.

Our production plants and their capacities

Plant Capacity(kt/year) Technology Year

commissioned

OlefinPlants

Olefin-1* 370 Linde 1975

Olefin-2* 290 Linde 2004

ethylene total 660

PolymerPlants

LDPE-2 65 BASF 1991

LDPEtotal 65

HDPE-1 200Chevron Phillips

1986

HDPE-2 220 Mitsui 2004

HDPEtotal 420

PP-3 100 LyondellBasell 1989

PP-4 180 LyondellBasell 1999

PP total 280

Polymerstotal 765

*Productioncapacitycalculatedforethylene

Production processesWe utilise our vertically integrated structure of production toproduce raw materials for plastics processing from a varietyof hydrocarbons. The production process includes two majorstages:makingmonomersandpolymerisation.

The olefin plants convert naphtha, gas oil and liquefied gasespurchased from theMOL Group into ethylene and propylenetobeprocessed intopolyethylene andpolypropylene inourownpolymerplants.Apart of our ethylene,produced intheolefinplants, issoldtoBorsodChem.InQ42009weconcluded a contract with Synthos, one of the largestchemical companies in Poland, for the supply of rawC4 fraction during 2010-2012. The surplus propyleneproduced in the olefin plants are sold to SlovnaftPetrochemicalsandexternalcustomers.

MOLGroupusesthecrackingco-productsofourOlefinPlants,such as isobutylene, benzene-toluene, C8 and C9 fractionsto produceMTBE and benzene or as components in blendedgasolineandheatingoil.Quenchoil isutilisedas feedstockformaking carbon black by Tiszai Columbian Koromgyártó Kft.,locatedintheTVKindustrialsite.

In2011,therewerenoshutdownsatourplants,theproductionvolumesweredriven fundamentallyby the feedstocksituationand the polymer product markets and these were the mainfactorsinfluencingthelowcapacityutilisationvalues.

Ldpe

Hdpe

pp

Monomer production polymerisationPurchased ethylene Ethylene sold

Purchased propylene

Purchased ethylenePurchased naphtha, AGO

Purchased liquefied gases C4, BT, C8, C9 fractions,

quench oil, hydrogen

Propylene sold

Olefin Plants PP Plants

HDPE Plants

LDPE Plants

Major processes of vertically aligned production at TVK

Ourbusinesses


Olefin Production Olefin-1Plant startedup in1975andOlefin-2 cameon line in2004. Both utilise Linde technology. The annual capacity ofthe two plants, calculated for ethylene increased from 620 ktto 660 kt since 2008 as a result of the capacity improvementmodificationscarriedoutintheOlefin-2Plant.

Thetwomainproductofolefinproductionisethyleneandpropylene.

In2011, theOlefinplants’monomerproduction (ethyleneandpropylene together)was99,4%of theyear2010 level.Wedidnotutilizefullyourolefincapacitiesinthesecondhalfof2011,duetothebreakdowninAugustandtheunfavourablepolymermarketcircumstances.

In2011,thesalesincomeofolefinproductionincreasedby26%,ethylene output was lower by 1%. The capacity utilisation ofbothplantscalculatedforethyleneremainedat90%.

In2011,wesold126ktofethylenetoBorsodChem,6ktofwhichwaspurchasedon themarket.Ontheexportmarketswesold20ktofpropylenetoSlovnaftPetrochemicalsand39ktrawC4fractionstotheSynthosKralupy,Polishcompany.

In 2011, pyrolysis feedstock supplywas insured by exclusivelyMOLGroupcompanies.

Polymer ProductionThetotalpolymerproductionamountedto735ktin2011,16ktlowerthaninthepreviousyear.ProductionwashigherincaseofLDPEandPPproductsegment,whileincaseofHPDEproductstheproductionwas lower than in2010.Reducing thecapacityutilizationofHDPEPlantswasnecessaryduetomarketreasons.

Polymer sales revenue reached HUF 253 billion, which is HUF27billionhigher than in2010 (HUF226billion).Higherquotedpolymerpriceshadafavourableimpactonthesalesincome.

Low-Density Polyethylene (LDPE) Product GroupUsingICItechnology,theLDPE-1PlantofTVKcameonin1970andwascomplementedbytheLDPE-2PlantofBASFtechnologyin 1991. The LDPE-1 Plant was eventually shut down in 2009decreasing theannual LDPE capacityof TVK to65 kt. In2011,the capacity utilization of LDPE-2 improved, and the plant’savailabilityreachedahistoricalpeak.

ThesalesincomeoftheLDPEProductGroupwasHUF28billionin2011,upby7%comparedto2010.Thesalesvolumewas78kt,thatamountcontainstheLDPEproductresale,purchasedfromSPC.TheproductionvolumeofLDPEproductwas66kt,upby1%comparedto2010.Thecapacityutilisationwas100.7%.

High-Density Polyethylene (HDPE) Product GroupUtilisingChevronPhillipsprocess technology, theHDPE-1Plantwasconstructed in1986.TheHDPE-2plantutilisingtheMitsuiChemicalsso-calledCX-processcameonlinein2004.Thejointannualcapacityofthetwoplantsis420kt.

HDPE Plants were affected most sensitively by the economicsituation. The decreasing capacity utilization is due to thereduced ethylene production on one hand, and on the otherhandthefactthattheexposureofthisproductisthehighestinthemarket.BlackHDPE compoundproductionwasfinished inQ42011.

In2011,thesalesincomeoftheHDPEProductGroupincreasedby 10% and was over HUF 128 billion. The total productionvolumewas388kt,downby7%yoy,whilecapacityutilizationwas92.3%.

Polypropylene (PP) Product GroupPP-3 Plant has operated since 1989 with Spheripol (Himont,currently LyondellBasell) technology, and has beencomplementedbythePP-4Plant,whichusesSpheripol(Montell,currentlyLyondellBasell)technologysince2000.Thetotalannualcapacityofthetwoplantsis280kt.

The PP product sales incomewasHUF 97 billion, up by17%.Thetotalproductionvolumewas281kt,whilethecapacityutilizationwas100.3%.

OUTLOOK

The most important action in the year of 2012 will be the accomplishment of the planned shutdowns at Olefin-1, HDPE-1, LDPE-2 and PP-3 Plants. During this program, the reconstruction project of Olefin-1 Plant will be finished with a HUF 1.2 billion planned budget. The capacity utilizations of the technologies will highly depend on the economic environment.

the external economic environment compels us to maintain austerity in cost management while focusing 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.

Ourbusinesses

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Despite lower production we were able to improve our salesfigures and price levels in the changing market environment.In 2011 quoted polyolefin prices have rose by over EUR 100untilAprilbutstartedtofallafterwards,approximatelybyEuro330,exceptLDPE.Howevercurrencyrateshavealsonegativelyimpactedourprofitgenerationin2011.

BesidesexploitingourfavourablegeographiclocationinCentralEuropewecontinuouslyimproveourcompetitivenessinthefieldof logistics services and sales support, product developmentandcostumerrelations,strengtheningfurtherthefocustoourunderstanding the specifics of Central-European polyolefinmarket.

In linewithoursales focuses,weconcentratedonsales intheCentralEuropeanmarkets.In 2011 the total polymer production remained below theprecedingyear’svolumeby2%andamountedto735kt.Polymerproductsalesamountedto752kt,whichis15ktlowerthaninthepreviousyear.Totalsalescontractedby1.4%inLDPEandby6%inHDPEproducts,whilePPproductsalesincreasedby11kt.ThenetincomefrompolymersalesamountedtoHUF253billionin2011thatrepresentsHUF27billionimprovementsinthesalesincomecomparedtothepreviousyear,duetothepositiveeffectofthehighersalesvolumeandquotedpolymerprices.

Domesticsaleshaveremainedatthelevelof2010(253kt),theexportvolumedecreasedby15kt,representing3%lossoftotalsalesvolumecomparedtotheprecedingyear.Exportsharewas72%(544kt)oftotalpolymersales,whilstthedomesticmarketproportionwas28%(208kt).

Our proprietary distribution network, which we have beenoperating successfully for several years covering severalEuropean countries, has been instrumental in achieving theseresults. We have offices in Austria, France, Poland, Germany,Italy, Ukraine and Romania. Our foreign trading subsidiariesareengaged in selling theproductsofbothTVKand theMOLGroup member Slovnaft Petrochemicals. By concentrating onthe Central European polyolefin markets and improving ourcustomerportfolio, the ratioof sales tonon-coredestinationsreducedfrom7%inthepreviousyearto5%in2011.Weoperatefoursellingpoints inHungary inordertoenhancethesellingtowardsmiddle-andsmallersizeenterprises.

Wecontinued to implement the tacticalelementsofour salesandmarketing strategy successfully: we improved ourmarketintelligence and analyses and moreover we are developing anewportfolioofsalesservicestostrengthencustomer loyalty.We have focused on the improvement of our sales channelsefficiencyandwecontinuedtodevelopourproductportfolioinresponsetotheoutcomeofpermanentanalyses.Welaidspecialemphasisondirectcustomercommunications. OUTLOOK

In the present environment, TVK can benefit from its central position in the landlocked markets of Central Europe where the demand for plastics is rapidly growing, as opposed to the Western-european markets, which are more exposed to the competition with the producers of the Middle East having great cost advantage.

On the basis of our integrated operation and actively managed product and customer portfolio we are out for building our position in the regional markets. In the forthcoming years our prime objective is to further improve customer reputation both in Hungary and in the countries of Central-Europe.

CompetitionhasincreasedinEurope,sinceMiddleEastcargoesarrive to the continent and small scale polymer producersrestartedtheirproductioncapacitiesintheregion.Wehavemadenumerousefforts inorder tooffset theunfavourable changes.

We succeeded to maintain our market position in Central Europe, in line with our objectives set in our sales and marketing strategy. Although demand continuously alters in our markets and plastic-processing companies’ activity was highly affected by the awakening fear of double-dip crisis, we successfully kept our sales performance in the region.

We develop our products by continuously examining the requirements of our customers. We are out for delivering high quality services and product information related to our products in order to satisfy customer needs. We permanently monitor and regularly communicate the health, safety and environmental (HSE) effects during the life cycle of our products and production processes. Tailor made products were launched and we are working on further product developments with higher added value. It is our aspiration to integrate product liability into each section of the life cycle.

Oursales

Ourbusinesses

Inadditiontoefficiencyincreaseandstrictcostcontrol,wearefocusing to firmour competitive position in ourmarkets,continuing to develop our business and managingproactivelyourproductandcustomerportfolio.Weareelaboratinganewportfolioofservicepackages,todevelopqualityofoursalesservices.AsthepolymermarketsofCentralEuropehavegreatergrowthpotentialthantheEuropeanaverage,oursalesstrategycontinuesto focusonexploitingour favourablegeographic location.Besides, we intend to strengthen our presence on some keyWestern European markets. In 2011 the sales volume alsoproved, that there are further growth prospect regarding ourmainactivityandmarkets.

our future goals•Maintainregionalleadershipinpolymerproduction•Retain and build the reliable and stable customer base, bylaying more emphasis on customer support and furtherimprovingcustomerloyalty

•Managecustomerportfolioactively•Developproductportfolioaccordingtomarketrequirements

HDPE(53%)

PP(38%)

LDPE(9%)

TVK Polymer

sales

distribution

2011


Financialandoperationalperformance


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ThefigurespresentedintheAnnualReportofthebusinessyear2011ofTiszaChemicalGroupPublicLimitedCompany(TVKPlc.)areauditedandfinal.Theterm„TVKGroupleveldata”isusedinthisannualreporttorefertothefiguresofTVKPlcanditsaffiliatesconsolidated in line with the International Financial Reporting Standards (IFRS). 7 subsidiaries, 1 affiliated business and 1 non-participatingbusinesswerefullyconsolidatedwhile1businesswasconsolidatedbytheequitymethod.Asrequiredunderlaw,theannualreportpresentstrueandfairfiguresandstatements,anddoesnotwithholdanyfactsthattheissuer–toitsbestknowledge–considerstobeofmaterialimportanceintermsofevaluatingtheissuer’sposition.Theissuerisliableforthecontentsofthisannualreport.Theissuerisalsoliablefordamagesarisingfromafailuretomakeregularandextraordinarydisclosuresandanymisleadingrepresentationinitsdisclosures.

Key Financial Data

(IFRS)2010 2011 Vált. 2010 2011 Vált.

huf million huf million % eur million eur million %

Net revenue 365,185 411,462 13 1,310 1,322 1

EBITDA 13,812 7,429 (46) 50 24 (52)

Operating profit/loss (-) 800 (5,902) - 3 (19) -

Profit/lossoffinancialtransactions(-) (2,807) (4,981) (77) (10) (16) (60)

Profit for the year attributable to equity holders (1,170) (11,226) (859) (4) (36) (800)

Operatingcashflow 12,349 5,381 (56) 44 17 (61)

Note:CalculatedusingtheaveragemidFXratequotedfortheperiodbytheNationalBankofHungary

financial highlights

Thesignificantdeclineoftheoperatingprofitintheyear2011asopposedtotheyearbeforewastheresultoftheunfavourablechangesoftheintegratedpetrochemicalmarginandtheolefinby-products.Thesignificantroseoftheenergyprices,themaintenancecostsanddepreciationalsohadnegativeeffect.Thelowerproductionandsalesvolumescontributedslightlytothedecrease.

•Overall capacity utilization in 2011 showed a year on year decrease of about 2 percentage points besides the plannedturnaroundatseveralplantsinQ22010.Duetothemorefavourablefeedstockstructure,theyearlymonomeryieldimprovedincaseofbothOlefinPlants.

•Polymerproductionandsaleswere2%and2%lowerintheyearof2011thaninthepreviousyear,respectively.Regardingthecompositionofthepolymersales,rationofpolypropylene(PP)wasupby2%andthatofHDPEwasdownbythesamedegree.Regardingtheyear9%ofthepolymerproductionwasLDPEtype,53%HDPEand38%PPtype.

•AsregardsthesalesandpurchasesinforeigncurrencyHUF1,830millionrealizedandHUF283millionnon-realizedexchangegainonreceivablesandpayableswasbookedin2011.ItwasanexchangegainofHUF1,417millionin2010.

•ThelossofHUF4,991milliononfinancialoperationsincludesrealizedexchangelossofHUF472millionandnon-realizedexchangelossofHUF2,515millionthatamountedtoHUF1,181exchangelossin2010.

•EBITDA(HUF7,429million)playedamajorroleinthefactthattheoperatingcashflowwasHUF5,381million;howeverchangesintheelementsoftheworkingcapitalhadacashflowdeterioratingeffect.Accountspayablesincreasedmostsignificantlyamongworkingcapitalelements,butinventories,otherreceivablesandaccountreceivablesalsogrew.Othershorttermliabilitieswentdown,andbesidethis,Taxespaidagainsttheprofit/lossfurtherreducedthecashflow.

• AsDecember 31, 2011 thedebt from the short and long term loanof theparent company amounted toHUF12,141million,increasedbyHUF7,687millioncomparedtotheamountonDecember31,2010.

•TVKGrouprealizedanetlossofHUF11,226millionin2011.

Managementdiscussionandanalysisontheresults

INCreASINg SAleS beSIDeS uNfAVourAble CIrCuMStANCeS

In 2011 external environment brought extreme challenges for petrochemical industry. Price of naphtha, produced from crude oil, grew continuously until April, than moderated a bit and stayed comparatively stable at the last months of the year. At the same time, polymer prices had fallen significantly after the April peak and this tendency did not turn back until the end of the year. As a consequence of the currency crisis typical of euro zone, US dollar strengthened significantly against Euro during the second half of the year that is unfavourable for petrochemical industry. Due to the above mentioned, integrated petrochemical margin, which indicates profitability, plummeted to historical low points several times during the year, and finally we had to book one of our lowest operating profit. Decreasing demand for polymer products arose from the third quarter due to the strengthening recessionary expectations of the euro zone, which sharpened the competition amongst peers for customer orders. Besides these circumstances TVK, as a member of the MOL Group, thanks to its vertical integration, was able to maintain its customers, could perform its contractual obligations as a reliable partner, and is ready to obtain the determinant player role in the regional market by keeping its competitiveness, when recession is over.


operating environment

Acomparisonofyear2011toyear2010,regardingpolymeraveragequotedprices(ICI’slorfdNWE)showsariseof3%incaseofLDPE,16-17%incaseofHDPEand6-7%incaseofpolypropyleneprices.Theprice(FOBmed)ofatonofnaphthawentupby31%toaverageUSD906.TheHUF/EUR rateanddeclinedby1%, theHUF/USD rate rosebyalmost3%,whiletheEUR/USDcrossrateweakenedbyalmost5%.Asaresult,theaverageintegratedpetrochemicalmargindecreasedby14%inHUFandEURtermsintheyear2011.ExchangeratechangeshadanoverallnegativeimpactonTVKGroupleveloperatingprofits intheperiodunderreview.

Key Profit and Loss figures

TVK Group consolidated audited figures according to IFRS (HUF million) Y 2010 Y 2011

Net revenue 365,185 411,462

Operatingprofit 800 (5,902)

Financialexpenses,net (2,807) (4,981)

Profitbeforetax (1,989) (10,883)

Profitfortheyear (1,170) (11,226)

Sales income, operating costs, operating profitIn the year of 2011, the total TVKGroup level operating incomehiked by 13% year onyearcomparedtotheyearof2010andtotalledatHUF414,826million.Withinthis, theotheroperatingincomewasHUF3,364million.Withinthis,exchangegainonAR/APwasHUF2,113million,compensationreceivedamountedtoHUF533million,HUF506millionincomesoccurredonthesalesofsubsidiaries,andtheincomeonCO2quotasalewasHUF73million.The48%,HUF1,085millionrises,comparedtothepreviousyearwascausedmainlythattheincomeofexchangeratedifferenceoftheaccountspayableandreceivablewasupbyHUF696million,gainonsellingsubsidiariesamountedtoHUF506million,thedefaultinterestandcompensationreceivedwasHUF422millionhigher,furthermoretheincomefromtheCO2quotasalewasHUF539millionless.

In2011,theconsolidatedTVKGrouplevelnetsalesamountedtoHUF411,462millionthatisHUF46,277millionmorethaninyear2010,duetothehigherpricesandtheimpactofexchangeratefluctuations.

In2011,TVKPlc.realized48%ofitssalesrevenuesfromexportsales.Italy(17%),Germany(17%), Poland (15%), Czech Republic (10%), Slovakia (6%), Austria (5%) represented themajorityofexportsales.

TVKGrouprawmaterialcostsincreasedbyHUF57,553million(19%)toHUF356,885millionyearonyearmainlyduetonaphthacostincrease;inaddition,energycostsalsowentupsignificantly.Thehighercostsreflecttheradicalriseofthequotedpriceoffeedstockusedformonomerproductionwhichwerewasbythestrengtheningof theforintagainstthedollarandthelowerfeedstockvolumesused.Energycostshikedby16%,mainlyasaresultoftheincreasedpriceofsteam,electricenergyandnaturalgas. Value of material type services used increased by HUF 720 million (5%). Maintenancecostsandthefreightandwarehousingcosts increasedduetothehigherfuelpricesandthe increasedquantities soldwithdeliveredparity.Commission feeswentup,however,amount spent on, research and development, information technology services and onbusinesstripsdecreased.

Costofgoodssoldhikedby66%becauseoftheincreasedquantityandpriceoftarpurchasedandsold.Thisincreaseinthecostswasoffsetbythesalesrevenues.

the annual integrated petrochemical margin decreased by 14%

Total operating income was higher by 13%

Sales income grew by HUF 46 billion

48% export

Costs

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Thedropof97%inmediatedservicesreflectsthechangeoftheincomefromtheenergyservicesmediatedbyTVKErőműKft.

TVKgrouplevelpersonnelexpenseswasdownbyHUF242million(3%)despitethesalaryincrease,duetothestaffreductionandthevarianceoftheaccrualofbonusesandwages.

Depreciation,amortizationandimpairmentincreasedby2%duetothesurplusdepreciationaccountedontherenovationworksrealizedduringtheturnaroundinthepreviousyear.

OtheroperatingexpenseswasdownbyHUF191million(4%);themostimportantelementofthisistheannualamountofsectorseparatetaxbookedatTVKErőműKft.Furthermoreinsurancefees,bankexpenses,publicsanitationfee,andeducationalcostsdecreased.

Change in inventory of finished goods andwork in progress shows an increase of HUF2,092millionin2011,mainlyasaconsequenceofinventoryrevaluationcausedbyhigherfeedstockprices.The levelofolefinandpolymer inventorieswasvery low inDecember2010.Incaseofpolymerproducts,afterthetemporaryvolumeincreaseduringtheyear,theclosingvolumeswereonlyalittlebithigherthanattheendofthepreviousyear.AltogetherHUF583milliondepreciationwasaccountedat theendofDecemberbecauseof thosepolymergoodsincaseofwhichtheprimecostwashigherthantheexpectedsalesprice.

WorkperformedbytheenterpriseandcapitalizedtotalledatHUF1,385milliongrewby33%.

TheGrouplevelconsolidatedlossfromoperationamountedtoHUF5,902millionintheyearof2011comparedtotheoperatingprofitofHUF800millionrealizedin2010.

Profit/loss on financial operationsComparedtothelossofHUF2,807millioninY2010,thegrouprealizedalossonfinancialoperationsofHUF4,981million inY2011.Thefinancial revenuesof thegroupincreasedbyHUF51millioninthereportingperiodcomparedtothepreviousyear,duetoaprofitable feedstockforwardtransaction,atthesametime interestincomesfall.FinancialexpensesrosebyHUF2,225millionmainlybecauseHUF1,995millionmorenon-realizedexchangeratelossandHUF189millionlessrealizedexchangelosswasgeneratedduringtheup-valuationoftheloansandotherassetsreceivedinforeigncurrency.InterestexpensesgrewbyHUF702millionduetothehigherloanamount,whilethediscountduetothepaymentperioddroppedbyHUF223million.

TaxationIntheyearof2011TVKGroupprofitbeforetaxamountedtoalossofHUF10,883million.TheincometaxwasHUF902million,deferredtaxamountedtoanegativeamountofHUF559million.

net profitConsolidatednetlosstotalledatHUF11,226million.Earningspershare(EPS)declinedfromaHUF-462,comparedtoHUF-48lastyearvalue.

EBIT - HUF 5.9 billion loss

Net financial loss was HUF 5 billion

Tax liability

earnings per share


Net asset position

Key Balance Sheet figures

TVK Group consolidated audited figures according to IFRS (HUF million) 31.12.2010. 31.12.2011.

Non-currentassets 131,462 125,186

Intangibleassets 2,648 2,351

Property,plantandequipment 128,480 122,465

Investedfinancialassets 334 370

Currentassets 79,210 83,844

Inventories 10,136 11,848

total assets 210,672 209,030

Equityattributabletoequityholdersoftheparent 136,241 122,952

Sharecapital 24,534 24,534

Non-currentliabilities 21,491 19,427

Currentliabilities 52,940 66,651

Total equity and liabilities 210,672 209,030

ThevalueofthetotalassetsofTVKGroupasatDecember31,2011stoodatHUF209,030million.

The consolidated value of non-current assets amounted to HUF 125,186 million as atDecember31,2011,5%lowerthanonDecember31,2010mainlyduetothelowervalue-attributabletorecognizeddepreciation-oftangibleandintangibleassets.

Thevalueofcurrentassetswentupby6%toHUF83,844millionincludinga17%yearonyearincreaseininventories.Thegrowthisbasicallyduetotheup-valuation(resultingfromthegrowingfeedstockprices)oftheinventoryoftheself-manufacturedolefinandpolymerfinishedproductsandoftheolefinfeedstockpurchased.Besidesthis,theolefininventoriessignificantly,whilepolymerinventoriesslightlyincreased.Thehighersellingpricesexplaintheincreaseof2%inaccountsreceivablecomparedtotheendofyear2010.Thevalueofothercurrentassetssurgedby9%whichisattributablemainlytothefactthattheamountofVATreclaimwentupconsiderably.Taxreceivablesincreasedslightly.

Financial positionTheportfoliooflongtermdebt,netofcurrentportionincreasedbyHUF1,057million(7%)yearonyear,mainlybecauseHUF1,882millionnon-realizedexchangelosswasbooked,whichwascompensatedbytherealizedexchangegainofHUF83million.Besidesthis,HUF1,038millionsubsidiaryloanweretransferredtotheshorttermloans.Deferred tax liabilities shows a year on year drop of HUF 559 million (39%), mainlyattributabletotheincreaseofnegativetaxbase,howeverthehighertaxrateresultingfromtheregulationshadanadverseeffect.Theportfolioofothernon-currentliabilitiesdecreasedbyHUF2,553million,asthepartduewithintheyearoftheobligationsderivingfromforwardtransactionsweretransferredtotheothershorttermliabilities.

The value of current liabilities rose by 26% to HUF 66,651million. The growth reflectsmainlytheincreaseofaccountspayableandofshorttermloans.Withinthis,thehigheramountofaccountspayable reflects thepriceandvolume increaseofpurchasedolefinfeedstockinDecember2011comparedtoDecember2010;atthesametimeotherliabilitiesfallduetothedecreaseoftheaccrualofcustomerbonusesandmanagementpremiums.Theincreasedworkingcapitalandthedividendpaymenttriggeredthegrowthoftheshorttermloanportfolio.

total assets

Non-current assets

Current assets

long term debts on decreased by 10%

Short term liabilities rose by 26%

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Owner’s equity

Shareholder’sequityamountedtoHUF122,952milliononDecember31,2011,reflectingadropof10%sinceDecember31,2010.Thedecreaseisattributabletothevarianceinthevalueoftheprofit/lossaftertaxationfurthermoretothepaiddividendandtothebalancesheetlossrealizedin2010andreportedintheprofitreserve.

Significant off-balance sheet items and contingency liabilitiesThetotalvalueofcapitalcommitmentsasofDecember31,2011wasHUF2,527million,whichisfullyattributabletoTVKPlc.

cash flowOperatingcashflowamountedtoHUF5,381million.EBITDAincreasedthecashflowbyHUF7,429million,whilethechangesinworkingcapital(inventories,tradeaccountsreceivableandpayable,otherreceivablesandotherliabilitiesaltogether)decreasedthecashflowbyHUF997million.Thecashflowdeterioratingeffectofthechangesintheinventoryfollowsfrom the fact that theolefin feedstockprices –whichdetermine the inventory value–increasedandtheinventoryofself-manufacturedolefinproductsstoodatasignificantlyhigher levelasattheendofthepreviousyear,whilethatofpolymerproductsstoodatjustaslightlyhigherlevel.Thereasonoftheincreaseofaccountsreceivablewasthatsalespricesofolefinandpolymerproductswerehigherattheendof2011thanattheendof2010,atthesametimeolefinandpolymerproductsalesdecreased.Thegrowthofaccountspayablesisaconsequenceofthehighervolumesandpricesofolefinfeedstockpurchasedin December 2011, compared to December 2010. The increase of other receivablesreflectsmainlythegrowthofVATreceivables.Othershorttermliabilitiesfallduetothedecreaseoftheaccrualofcustomerbonusesandmanagementpremiums.Taxespaidagainsttheprofit/lossfurtherreducedthecashflowbyHUF940million.Theadjustmentduetothenon-casheffectsincludedintheEBITreducedtheoperatingcashflowbyHUF110million.Themainelementsofthischangewere:thegainonsellingsubsidiaries(HUF-506million)theimpairmentofinventoriesandreceivables(HUF590million),theunrealizedexchangegainonpayables/receivables(HUF-284million), thechangeofprovisions (HUF183million), the saleofCO2 emissionquota(HUF -73million), the sales of non-current assets (HUF -15million), and the dividend-liabilitywrite-off(HUF-5million).

Netcashprovidedby investingactivitiesdecreased thecashflowbyHUF6,838million,within this the amounts disbursed to the suppliers amounted to HUF 5,590 million,payments inconnectionwithclosingaforwardtransactionwereHUF2,091million.TheHUF215milliongainonsalesofsubsidiaries,theHUF92millionincomeonsaleoftangibleassets-theCO2quotasalerepresentsHUF73millionwithinthis-improvedthecashflow.

Net cash fromfinancial operations increased the cashflowbyHUF1,983million in theexaminedperiodmainlyduetotherevolvingshort-termandlong-termloansgrantedbyMOLPlc.At thesametime, thedisbursementofdividends in theamountofHUF1,991millionandtheinterestsandotherfinancialexpensesofHUF1,026milliondecreasedthecashflow.

Capital expenditureIn2011thetotalcapitalexpenditureofTVKGroupamountedtoHUF6,477million -anamountofHUF6,347millionofwhichisduetoexpenditureincurredbyTVKPlc.WithinthisHUF4,892millionwasspentonsustaincapitalexpendituresandHUF1,454milliononindividualprojects.WespentHUF443milliononotherdevelopmentprojects,withinwhichvalueofOlefin-1,Olefin-2andPP-4catalystpurchasewasHUF250million.

Capital and contractual commitments

Operating cash flow

Financial cash flow

Investment activity

total CApeX reached to HUF 6,5 billion

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organizational and personnel changes, employees

Therewasnomajorchangeoccurringinthecompanystructurein2011.

As of 30 April, 2011,Mr. JózsefMolnár,Mr.Michel-Marc Delcommune andMr. VratkoKassovic, themembers of the Board of Directors resigned frommembership. The GMelecteddr.PéterMedgyessyandGyulaGanspergerforaperiodoffive(5)years–butlatesttill thedayof theannualordinarygeneralmeeting in2016–commencingwith21April2011asamemberoftheBoardofDirectorsofTVKPlc.GMelectedZoltándr.Nagy,MiklósKamarásandFerencHorváthforaperiodoffive(5)years–but latesttillthedayoftheannualordinarygeneralmeetingin2016–commencingwith1May2011asamemberoftheBoardofDirectorsofTVKPlc.TheGMelectedJuditTuróczytheemployeeofTVKPlc.foraperiodoffive(5)years–butlatesttillthedayoftheannualordinarygeneralmeetingin2016–commencingwith21April2011asamemberoftheSupervisoryBoardofTVKPlc.

ÁrpádOlvasóresignedasof31stofMay,2011asTVKPlc’sChiefExecutiveOfficerandasmemberoftheBoardofDirectors.Asof1stofJune,2011ZsoltPethőistheChiefExecutiveOfficerofTVKPlc.

Mr.TamásPénzes,HRmanager,leftTVK,andasfromJanuary3,2012AdriennBodnárRáczistheSeniorManagerofHumanResources.

AsatDecember31,2011thetotalconsolidatedheadcountofTVKincluded1,116fulltimeemployeeswhich is24persons less than theclosingheadcountonDecember31,2010.The reasonbehind the reductionwasmainly related to themoreefficient employmentofthestaffattheparentcompany.Incaseofsubsidiaries,12employeesworkedatTVK-InterchemolGmbHandTVKItaliaS.r.l.whichweresoldinDecember2011.OnemorestaffisemployedatTVKPolskaSpzoo.

tVK shares on the Budapest Stock exchange (BSe)Although 2011 saw a reduction in the activities of capital markets globally which alsoresultedinadecreaseofthedomesticstockexchange’sturnover,BudapestStockExchange(BSE)managedtopreserveitsoperationalstability.ForBSE,themainfeatureoftheyear2011wastheextensionofitsproductrange,themainresultofwhichwasthesuccessfullaunchoftradingwithforeignequitiesonthenewlyestablishedMTF,calledBETaMarket.The increasing trend of new listings in recent years has continued as more and moredomesticcompaniesoptforcapitalmarketfinancing.Financingthroughcorporatebondhasbeenontheincrease.Intotal,sixnewequityissuershadtheirshareslisted,andfourcompaniesissuedsevennewseriesofbondsonthemarket.

Inthefirsthalfof2011,BUXindex,theindexofBSEoutperformedEuropeanandregionalmarkets. Then, as a result of the eurozone crisis themarket’s opinion turned negative;thereforeBUXindexstartedaslideinthesecondhalfoftheyear,andlaggedbehindthemarketsof the continent.Asopposed to thevalueof21,746points in thebeginningoftheyeartheindexpeakedonApril7,2011at24,451points.ItreacheditslowestvalueonSeptember26at14,930points.BUXindexstrengthenedbytheendoftheyear,andclosedat16,974points, showinga22%decreaseover thewholeyear.Onthecashmarket thetendencyofthepreviousyearscontinued,thecontributionoftheequitiessectiontothetotalturnoverwassignificant(93.1%).Theturnoverinequitiescontinuedtoconcentrateinthebluechips(97.5%).

Duringtheyearof2011thesharepriceofTVKdecreasedby35%.TheclosingpriceofthefirstdaytheyearwasHUF3,445,whiletheclosingvalueofthelastdaywasHUF2,240.Thissharepriceisthelowestoftheformertenyears.Inthefirstsevenmonthsoftheyear,sharepriceshowedacontinuouslydecreasingtendency.AfteradownturninAugust-September,pricesharestagnateduntiltheendoftheyear.TheminimumclosingpricewasHUF2,150,whilethemaximumclosingpricewasHUF3,540intheyear2011.

In2011,theyearlyturnoveroftheTVKshareswasHUF1,422millionand520,852pcs,whiletheaveragedailyturnoverwasHUF5.6million.ThemarketcapitalizationoftheTVKsharesamountedtoHUF54.4billion,downby32%comparedtothelastyear(HUF80.2billion).TVKwasthe8thamongthelistedcompanies intermsofmarketcapitalization.TheTVKsharesdidnotreallybelongedtotheliquidpapers,asaconsequenceofthesmallfractionofpublicshares.

AccordingtotheResolutionofBSECEO,TVKsharesas fromApril1,2011wasremovedfromtheBUXbasketandwasincludedintheBUMIXbasket;thanfromOctober3,2011theequitywasremovedfromBUMIXbasketaswell.OnMarch30,2011,TVKsharehadaratioof0.19%ofBUXbasketcapitalization.DuringthesupervisionofBUXindex,madeinspring2011,thesharedidnotmeetonecriterion,duetothelowfree-float;thereforeitwasremovedfromthebasket.ThesharewasincludedintheBUMIXbasketwitharationof3.08%basketcapitalizationonApril1,2011.DuringthesupervisionofthecompositionofBUMIXmadeinthefall,theequitymetonlythreeofthesevencriteria,thereforewasremoved from the BUMIX basket fromOctober 3, 2011; due to the low free-float andcapitalizationratio,thelowturnoverdata,no.oftransactionandvolatility.

Accordingtotherankingsupervisionmadeamong“A”categorylistedshareseriesinSeptember2011TVKsharemetthecriteria,sobelongtothe„A”category.

Ownership structureThere was no significant change in the shareholder structure of the companyduringtheyearof2011,sincetherewasnochangeinthepersonandshareofthoseshareholdershavingmorethan5%ofshares.AccordingtotheShareholderRegisterMOLPlc.has86.79%,whileSlovnafta.s.,asubsidiaryofMOLPlc,has8.07%shareholderstake.ThereforeMOLPlc.has94.86%directandindirectinfluenceonTVKPlcis.

Attheendoftheyear,theshareholderstakeofthedomesticinstitutionalinvestorswas88.1%,whilethestakeoftheforeigninvestorsremainedat9.2%.Theownershipshareofprivateinvestorswasnotsignificant,reaching1.3%.Thecompanyhadnotreasurysharesin2011either.

TheAnnualGeneralMeetingofTVKPlc.heldonApril14,2011approvedtopayadividendofHUF1,991,849,126inrespectofthe2010financialyeartoitsordinaryshares.AccordinglythegrossdividendisHUF82pershare.ThepaymentofdividendcommencedonJune6,2011.

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Organization

Senior management

Employment

headcount

Global economy effects on stock exchanges

buX index

tVK share

Shareholders with more than 5% stake

Shareholder structure

Dividend payment

FullTimeEmployees December 31, 2010 December 31, 2011

Corporate level 1,112 1,099

Group level 1,140 1,116


ownership Structure

Shareholders with more than 5% according to the Share RegisterDecember 31, 2011

Description of ownerDecember 31, 2010 December 31, 2011

Interest(%)

VotingRatio(%)

Quantity(ofshares)

Interest(%)

VotingRatio(%)

Quantity(ofshares)

Domesticinstitution/company 89.30 89.30 21,690,707 88.10 88.10 21,401,032

Foreigninstitution/company 9.21 9.21 2,237,133 9.20 9.20 2,231,796

Domesticindividual 1.19 1.19 288,245 1.29 1.29 314,443

Foreignindividual 0.02 0.02 6,190 0.03 0.03 7,227

Employees,seniorofficers - - - - - -

Treasuryshares - - - - - -

Sharesheldbyunidentifiedparties 0.28 0.28 68,568 1.38 1.38 336,345

totAl 100.00 100.00 24,290,843 100.00 100.00 24,290,843

Név Quantity(ofhares) Interes (%) Voting ratio (%)

MOLHungarianOilandGasPublicLimitedCompany(MOLPlc.) 21,083,142 86.79 86.79

Slovnaft,a.s. 1,959,243 8.07 8.07

AccordingtotheShareRegister,MOLPlc.shareholdinginTVKPlc.is86.79%.ThestakeofSlovnaft,a.s.(subsidiaryofMOLPlc)is8.07%.ThedirectandindirectinfluenceofMOLPlc.inTVKPlc.is94.86%.

Notes:

Inaccordancewiththeresolutionof2007AnnualGeneralMeeting,everyordinarysharewithaparvalueofHUF1,010(i.e.onethousandtenforint)entitlesthe

holderthereoftohaveoneandonehundredthvote.

PleasenotethatinHungary,theShareRegisterdoesnotfullyreflecttheownershipstructure,asregistrationisnotmandatory Fina

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tisza chemical group Public limited company and Subsidiaries

ConsolidatedfinancialstatementspreparedinaccordancewithInternationalFinancialReportingStandardstogetherwiththeindependentauditors’report

31December2011

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Emphasis of matter

7.)We draw the attention to Note 29 to the consolidated financial statements that describe the environmental aspects of theCompany’soperationsandhighlightstheriskofadditionalsignificantdecontaminationexpensesthatmightincuroverthecurrentamountoftheprovisioninrelationtopastenvironmentaldamageasmaybeidentifiedbyfutureenvironmentalsurveys.Ouropinionisnotmodifiedinrespectofthismatter.

Other reporting requirement - The consolidated business report

8.)WehavereviewedtheconsolidatedbusinessreportofTiszaChemicalGroupPublicLimitedCompany for2011.Managementisresponsibleforthepreparationoftheconsolidatedbusinessreport inaccordancewiththeHungarian legalrequirements.Ourresponsibilityistoassesswhethertheconsolidatedbusinessreportisconsistentwiththeconsolidatedfinancialstatementsforthesamefinancialyear.Ourworkregardingtheconsolidatedbusinessreporthasbeenrestrictedtoassessingwhethertheconsolidatedbusiness report is consistentwith theconsolidatedannualfinancial statementsanddidnot include reviewingother informationoriginated from non-audited financial records. In our opinion, the consolidated business report of Tisza Chemical Group PublicLimitedCompanyfor2011correspondstothedisclosuresinthe2011consolidatedannualfinancialstatementsofTiszaChemicalGroupPublicLimitedCompany.

Budapest,21March2012

HavasIstván HavasIstvánErnst&YoungKft. RegisteredAuditorRegistrationNo.001165 ChambermembershipNo.:003395

this is a translation of the Hungarian reportIndependent Auditors’ Report

To the Shareholders of Tisza Chemical Group Public Limited Company

Report on financial statements s

1.)Wehaveauditedtheaccompanying2011consolidatedannualfinancialstatementsofTiszaChemicalGroupPublicLimitedCompany(“theCompany”),whichcomprisetheconsolidatedstatementoffinancialpositionasat31December2011-showingabalancesheettotalofHUF209,030millionandalossfortheyearofHUF11,226million-,therelatedconsolidatedincomestatement,consolidatedstatementofcomprehensiveincome,consolidatedstatementofchangesinequity,consolidatedstatementofcashflowsfortheyearthenendedandasummaryofsignificantaccountingpoliciesandotherexplanatoryinformation.

Management’s responsibility for the consolidated financial statements

2.)ManagementisresponsibleforthepreparationandpresentationofconsolidatedfinancialstatementsthatgiveatrueandfairviewinaccordancewiththeInternationalFinancialReportingStandardsasadoptedbyEU,andforsuchinternalcontrolasmanagementdeterminesisnecessarytoenablethepreparationofconsolidatedfinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.

Auditor’s responsibility

3.)Ourresponsibilityistoexpressanopinionontheseconsolidatedfinancialstatementsbasedonouraudit.WeconductedourauditinaccordancewithHungarianNationalandInternationalAuditingStandardsandwithapplicablelawsandregulationsinHungary.Thosestandardsrequirethatwecomplywithethicalrequirementsandplanandperformtheaudittoobtainreasonableassuranceaboutwhethertheconsolidatedfinancialstatementsarefreefrommaterialmisstatement.

4.) An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidatedfinancialstatements.Theproceduresselecteddependontheauditor’sjudgment,includingtheassessmentoftherisksofmaterialmisstatementoftheconsolidatedfinancialstatements,whetherduetofraudorerror.Inmakingthoseriskassessmentstheauditorconsidersinternalcontrolrelevanttotheentity’spreparationofconsolidatedfinancialstatementsthatgiveatrueandfairviewinordertodesignauditproceduresthatareappropriateinthecircumstancesbutnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’sinternalcontrol.Anauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationoftheconsolidatedfinancialstatements.

5.)Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinion.

opinion

6.) We have audited the elements of and disclosures in the consolidated annual financial statements, along with underlyingrecordsandsupportingdocumentation,ofTiszaChemicalGroupPublicLimitedCompany inaccordancewithHungarianNationaland InternationalAuditingStandardsandhavegainedsufficientandappropriateevidence that theconsolidatedannualfinancialstatementshavebeenpreparedinaccordancewiththeInternationalFinancialReportingStandardsasadoptedbyEU.InouropiniontheconsolidatedannualfinancialstatementsgiveatrueandfairviewoftheequityandfinancialpositionofTiszaChemicalGroupPublicLimitedCompanyasat31December2011andoftheresultsofitsoperationsfortheyearthenended.

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Consolidated balance sheet31 December 2011

Notes 2011 2010

ASSetS HUFmillion HUFmillion

Non-current assets

Intangibleassets 4 2,351 2,648

Property,plantandequipment 5 122,465 128,480

Investmentsinassociatedcompanies 6 132 132

Othernon-currentassets 8 238 202

total non-current assets 125,186 131,462

Current assets

Inventories 9 11,848 10,136

Tradereceivables,net 10 50,881 49,942

Othercurrentassets 11 15,246 13,945

Prepaidtaxes 154 107

Cashandcashequivalents 12 5,715 5,080

total current assets 83,844 79,210

totAl ASSetS 209,030 210,672

eQuItY AND lIAbIlItIeS

Equity attributable to equity holders of the parent

Sharecapital 13 24,534 24,534

Reserves 14 109,644 112,877

Netincomeattributabletoequityholdersoftheparent (11,226) (1,170)

Equity attributable to equity holders of the parent 122,952 136,241

Non-controllinginterests - -

Total equity 122,952 136,241

Non-current liabilities

Long-termdebt,netofcurrentportion 15 16,248 15,191

Provisionsforliabilitiesandcharges 16 2,312 2,321

Deferredtaxliabilities 26 862 1,421

Othernon-currentliabilities 17 5 2,558

Total non-current liabilities 19,427 21,491

Current liabilities

Tradeandotherpayables 18 58,411 51,271

Provisionsforliabilitiesandcharges 16 458 407

Short-termdebt 19 6,623 286

Currentportionoflong-termdebt 15 1,159 976

Total current liabilities 66,651 52,940

totAl eQuItY AND lIAbIlItIeS 209,030 210,672

tisza chemical group Public limited company and Subsidiaries

ConsolidatedfinancialstatementspreparedinaccordancewithInternationalFinancialReportingStandards

31December2011

Tiszaújváros,21March2012

ZsoltPethő GyulaHodossyChiefExecutiveOfficer ChiefFinancialOfficer, DeputyCEO


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Consolidated Statement of comprehensive income31 December 2011

Notes 2011 2010

HUFmillion HUFmillion

Profit for the year (11,226) (1,170)

Other comprehensive income

Exchangedifferencesontranslatingforeignoperations (66) 24

Available-for-salefinancialassets,netofdeferredtax - -

Cash-flowhedges,netofdeferredtax - -

Shareofothercomprehensiveincomeforassociates - -

Other comprehensive income for the year, net of tax (66) 24

Total comprehensive income for the year (11,292) (1,146)

Attributableto:

Equityholdersoftheparent (11,292) (1,146)

Non-controllinginterest - -

Basicanddilutedearningspershare(calculatedfromcomprehensiveincome)attributabletoordinaryequityholdersoftheparent(HUF) 27 HUF(465) HUF(47)

Consolidated income statement31 December 2011

Notes 2011 2010


Netsales(revenue) 20 411,462 365,185

Otheroperatingincome 21 3,364 2,279

Total operating income 414,826 367,464

Rawmaterialsandconsumablesused 22 397,300 342,150

Personnelexpenses 23 9,404 9,646

Depreciation,amortizationandimpairment 4,5 13,331 13,012

Otheroperatingexpenses 24 4,170 4,361

Changeininventoriesoffinishedgoodsandworkinprogress (2,092) (1,461)

Workperformedbytheenterpriseandcapitalized (1,385) (1,044)

Total operating expenses 420,728 366,664

Profit from operations (5,902) 800

Financialincome 25 276 225

Financialexpense 25 (5,257) (3,032)

Net financial expense 25 (4,981) (2,807)

Gain/(Loss)fromassociates - 18

Profit before tax (10,883) (1,989)

Incometaxexpense/(benefit) 26 343 (819)

Profit for the year (11,226) (1,170)

Attributableto:

Equityholdersoftheparent(11,226) (1,170)

Non-controllinginterests - -

Basic and diluted earnings per share attributable to ordinary equity holders of the parent (HUF) 27 (462) (48)


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Consolidated statement of cash-flows 31 December 2011

2011 2010


Profit before tax (10,883) (1,989)

Adjustments to reconcile profit before tax to net cash provided by operating activities

Depreciationandimpairment 12,918 12,599

Amortizationandimpairment 413 413

Write-offofinventories,net 545 151

Increase/(decrease)inenvironmentalprovisions 284 59

Increase/(decrease)inprovisions 5 57

Net(gain)/lossonsaleoftangibleassets (88) (673)

Net(gain)/lossonsaleofsubsidiary (506) -

Assignedreceivables - 1

Write-offofreceivables 45 22

Write-offdividendliabilities (5) -

Othernoncashitems (1) -

Unrealisedforeignexchange(gain)/lossonreceivablesandpayables (284) (242)Interestincome (143) (192)Interestonborrowings 1,990 1,288

Netforeignexchange(gain)/lossexcludingforeignexchangedifferencesonreceivablesandpayables 2,987 1,181

Otherfinancial(gain)/loss,net 41 379

Shareofnet(profit)/lossofassociates - (18)

Operating cash flow before changes in working capital 7,318 13,036

(Increase)/decreaseininventory (2,257) (2,535)

(Increase)/decreaseindebtors (986) (6,244)

(Increase)/decreaseinotherreceivables (2,088) (1,464)

Increase/(decrease)inaccountspayable 5,665 5,206

Increase/(decrease)inothercurrentliabilities (1,331) 2,816

Incometaxespaid (940) 1,534

Net cash provided by operating activities 5,381 12,349

PurchaseofProperty,PlantandEquipments (5,590) (7,594)

Proceedsfromdisposalsoffixedassets 92 698

Loansandlong-termbankdeposits 655 893

LiabilitiesbyCO2emissionquotas (2,362) -

Proceedsfromliquidationofinvestments 215 -

Interestreceivedandotherfinancialincome 152 206

Net cash used in investing activities (6,838) (5,797)

Proceedsfromissueofnewdebts 17,866 42,995

Repaymentsoflong-termdebt (17,667) (56,964)

Increase/(Decrease)inshort-termdebt 4,805 7,387

Increase/(Decrease)inotherfinancialliabilities 1 -

Interestpaidandotherfinancialcosts (1,026) (1,860)

Dividendspaid (1,991) -

Other (5) -

Net cash provided by financing activities 1,983 (8,442)

(Decrease)/increase in cash and cash equivalents 526 (1,890)

Cashandcashequivalentsatthebeginningoftheyear 5,080 6,942

Cashandcashequivalentsattheendoftheyear 5,606 5,052

Consolidated statement of changes in equity31 December 2011

Sharecapital

Shareprem

ium

Retained

earning

s

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Totalreserves

Netin

comeatt

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-con

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Totalequ

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hufmillion

HUFmillion

HUFmillion

HUFmillion

hufmillion

HUFmillion

hufmillion

HUFmillion

hufmillion

Opening balance 1 January 2010 24,534 15,022 106,959 64 122,045 (9,192) 137,387 - 137,387

Currencytranslationdifferences - - - 24 24 - 24 - 24Totalcomprehensiveincomeandexpensefortheyearrecognizeddirectlyinequity

- - - 24 24 - 24 - 24

Retainedprofitfortheyear - - - - - (1,170) (1,170) - (1,170)

Totalcomprehensiveincomeandexpensefortheyear - - - 24 24 (1,170) (1,146) - (1,146)

Transfertoreservesofretainedprofitforthepreviousyear

- - (9,192) - (9,192) 9,192 - - -

Dividends - - - - - - - - -

Closing balance 31 December 2010 24,534 15,022 97,767 88 112,877 (1,170) 136,241 - 136,241

Currencytranslationdifferences - - - (66) (66) - (66) - (66)

Totalcomprehensiveincomeandexpensefortheyearrecognizeddirectlyinequity

- - - (66) (66) - (66) - (66)

Retainedprofitfortheyear - - - - - (11,226) (11,226) - (11,226)

Totalcomprehensiveincomeandexpensefortheyear - - - (66) (66) (11,226) (11,292) - (11,292)

Transfertoreservesofretainedprofitforthepreviousyear

- - (1,170) - (1,170) 1,170 - - -

Dividends - - (1,992) - (1,992) - (1,992) - (1,992)

Other - - (5) - (5) - (5) - (5)

Closing balance 31 December 2011 24,534 15,022 94,600 22 109,644 (11,226) 122,952 - 122,952


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2. Authorization, statement of compliance and basis of preparation

i) Authorization and Statement of ComplianceTheseconsolidatedfinancialstatementshavebeenapprovedandauthorizedforissuebytheBoardofDirectorson21March2012.

TheseconsolidatedfinancialstatementshavebeenpreparedinaccordancewithInternationalFinancialReportingStandards(“IFRS”)andallapplicableIFRSsthathavebeenadoptedbytheEU.IFRScomprisestandardsandinterpretationsapprovedbytheInternationalAccountingStandardsBoard(“IASB”)andtheInternationalFinancialReportingInterpretationsCommittee(“IFRIC”).

Effective1January2005,thechangeintheHungarianAccountingActallowstheGrouptoprepareitsconsolidatedfinancialstatementsinaccordancewithIFRSthathavebeenadoptedbytheEU.Currently,duetotheendorsementprocessoftheEU,andtheactivitiesoftheGroup,thereisnodifferenceinthepoliciesappliedbytheGroupbetweenIFRSandIFRSthathavebeenadoptedbytheEU.

ii) Basis of preparationTheseconsolidatedfinancialstatementshavebeenprepared inaccordancewith InternationalFinancialReportingStandardsandIFRICinterpretationsissuedandeffectiveon31December2011.

TVKPlc.preparesitsstatutoryunconsolidatedfinancialstatementsinaccordancewiththerequirementsoftheaccountingregulationscontainedinLawCof2000onAccounting(HAS).SomeoftheaccountingprinciplesprescribedinthislawdifferfromInternationalFinancialReportingStandards(IFRS).

ForthepurposesoftheapplicationoftheHistoricalCostConvention,theconsolidatedfinancialstatementstreattheCompanyashavingcomeintoexistenceasof1October1991,atthecarryingvaluesofassetsandliabilitiesdeterminedatthatdate,subjecttotheIFRSadjustments.

Thefinancialyearisthesameasthecalendaryear.

iii) Principles of ConsolidationSubsidiariesTheconsolidatedfinancialstatementsincludetheaccountsofTVKPlc.andthesubsidiariesthatitcontrols.ThiscontrolisnormallyevidencedwhentheGroupowns,eitherdirectlyorindirectly,morethan50%ofthevotingrightsofacompany’ssharecapitalandisabletogovernthefinancialandoperatingpoliciesofanenterprisesoastobenefitfromitsactivities.AsrequiredbyIAS27,immediatelyexercisablevotingrightsaretakenintoaccountwhendeterminingcontrol.

Theacquisitionmethodofaccountingisusedforacquiredbusinessesbymeasuringassetsandliabilitiesattheirfairvaluesuponacquisition,thedateofwhichisdeterminedwithreferencetothedateofobtainingcontrol.Thecostofanacquisitionismeasuredattheaggregateoftheconsiderationtransferredandtheamountofanynon-controllinginterest(formerlyknownasminorityinterest)intheacquiree.Theincomeandexpensesofcompaniesacquiredordisposedofduringtheyearareincludedintheconsolidatedfinancialstatementsfromthedateofacquisitionoruptothedateofdisposal.

Intercompanybalancesandtransactions,includingintercompanyprofitsandunrealisedprofitsandlosses-unlessthelossesindicateimpairmentof the relatedassets -areeliminated.Theconsolidatedfinancial statementsarepreparedusinguniformaccountingpoliciesforliketransactionsandothereventsinsimilarcircumstances.

Non-controlling interests represent the profit or loss and net assets not held by the Group and are shown separately in theconsolidatedbalancesheetandtheconsolidatedincomestatement,respectively.Foreachbusinesscombination,non-controllinginterestisstatedeitheratfairvalueoratthenon-controllinginterests’proportionateshareoftheacquiree’sfairvaluesofnetassets.Thechoiceofmeasurementbasisismadeonanacquisition-by-acquisitionbasis.Subsequenttoacquisition,thecarryingamountofnon-controllinginterestsistheinitiallyrecognisedamountofthoseinterestsadjustedwiththenon-controllinginterests’shareofconsecutivechangesinequity.Totalcomprehensiveincomeisattributedtonon-controllinginterestsevenifthisresultsinthenon-controllinginterestshavinganegativebalance.

ChangesintheGroup’sinterestsinsubsidiariesthatdonotresultinalossofcontrolareaccountedforasequitytransactions.Thecarrying amountsof theGroup’s interests and thenon-controlling interests are adjusted to reflect the changes in their relativeinterestsinthesubsidiaries.Anydifferencebetweentheamountbywhichthenon-controllinginterestsareadjustedandthefairvalueoftheconsiderationpaidorreceivedisrecognizeddirectlyinequityandattributedtotheownersofthecompany.

1. Presentation of the group structure

background to the consolidated companiestVK plc.

TiszavidékiVegyiKombinát,TVK’slegalpredecessorwasfoundedin1953.In1961itwastransformedintoastate-ownedcompanycalledTiszaiVegyiKombinát(the“state-ownedcompany”).Priorto itsprivatisation,thestate-ownedcompanywasincorporatedasapubliclimitedliabilitycompanyon31December1991(the“Company”).Inaccordancewiththelawonthetransformationofunincorporatedstate-ownedenterprises,theassetsandliabilitiesofTVKwererevaluedasatthatdate.

Asat31December1995,theCompanywas99.92%ownedbytheHungarianStatePrivatisationandHoldingCompany(“ÁPVRt.”)andtheremaining0.08%wasownedbylocalmunicipalities.

In1996,theCompanywasprivatisedthroughanofferingofsharesownedbyÁPVRt.toforeignanddomesticinstitutionalandprivateinvestors.

Following thisprivatisation, sharesof theCompanywere listedon theBudapestStockExchangeandGlobalDepositoryReceipts(“GDRs”)representingtheshareswerelistedontheLondonStockExchange.Asof31December2011,MOLPlc.holdsthemajorityoftheshares.

TheCompany,withitsregisteredseatinTiszaújváros(H-3581Tiszaújváros,TVK-IpartelepTVKKözpontiIrodaház2119/3.hrsz.136.épület), produces chemical rawmaterials including ethylene, propylene and polymers of these products for both domestic andforeignmarkets.

TheGrouphad1,116and1,140employeesasat31December2011and2010,respectively.

Consolidated subsidiaries

Company name Country Range of activityownership 31 Dec 2011

ownership 31 Dec 2010

Consolidation Method31 Dec 2011

TVKIngatlankezelőKft. Hungary Propertyleasing,management 100% 100% Fullconsolidation

TVKItaliaSrl* Italy Wholesaleandretailtrade - 100% -

TVKUKLtd.** UnitedKingdom Wholesaleandretailtrade 100% 100% Fullconsolidation

TVKInter-ChemolGmbH*** Germany Wholesaleandretailtrade - 100% -

TVKFranceS.a.r.l. France Wholesaleandretailtrade 100% 100% Fullconsolidation

TVKErőműKft.**** HungaryElectricityproductionand

distribution26% 26% Fullconsolidation

TVKPolskaSpzoo Poland Wholesaleandretailtrade 100% 100% Fullconsolidation

TVKUkrainatov Ukraine Wholesaleandretailtrade 100% 100% Fullconsolidation

TiszaWTPKft.***** Hungary Feedwaterandrawwater 0% 0% Fullconsolidation

*TVKItaliaS.r.lwassoldonDecember12,2011,butonlyitsaccumulatedprofituntilNovember30wasfullyconsolidated.

**Dissolutionstartedon1July,2009

***TVKInterchemolGmbHwassoldonDecember20,2011,butitwasfullyconsolidateduntilDecember31,2011.

****TheownershipofTVKPlc.is26%.BasedonthesyndicatedagreementTVKPlc.fullyconsolidatedit-asaspecialpurposeentity-in2011and2010.

*****Tisza-WtpKft.was formed in2002 specifically forproviding feedwaterand rawwater toTVKPlc. andTVKErőműKft.undera long-termco-operation

agreement.TiszaWTPKft.hasbeenconsolidatedbytheCompanysince1January2006inaccordancewithSIC12.AccordingtoserviceagreementTiszaWTPKft.

providesservicesthatisconsistentwiththeGroup’songoingmajoroperationsandTVKGroupistheexclusivepurchaserofservicesprovidedbyTiszaWTP.


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2.1 changes in Accounting Policies

Theaccountingpoliciesadoptedareconsistentwiththoseappliedinthepreviousfinancialyears,apartfromsomeminormodificationsintheclassificationofcertainitemsinthebalancesheetortheincomestatement,noneofwhichhasresultedinasignificantimpacton thefinancial statementsexcept for reclassifyingcosts related tobank loans fromOperating toFinancialexpenses.While thecomparativeperiodhasbeen restated, anopeningbalance sheethasnotbeen includedas the reclassificationsmadewerenotconsideredmaterial.

TheGrouphasadopted the followingnewandamended IFRSand IFRIC interpretationsduring theyear. Exceptasnotedbelow,adoptionofthesestandardsandinterpretationsdidnothaveanyeffectonthefinancialstatementsoftheGroup.Theydidhowevergiverisetoadditionaldisclosures.

•IAS24RelatedPartyDisclosures(amendment)effective1January2011•IAS32FinancialInstruments:Presentation(amendment)effective1February2010•IFRIC14PrepaymentsofaMinimumFundingRequirement(amendment)effective1January2011•ImprovementstoIFRSs(May2010)

Theprincipaleffectsofthesechangesareasfollows:

IAS 24 Related Party Transactions (Amendment)TheamendmentstoIAS24RelatedPartyDisclosuresbecomeeffectiveforfinancialyearsbeginningonorafter1January2011andmustbeappliedretrospectively.Therevisedstandardsimplifiesthedisclosurerequirementsforentitiesthatarecontrolled,jointlycontrolledorsignificantlyinfluencedbyagovernmentandclarifiesthedefinitionofarelatedparty.Asaresult,suchareportingentityisexemptfromthegeneraldisclosurerequirementsinrelationtotransactionsandbalanceswiththegovernmentandgovernment-relatedentities.

IAS 32 Financial Instruments: Presentation (Amendment)TheamendmenttoIAS32iseffectiveforannualperiodsbeginningonorafter1February2010andrequiresthatrights,optionsandwarrantstoacquireafixednumberofanentity’sownequityinstrumentsforafixedpriceofanycurrencyareequityinstrumentsifcertaincriteriaaremet.

IfrIC 14 Prepayments of a Minimum Funding Requirement (Amendment)TheamendmenttoIFRIC14PrepaymentsofaminimumfundingrequirementwasissuedtoremovetheunintendedconsequenceinIFRIC14that insomecasesentitiesarenotpermittedtorecognizeasanassetsomevoluntaryprepaymentsforminimumfundingcontributions.Theamendmentbecomeseffective1January2011.

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments This interpretation addresses the accounting by an entity that issues equity instruments to settle financial liability. The equityinstrumentismeasuredatfairvalueandthefinancialliabilityisderecognized,fullyorpartly,basedonthe“considerationpaid”.Theinterpretationiseffectiveforannualperiodsbeginningonorafter1July2010.

Improvements to IfrSsInMay2010,theIASBissueditsthirdomnibusofamendmentstoitsstandards,primarilywithaviewtoremovinginconsistenciesandclarifyingwording.Theadoptionofthefollowingamendmentsresultedinchangestoaccountingpolicies,butnoimpactonthefinancialpositionorperformanceoftheGroup.

IFRS 1 First-time Adoption of International Financial Reporting StandardsTheannualimprovementstoIFRS1include:a)accountingpolicychangesintheyearofIFRSadoption-ifafirst-timeadopterchangesitsaccountingpoliciesortheuseofexemptionsinIFRS1afterithaspublisheditsinterimfinancialreportinaccordancewithIAS34butbeforeitsfirstIFRSfinancialstatements,itshouldexplainthosechanges;b)revaluationbasisasdeemedcost–clarifiesthatafirst-timeadopterispermittedtouseevent-drivenfairvalueasdeemedcostduringthefirstIFRSperiodandc)useofdeemedcostforoperationssubjecttorateregulationforcertainitemsofproperty,plantandequipmentorintangibles.

IFRS 3 Business Combinations:AmendmenttoIFRS3specifiesthattheoptiontomeasurenon-controllinginterestseitheratfairvalueoratproportionateshareoftheacquiree’snetidentifiableassetsappliesonlytonon-controllingintereststhatarepresentownershipinterests.Allothercomponentsofnon-controllinginterestsshouldbemeasuredattheiracquisitiondatefairvalue,unlessanothermeasurementbasisisrequiredbyIFRSs.

Joint venturesAjointventureisacontractualarrangementwherebytwoormoreparties(ventures)undertakeaneconomicactivitythatissubjectto joint control. Joint controlexistsonlywhen the strategicfinancial andoperatingdecisions relating to theactivity require theunanimous consent of the ventures. A jointly controlled entity is a joint venture that involves the establishment of a company,partnershiporotherentitytoengageineconomicactivitythattheGroupjointlycontrolswithitsfellowventures.

TheCompany’sinterestsinitsjointventuresareaccountedforbytheproportionateconsolidationmethod,whereaproportionateshare of the joint venture’s assets, liabilities, income and expenses is combinedwith similar items in the consolidated financialstatementsonaline-by-linebasis.Thefinancialstatementsofthejointventuresarepreparedforthesamereportingyearastheparentcompany,usingconsistentaccountingpolicies.ThejointventureisproportionatelyconsolidateduntilthedateonwhichtheGroupceasestohavejointcontrolovertheventure.

WhentheGroupcontributesorsellsassetstothejointventure,anyportionofgainorlossfromthetransactionisrecognizedbasedonthesubstanceofthetransaction.WhentheGrouppurchasesassets fromthe jointventure, theGroupdoesnotrecognize itsshareoftheprofitsofthejointventurefromthetransactionuntilitresellstheassetstoanindependentparty.Lossesonintragrouptransactionsarerecognisedimmediatelyifthelossprovidesevidenceofreducednetrealisablevalueofcurrentassetsorimpairmentloss.

Whenthejointcontrolislost,theGroupmeasuresandrecognisesitsremaininginvestmentatitsfairvalueunlessthejointcontroldoesnotbecomeasubsidiaryorassociate.Thedifferencebetweenthecarryingamountofthejointentityandthefairvalueoftheremaininginvestmenttogetherwithanyproceedsfromdisposalisrecognisedinprofitorloss.

Investments in associatesAnassociateisanentityoverwhichthegroupisinapositiontoexercisesignificantinfluencethroughparticipationinthefinancialandoperatingpolicydecisionsoftheinvestee,butwhichisnotasubsidiaryorajointlycontrolledentity.

TheGroup’sinvestmentsinitsassociatesareaccountedforusingtheequitymethodofaccounting.Undertheequitymethod,theinvestmentintheassociateiscarriedinthebalancesheetatcostpluspostacquisitionchangesintheGroup’sshareofnetassetsoftheassociate.Goodwillrelatingtoanassociateisincludedinthecarryingamountoftheinvestmentandisnotamortised.Theincomestatementreflectstheshareoftheresultsofoperationsoftheassociate.Wheretherehasbeenachangerecognizeddirectlyintheequityoftheassociate,theGrouprecognizesitsshareofanychangesanddisclosesthis,whenapplicable,inthestatementofchangesinequity.ProfitsandlossesresultingfromtransactionsbetweentheGroupandtheassociateareeliminatedtotheextentoftheinterestintheassociate.

ThereportingdatesoftheassociateandtheGroupareidenticalandtheassociate’saccountingpoliciesconformtothoseusedbytheGroupforliketransactionsandeventsinsimilarcircumstances.

Investmentsinassociatesareassessedtodeterminewhetherthereisanyobjectiveevidenceofimpairment.Ifthereisevidencethattherecoverableamountoftheinvestmentislowerthanitscarryingvalue,thenthedifferenceisrecognisedasimpairmentlossintheincomestatement.Wherelossesweremadeinpreviousyears,anassessmentofthefactorsismadetodetermineifanylossmaybereversed.

Whenthesignificantinfluenceovertheassociateislost,theGroupremeasuresandrecognisesanyretaininginvestmentatitsfairvalue.Thedifferencebetweenthecarryingamountoftheassociateandthefairvalueoftheretaininginvestmenttogetherwithanyproceedsfromdisposalisrecognisedinprofitorloss

Other consolidated entities Specialpurposeentitiesarefullyconsolidated.Specialpurposeentitiesarecompanieswhichoperatesubstantially incompliancewiththeCompanybusinessneeds.ItprovidesasupplyofgoodsorservicesthatisconsistentwiththeCompany’songoingmajororcentraloperations.ThesubstanceoftherelationshipbetweenanentityandtheSPEindicatesthattheSPEiscontrolledbythatentity.


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2.2 Summary of significant accounting policies

i) Presentation CurrencyBasedontheeconomicsubstanceoftheunderlyingeventsandcircumstancesthefunctionalcurrencyoftheparentcompanyandthepresentationcurrencyoftheGrouphasbeendeterminedtobetheHungarianForint(HUF).

ii) Business CombinationsBusinesscombinationsareaccountedforusingtheacquisitionmethod.Thisinvolvesassessingallassetsandliabilitiesassumedforappropriate classification in accordancewith the contractual terms andeconomic conditions and recognising identifiable assets(includingpreviouslyunrecognizedintangibleassets)andliabilities(includingcontingentliabilitiesandexcludingfuturerestructuring)oftheacquiredbusinessatfairvalueasattheacquisitiondate.Acquisition-relatedcostsarerecognisedinprofitorlossasincurred.

Whenabusinesscombinationisachievedinstages,theGroup’spreviouslyheldequityinterestintheacquireeisremeasuredtofairvalueasattheacquisitiondateandtheresultinggainorlossisrecognisedinprofitorloss.

Contingentconsiderationtobetransferredbytheacquirerisrecognisedatfairvalueattheacquisitiondate.Subsequentchangestothefairvalueofthecontingentconsiderationareadjustedagainstthecostofacquisition,onlyiftheyqualifyasperiodmeasurementadjustmentsandoccurwithin12monthsfromtheacquisitiondate.Allothersubsequentchanges inthefairvalueofcontingentconsiderationareaccountedforeitherinprofitorlossoraschangestoothercomprehensiveincome.Changesinthefairvalueofcontingentconsiderationclassifiedasequityarenotrecognised.

GoodwillacquiredinabusinesscombinationisinitiallymeasuredatcostbeingtheexcessofthecostofthebusinesscombinationovertheGroup’sinterestinthenetfairvalueoftheacquiree’sidentifiableassets,liabilitiesandcontingentliabilities.Iftheconsiderationtransferredislowerthanthefairvalueofthenetassetsoftheacquiree,thedifferenceisthenrecognisedinprofitorloss.Followinginitialrecognition,goodwillismeasuredatcostlessanyaccumulatedimpairmentlosses.Forthepurposeofimpairmenttesting,goodwillacquired inabusinesscombination is, fromtheacquisitiondate,allocated toeachof theGroup’s cashgeneratingunits,orgroupsofcashgeneratingunits,thatareexpectedtobenefitfromthesynergiesofthecombination,irrespectiveofwhetherotherassetsorliabilitiesoftheGroupareassignedtothoseunitsorgroupsofunits.EachunitorgroupofunitstowhichthegoodwillisallocatedrepresentsthelowestlevelwithintheGroupatwhichthegoodwillismonitoredforinternalmanagementpurposes,andisnotlargerthanasegmentbasedontheGroup’sreportingformatdeterminedinaccordancewithIFRS8OperatingSegments.

Wheregoodwillformspartofacash-generatingunit(orgroupofcashgeneratingunits)andpartoftheoperationwithinthatunit(orgroup)isdisposedof,thegoodwillassociatedwiththeoperationdisposedofisincludedinthecarryingamountoftheoperationwhendeterminingthegainorlossondisposaloftheoperation.Goodwilldisposedofinthiscircumstanceismeasuredbasedontherelativevaluesoftheoperationdisposedofandtheportionofthecash-generatingunitretained.

Whensubsidiariesaresold,thedifferencebetweenthesellingpriceandthenetassetspluscumulativetranslationdifferencesandun-amortizedgoodwillisrecognizedintheincomestatement.

iii) Investments and other financial AssetsFinancial assetswithin the scopeof IAS39are classifiedaseitherfinancial assets at fair value throughprofitor loss, loansandreceivables,heldtomaturityinvestments,oravailableforsalefinancialassets,asappropriate.Whenfinancialassetsarerecognizedinitially,theyaremeasuredatfairvalue,plus,inthecaseofinvestmentsnotatfairvaluethroughprofitorloss,directlyattributabletransactioncosts.TheGroupconsiderswhetheracontractcontainsanembeddedderivativewhentheentityfirstbecomesapartytoit.

Purchasesandsalesofinvestmentsarerecognizedonsettlementdatewhichisthedatewhentheassetisdeliveredtothecounterparty.

TheGroup’sfinancialassetsareclassifiedatthetimeofinitialrecognitiondependingontheirnatureandpurpose.Financialassetsincludecashandshort-termdeposits,tradereceivables,loansandotherreceivables,quotedandunquotedfinancialinstrumentsandderivativefinancialinstruments.

Financial assets at fair value through profit or lossFinancialassetsatfairvaluethroughprofitorlossincludefinancialassetsheldfortradingandfinancialassetsdesignateduponinitialrecognitionasatfairvaluethroughprofitandloss.

IFRS3specifiesthatrequirementstomeasureawardsoftheacquirerthatreplaceacquireeshare-basedpaymenttransactionswithregardstoIFRS2appliesalsotosuchtransactionsoftheacquireethatarenotreplaced.Theamendmentalsoclarifiesthatmarket-basedmeasurementofreplacementawardsappliestoallreplacementawardsregardlessofwhethertheacquirerisobligedtoreplacetheawardsordoessovoluntarily.

The lastamendment to IFRS3 clarifies that IAS32, IAS39and IFRS7donotapply to contingent consideration fromabusinesscombinationwhichoccurredbeforetheeffectivedateoftherevisedstandardIFRS3in2008.

AllamendmentstoIFRS3areeffectiveforannualperiodbeginningonorafter1July2010.

IFRS 7 Financial Instruments — Disclosures: TheimprovementtoIFRS7clarifiesdisclosurerequirementsregardingcreditriskandcollateralheldinordertoenableusersbettertounderstandthenatureandextentofrisksarisingfromfinancialinstruments.

IAS 1 Presentation of Financial Statements: TheamendmenttoIAS1clarifiesthattheentitymayelecttopresenttheanalysisofothercomprehensiveincomebyitemeitherinthestatementofchangesinequityorinthenotestothefinancialstatements.

IAS 27 Consolidated and Separate financial StatementsTheamendmenttoIAS27clarifiesthatamendmentsmadetoIAS21,IAS28,andIAS31asaresultofIAS27revisionsin2008shouldbeappliedprospectivelywithsomeexceptions.Theamendmentiseffective1July2010.

IAS 34 Interim Financial StatementsAmendmentsto IAS34clarifyhowsignificanteventsandtransactions in interimperiodsshouldupdatetherelevant informationpresentedinthemostrecentannualfinancialreport.

IFRIC 13 Customer Loyalty ProgrammesAmendmenttoIFRIC13specifiesthatfairvalueofawardcreditsshouldconsiderthediscountorincentivesthatcustomerswhohavenotearnedawardcreditswouldotherwisereceivedaswellasanyexpectedforfeitures.


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Financial instruments (including compoundfinancial instruments) are classifiedas assets, liabilitiesorequity in accordancewiththe substance of the contractual arrangement. Interest, dividends, gains, and losses relating to a financial instrument classifiedasa liability,arereportedasexpenseor incomeas incurred.Distributionstoholdersoffinancial instrumentsclassifiedasequityarechargeddirectly toequity. Incaseofcompoundfinancial instruments the liabilitycomponent isvaluedfirst,with theequitycomponentbeingdeterminedasaresidualvalue.FinancialinstrumentsareoffsetwhentheCompanyhasalegallyenforceablerighttooffsetandintendstosettleeitheronanetbasisortorealisetheassetandsettletheliabilitysimultaneously.

ThederecognitionofafinancialassettakesplacewhentheGroupnolongercontrolsthecontractualrightsthatcomprisethefinancialasset,whichisnormallythecasewhentheinstrumentissold,orallthecashflowsattributabletotheinstrumentarepassedthroughtoan independentthirdparty.WhentheGroupneither transfersnorretainsall therisksandrewardsof thefinancialassetandcontinuestocontrolthetransferredasset,itrecognisesitsretainedinterestintheassetandaliabilityfortheamountsitmayhavetopay.

v) Derivative Financial InstrumentsThe Group uses derivative financial instruments such as forward currency contracts and interest rate swaps to hedge its risksassociatedwithinterestrateandforeigncurrencyfluctuations.Suchderivativefinancialinstrumentsareinitiallyrecognizedatfairvalueonthedateonwhichaderivativecontractisenteredintoandaresubsequentlyremeasuredatfairvalue.Derivativesarecarriedasassetswhenthefairvalueispositiveandasliabilitieswhenthefairvalueisnegative.

Anygainsorlossesarisingfromchangesinfairvalueonderivativesthatdonotqualifyforhedgeaccountingaretakendirectlytonetprofitorlossfortheyearasfinancialincomeorexpense.

Thefairvalueofforwardcurrencycontractsiscalculatedbyreferencetocurrentforwardexchangeratesforcontractswithsimilarmaturityprofiles.Thefairvalueofinterestrateswapcontractsisdeterminedbyreferencetomarketvaluesforsimilarinstruments.

Anembeddedderivativeisseparatedfromthehostcontractandaccountedforasaderivativeifallofthefollowingconditionsaremet:

•theeconomiccharacteristicsandtherisksoftheembeddedderivativearenotcloselyrelatedtotheeconomiccharacteristicsofthehostcontract,

•aseparateinstrumentwiththesametermsastheembeddedderivativewouldmeetthedefinitionofaderivative,and•ahybrid(combined)instrumentisnotmeasuredatfairvaluewithchangesinfairvaluereportedincurrentyearnetprofit.

vi) hedgingForthepurposeofhedgeaccounting,hedgesareclassifiedas

•fairvaluehedges•cashflowhedgesor•hedgesofanetinvestmentinaforeignoperation.

Ahedgeof the foreign currency risk of a firm commitment is accounted for as a cashflowhedge.At the inceptionof a hedgerelationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedgeaccountingandtheriskmanagementobjectiveandstrategyforundertakingthehedge.Thedocumentationincludesidentificationofthehedginginstrument,thehedgeditemortransaction,thenatureoftheriskbeinghedgedandhowtheentitywillassessthehedginginstrument’seffectivenessinoffsettingtheexposuretochangesinthehedgeditem’sfairvalueorcashflowsattributabletothehedgedrisk.Suchhedgesareexpectedtobehighlyeffectiveinachievingoffsettingchangesinfairvalueorcashflowsandareassessedonanongoingbasistodeterminethattheyactuallyhavebeenhighlyeffectivethroughoutthefinancialreportingperiodsforwhichtheyweredesignated.

Hedgeswhichmeetthestrictcriteriaforhedgeaccountingareaccountedforasfollows:

fair value hedgesFairvaluehedgesarehedgesoftheGroup’sexposuretochangesinthefairvalueofarecognizedassetorliabilityoranunrecognizedfirmcommitment,oranidentifiedportionofsuchanasset,liabilityorfirmcommitment,thatisattributabletoaparticularriskthatcouldaffecttheincomestatement.

Financialassetsareclassifiedasheldfortradingiftheyareacquiredforthepurposeofsellinginthenearterm.Derivatives,includingseparatedembeddedderivativesarealsoclassifiedasheldfortradingunlesstheyaredesignatedaseffectivehedginginstrumentsorafinancialguaranteecontract.Gainsorlossesoninvestmentsheldfortradingarerecognizedasfinanceincomeorfinanceexpenseintheincomestatement.

Financialassetsmaybedesignatedatinitialrecognitionasatfairvaluethroughprofitorlossifthefollowingcriteriaaremet:(i)thedesignationeliminatesorsignificantlyreducestheinconsistenttreatmentthatwouldotherwisearisefrommeasuringtheassetsorrecognisinggainsorlossesonthemonadifferentbasis;or(ii)theassetsarepartofagroupoffinancialassetswhicharemanagedandtheirperformanceevaluatedonafairvaluebasis,inaccordancewithadocumentedriskmanagementstrategy;or(iii)thefinancialassetcontainsanembeddedderivativethatwouldneedtobeseparatelyrecorded.Suchfinancialassetsarerecordedascurrent,exceptforthoseinstrumentswhicharenotdueforsettlementwithin12monthsfromthebalancesheetdateandarenotheldwiththeprimarypurposeofbeingtraded.Inthiscaseallpaymentsonsuchinstrumentsareclassifiedasnon-current.

Asat31December2011and2010,nofinancialassetshavebeendesignatedasatfairvaluethroughprofitandloss.

Held-to-maturity investmentsHeld-to-maturityinvestmentsarenon-derivativefinancialassetswhichcarryfixedordeterminablepaymentshavefixedmaturitiesandwhichtheGrouphasthepositiveintentionandabilitytoholdtomaturity.Afterinitialmeasurementheldtomaturityinvestmentsaremeasuredatamortisedcost.Thiscostiscomputedastheamountinitiallyrecognizedminusprincipalrepayments,plusorminusthecumulativeamortisationusingtheeffectiveinterestmethodofanydifferencebetweentheinitiallyrecognizedamountandthematurityamount,lessallowanceforimpairment.Thiscalculationincludesallfeesandpointspaidorreceivedbetweenpartiestothecontractthatareanintegralpartoftheeffectiveinterestrate,transactioncostsandallotherpremiumsanddiscounts.Gainsand lossesare recognized in the incomestatementwhen the investmentsarederecognizedor impaired,aswell as through theamortisationprocess.

loans and receivablesLoans and receivables arenon-derivativefinancial assetswithfixedordeterminablepayments that arenotquoted in an activemarket. After initialmeasurement loans and receivables are subsequently carried at amortised cost using the effective interestmethodlessanyallowanceforimpairment.Amortisedcostiscalculatedtakingintoaccountanydiscountorpremiumonacquisitionandincludesfeesthatareanintegralpartoftheeffectiveinterestrateandtransactioncosts.Gainsandlossesarerecognizedintheincomestatementwhentheloansandreceivablesarederecognizedorimpaired,aswellasthroughtheamortisationprocess.

Available-for-sale financial investmentsAvailable-for-salefinancialassetsarethosenon-derivativefinancialassetsthataredesignatedasavailable-for-saleorarenotclassifiedinanyofthethreeprecedingcategories.Afterinitialmeasurement,availableforsalefinancialassetsaremeasuredatfairvaluewithunrealisedgainsorlossesbeingrecognizedasothercomprehensiveincomeinthefairvaluationreserve.Whentheinvestmentisdisposedofor isdetermined tobe impaired, thecumulativegainor losspreviously recordedasothercomprehensive income isrecognizedintheincomestatement.

Afterinitialrecognitionavailable-for-salefinancialassetsareevaluatedonthebasisofexistingmarketconditionsandmanagementintenttoholdontotheinvestmentintheforeseeablefuture.Inrarecircumstanceswhentheseconditionsarenolongerappropriate,theGroupmaychoosetoreclassifythesefinancialassetstoloansandreceivablesorheld-to-maturitywhenthisisinaccordancewiththeapplicableIFRS.

fair ValueForinvestmentsthatareactivelytradedinorganisedfinancialmarkets,fairvalueisdeterminedbyreferencetoquotedmarketpricesatthecloseofbusinessonthebalancesheetdatewithoutanydeductionfortransactioncosts.Forinvestmentswherethereisnoquotedmarketprice,fairvalueisdeterminedbyreferencetothecurrentmarketvalueofanotherinstrumentwhichissubstantiallythesameoriscalculatedbasedontheexpectedcashflowsoftheunderlyingnetassetbaseoftheinvestment.

iv) Classification and Derecognition of Financial InstrumentsFinancial assets andfinancial liabilities carriedon the consolidatedbalance sheet include cash and cash equivalentsmarketablesecurities, trade and other accounts receivable and payable, long-term receivables, loans, borrowings, investments, and bondsreceivableandpayable. Theaccountingpolicieson recognitionandmeasurementof these itemsaredisclosed in the respectiveaccountingpoliciesfoundinthisNote.


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If, inasubsequentperiod,theamountoftheimpairmentlossdecreasesandthedecreasecanberelatedobjectivelytoaneventoccurringafter the impairmentwas recognized, thepreviously recognized impairment loss is reversed.Any subsequent reversalofanimpairmentlossisrecognizedintheincomestatement,totheextentthatthecarryingvalueoftheassetdoesnotexceeditsamortisedcostatthereversaldate.

Available-for-sale financial investmentsIfanavailable-for-saleassetisimpaired,anamountcomprisingthedifferencebetweenitscost(netofanyprincipalpaymentandamortisation)anditscurrentfairvalue,lessanyimpairmentlosspreviouslyrecognizedintheincomestatement,istransferredfromothercomprehensiveincometotheincomestatement.Impairmentlossesrecognizedonequityinstrumentsclassifiedasavailablefor sale arenot reversed, increases in their fair valueafter impairment are recogniseddirectly inother comprehensive income.Impairment losses recognizedondebt instrumentsclassifiedasavailable-for-saleare reversed through incomestatement, if theincreaseinfairvalueoftheinstrumentcanbeobjectivelyrelatedtoaneventoccurringaftertheimpairmentlosswasrecognizedintheincomestatement.

viii) Cash and Cash EquivalentsCashincludescashonhandandcashatbanks.Cashequivalentsareshort-term,highlyliquidinvestmentsthatarereadilyconvertibletoknownamountsofcashwithmaturitylessthanthreemonthsfromthedateofacquisitionandthataresubjecttoaninsignificantriskofchangeinvalue.

ix) Trade ReceivablesReceivablesarestatedatfacevaluelessprovisionfordoubtfulamounts.Wherethetimevalueofmoneyismaterial,receivablesarecarriedatamortizedcost.Aprovisionforimpairmentismadewhenthereisobjectiveevidence(suchastheprobabilityofinsolvencyorsignificantfinancialdifficultiesofthedebtor)thattheGroupwillnotbeabletocollectalloftheamountsdueundertheoriginaltermsoftheinvoice.Impaireddebtsarederecognizedwhentheyareassessedasuncollectible.

Ifcollectionoftradereceivablesisexpectedwithinthenormalbusinesscyclewhichisoneyearorless,theyareclassifiedascurrentassets.Ifnot,theyarepresentedasnon-currentassets.

x) InventoriesInventories, includingwork-in-progressarevaluedat the lowerof costandnet realisablevalue,afterprovision for slow-movingandobsoleteitems.Netrealisablevalueisthesellingpriceintheordinarycourseofbusiness,lessthecostsofmakingthesales.Costofpurchasedgoods,includingnaphthaandpurchasedgasoilinventory,isdeterminedprimarilyonthebasisofweightedaveragecost.Theacquisitioncostofownproducedinventoryconsistsofdirectmaterials,directwagesandtheappropriateportionofproductionoverheadexpensesincludingroyalty.Unrealisableandunusableinventoryisfullywrittenoff.

xi) Property, Plant and EquipmentProperty, plant and equipment are stated at historical cost (or the carrying value of the assets determined as of 31December1991)lessaccumulateddepreciation,depletionandaccumulatedimpairmentloss.Whenassetsaresoldorretired,theircostandaccumulateddepreciationareeliminated from theaccountsandanygainor loss resulting from theirdisposal is included in theconsolidatedincomestatement.

Theinitialcostofproperty,plantandequipmentcomprisesitspurchaseprice,includingimportdutiesandnon-refundablepurchasetaxesandanydirectlyattributablecostsofbringing theasset to itsworkingconditionand location for its intendeduse, suchasborrowing costs. Estimateddecommissioningand site restorationcosts are capitalizedupon initial recognitionor, if decisionondecommissioning ismadesubsequently,at thetimeof thedecision.Changes inestimatesthereofadjust thecarryingamountofassets.Expendituresincurredaftertheproperty,plantandequipmenthavebeenputintooperation,suchasrepairsandmaintenanceandoverheadcosts(exceptformperiodicmaintenancecosts),arenormallychargedtoincomestatementintheperiodinwhichthecostsareincurred.Periodicmaintenancecostsarecapitalizedasaseparatecomponentoftherelatedassets.

Constructioninprogressrepresentsplantandpropertiesunderconstructionandisstatedatcost.Thisincludescostofconstruction,plantandequipmentandotherdirect costs.Construction-in-progress isnotdepreciateduntil suchtimeas the relevantasset isavailableforuse.

xii) Intangible AssetsIntangibleassetsacquiredseparatelyarecapitalizedatcostandfrombusinessacquisitionsarecapitalizedatfairvalueasatthedateofacquisitions.Intangibleassetsarerecognizedifitisprobablethatthefutureeconomicbenefitsthatareattributabletotheassetwillflowtotheenterprise;andthecostoftheassetcanbemeasuredreliably.

Forfairvaluehedges,thecarryingamountofthehedgeditemisadjustedforgainsandlossesattributabletotheriskbeinghedged,thederivativeisremeasuredatfairvalueandgainsandlossesfrombotharetakentotheincomestatement.Forfairvaluehedgesrelatingtoitemscarriedatamortisedcost,theadjustmenttocarryingvalueisamortisedthroughtheincomestatementovertheremainingtermtomaturity.Anyadjustmenttothecarryingamountofahedgedfinancialinstrumentforwhichtheeffectiveinterestmethodisusedisamortisedtotheincomestatement.

Amortisationmaybeginassoonasanadjustmentexistsandshallbeginnolaterthanwhenthehedgeditemceasestobeadjustedforchangesinitsfairvalueattributabletotheriskbeinghedged.

Whenanunrecognizedfirmcommitmentisdesignatedasahedgeditem,thesubsequentcumulativechangeinthefairvalueofthefirmcommitmentattributabletothehedgedriskisrecognizedasanassetorliabilitywithacorrespondinggainorlossrecognizedintheincomestatement.Thechangesinthefairvalueofthehedginginstrumentarealsorecognizedintheincomestatement.

TheGroupdiscontinuesfairvaluehedgeaccountingifthehedginginstrumentexpiresorissold,terminatedorexercised,thehedgenolongermeetsthecriteriaforhedgeaccountingortheGrouprevokesthedesignation.

Cash-flow hedgesCashflowhedgesareahedgeoftheexposuretovariabilityincashflowsthatisattributabletoaparticularriskassociatedwitharecognizedassetorliabilityorahighlyprobableforecasttransactionthatcouldaffecttheincomestatement.Theeffectiveportionofthegainorlossonthehedginginstrumentisrecognizeddirectlyasothercomprehensiveincome,whiletheineffectiveportionisrecognizedintheincomestatement.

Amountstakentoothercomprehensiveincomearetransferredtotheincomestatementwhenthehedgedtransactionaffectstheincomestatement,suchaswhenhedgedfinancial incomeorfinancialexpenseisrecognizedorwhenaforecastsaleorpurchaseoccurs.Wherethehedgeditemisthecostofanon-financialassetorliability,theamountspreviouslytakentoequityaretransferredtotheinitialcarryingamountofthenon-financialassetorliability.

Iftheforecasttransactionisnolongerexpectedtooccur,amountspreviouslyrecognizedinequityaretransferredtotheincomestatement.Ifthehedginginstrumentexpiresorissold,terminatedorexercisedwithoutreplacementorrollover,orifitsdesignationasahedgeisrevoked,amountspreviouslyrecognizedinothercomprehensiveincomeremaininothercomprehensiveincomeuntiltheforecasttransactionoccurs.Iftherelatedtransactionisnotexpectedtooccur,theamountistakentotheincomestatement.

hedges of a net investmentHedgesofanetinvestmentinaforeignoperation, includingahedgeofamonetaryitemthatisaccountedforaspartofthenetinvestment,areaccountedforinawaysimilartocashflowhedges.Gainsorlossesonthehedginginstrumentrelatingtotheeffectiveportionofthehedgearerecognizedasothercomprehensiveincomewhileanygainsorlossesrelatingtotheineffectiveportionarerecognizedintheincomestatement.Ondisposaloftheforeignoperation,thecumulativevalueofanysuchgainsorlossesrecognizedasothercomprehensiveincomeistransferredtotheincomestatement.TheCompanyhadnoderivativefinancialinstrumentandhedgingtransactionsin2011and2010.

vii) Impairment of financial assetsTheGroupassessesateachbalancesheetdatewhetherafinancialassetorgroupoffinancialassetsisimpaired.Impairmentlossesonafinancialassetorgroupoffinancialassetsarerecognisedonlyifthereisanobjectiveevidenceofimpairmentduetoalosseventandthislosseventsignificantlyimpactstheestimatedfuturecashflowsofthefinancialassetorgroupoffinancialassets.

Assets carried at amortised costIf there isobjectiveevidencethatan impairment losson loansandreceivablescarriedatamortisedcosthasbeen incurred, theamountofthelossismeasuredasthedifferencebetweentheasset’scarryingamountandthepresentvalueofestimatedfuturecashflows(excludingfutureexpectedcreditlosses)discountedatthefinancialasset’soriginaleffectiveinterestrate(i.e.theeffectiveinterestratecomputedatinitialrecognition).Theamountofthelossisrecognizedintheincomestatement.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individuallysignificant,andindividuallyorcollectivelyforfinancialassetsthatarenotindividuallysignificant.Ifitisdeterminedthatnoobjectiveevidenceofimpairmentexistsforfinancialassets,whethersignificantornot,theassetisincludedinagroupoffinancialassetswithsimilarcreditriskcharacteristicsandthatgroupoffinancialassetsiscollectivelyassessedforimpairment.Assetsthatareindividuallyassessedforimpairmentandforwhichanimpairmentlossisorcontinuestoberecognizedarenotincludedinacollectiveassessmentofimpairment.


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Goodwillisreviewedforimpairment,annuallyormorefrequentlyifeventsorchangesincircumstancesindicatethatthecarryingvaluemaybeimpaired.Impairmentisdeterminedforgoodwillbyassessingtherecoverableamountofthecash-generatingunit(orgroupofcash-generatingunits),towhichthegoodwillrelates.Wheretherecoverableamountofthecash-generatingunit(orgroupof cash-generatingunits) is less than thecarryingamountof thecash-generatingunit (groupof cash-generatingunits) towhichgoodwillhasbeenallocated,animpairmentlossisrecognized.ImpairmentlossesrelatingtoGoodwillcannotbereversedinfutureperiods.TheGroupperformsitsannualimpairmenttestofgoodwillasat31December.

Intangible assets with indefinite useful lives are monitored for impairment indicators throughout the year and are tested forimpairmentatleastannuallyasof31Decembereitherindividuallyoratthecashgeneratingunitlevel,asappropriate.

Cash generating unitsThe Company identified two cash generating units (CGU)which are the ethylene production of Olefin plants for sales and theproductionofOlefinplantsforinternalusefortheproductionofpolymers.

TherecoverableamountofeachCGUhasbeendeterminedbasedonavalueinusecalculationusingcashflowprojectionsbasedonfinancialbudgetsapprovedbyseniormanagementcoveringa15-yearperiod.Theaveragepre-taxdiscountrateappliedtocashflowprojectionsis9.28%(2010:9.43%).

Thecalculationofvalueinuseforcashgeneratingunitsaremostsensitivetothefollowingassumptions:

•Rawmaterialsprice;•Productprice;•Exchangerate;•Materialbalance;and•Discountrates.

Withregardtotheassessmentofvalue inuseofthesecash-generatingunits, themanagementbelievesthatnoreasonablypossiblechange inanyof theabovekeyassumptionswouldcause thecarryingvalueof theunits tomateriallyexceed itsrecoverableamount.

xv) Interest-bearing loans and borrowingsAllloansandborrowingsareinitiallyrecognizedatthefairvalueoftheconsiderationreceivednetofissuecostsassociatedwiththeborrowing.Afterinitialrecognition,interest-bearingloansandborrowingsaresubsequentlymeasuredatamortisedcostusingtheeffectiveinterestmethod.Amortisedcostiscalculatedbytakingintoaccountanyissuecosts,andanydiscountorpremiumonsettlement.Gainsandlossesarerecognizedinnetintheincomestatementwhentheliabilitiesarederecognized,aswellasthroughtheamortisationprocess,excepttotheextenttheyarecapitalizedasborrowingcosts.

xvi) provisionsAprovisionisrecognizedwhentheGrouphasapresentobligation(legalorconstructive)asaresultofapasteventanditisprobable(i.e.morelikelythannot)thatanoutflowofresourcesembodyingeconomicbenefitswillberequiredtosettletheobligation,andareliableestimatecanbemadeoftheamountoftheobligation.WhentheGroupexpectssomeoralloftheprovisiontobereimbursed;thereimbursementisrecognisedasaseparateassetbutonlywhenthereimbursementisactuallycertain.Provisionsarereviewedateachbalancesheetdateandadjustedtoreflectthecurrentbestestimate.Theamountoftheprovisionisthepresentvalueoftheriskadjustedexpendituresexpectedtoberequiredtosettletheobligation,determinedusingtheestimatedriskfreeinterestrateasdiscountrate.Wherediscountingisused,thecarryingamountoftheprovisionsincreasesineachperiodtoreflecttheunwindingofthediscountbythepassageoftime.Thisincreaseisrecognizedasinterestexpense.

Provision for RedundancyTheemployeesoftheGroupareeligible,immediatelyupontermination,forredundancypaymentpursuanttotheHungarianlawandthetermsoftheCollectiveAgreementbetweenTVKanditsemployees.Theamountofsuchaliabilityisrecordedasaprovisionintheconsolidatedbalancesheetwhentheworkforcereductionprogramisdefined,announcedandtheconditionsforitsimplementationaremet.

provision for environmental expenditures Environmental expenditures that relate to current or future economic benefits are expensed or capitalized as appropriate.Expenditures that relate toanexistingconditioncausedbypastoperationsanddonot contribute to currentor futureearningsareexpensed.Liabilitiesforenvironmentalcostsarerecognizedwhenenvironmentalassessmentsorclean-upsareprobableand

Followinginitialrecognition,thecostmodelisappliedtotheclassofintangibleassets.Theusefullivesoftheseintangibleassetsareassessedtobeeitherfiniteorindefinite.Amortizationischargedonassetswithafiniteusefullifeoverthebestestimateoftheiruseful livesusingthestraight linemethod.Theamortizationperiodandtheamortizationmethodarereviewedannuallyateachfinancialyear-end.Intangibleassets,excludingdevelopmentcosts,createdwithinthebusinessarenotcapitalizedandexpenditureischargedagainstincomeintheyearinwhichtheexpenditureisincurred.Intangibleassetsaretestedforimpairmentannuallyeitherindividuallyoratthecashgeneratingunitlevel.

Researchcostsareexpensedas incurred.Developmentexpenditureincurredonanindividualproject iscarriedforwardwhenitsfuturerecoverabilitycanreasonablyberegardedasassured.Followingtheinitialrecognitionofthedevelopmentexpenditurethecostmodelisappliedrequiringtheassettobecarriedatcostlessanyaccumulatedimpairmentlosses.Costsindevelopmentstagecannotbeamortized.Thecarryingvalueofdevelopmentcostsisreviewedforimpairmentannuallywhentheassetisnotyetinuse,ormorefrequentlywhenanindicatorofimpairmentarisesduringthereportingyearindicatingthatthecarryingvaluemaynotberecoverable.

xiii) Depreciation, AmortizationDepreciationofeachcomponentofanintangibleassetandproperty,plantandequipmentiscomputedonastraight-linebasisusingthefollowingrates:

Software 20–33%

Buildingsandinfrastructure 2–10%

Productionmachineryandequipment 5–14.5%

Officeandcomputerequipment 14.5–50%

Vehicles 10–20%

Amortizationof leasehold improvements isprovidedusing thestraight-linemethodover the termof therespective leaseor theusefullifeoftheasset,whicheverperiodisless.

Periodicmaintenancecostsaredepreciateduntilthenextsimilarmaintenancetakesplace.

Theusefullifeanddepreciationmethodsarereviewedatleastannuallytoensurethatthemethodandperiodofdepreciationareconsistentwiththeexpectedpatternofeconomicbenefitsfromitemsofproperty,plantandequipmentand,ifnecessary,changesareaccountedforinthecurrentperiod.

Thebaseof thedepreciationof security and strategic spareparts is theaveragedepreciation rateof technical equipmentsandvehiclesrelatingtotheproduction.

xiv) Impairment of AssetsProperty,plantandequipmentand intangibleassetsarereviewedfor impairmentwhenevereventsorchanges incircumstancesindicate that the carrying amount of an assetmay not be recoverable.Whenever the carrying amount of an asset exceeds itsrecoverableamount,an impairment loss is recognized in the incomestatement for itemsofproperty,plantandequipmentandintangiblescarriedatcost.Therecoverableamountisthehigherofanasset’sfairvaluelesscoststosellandvalueinuse.Thefairvalueistheamountobtainablefromthesaleofanassetinanarm’slengthtransactionwhilevalueinuseisthepresentvalueofestimatednetfuturecashflowsexpectedtoarisefromthecontinuinguseofanassetandfromitsdisposalattheendofitsusefullife.Recoverableamountsareestimatedforindividualassetsor,ifthisisnotpracticable,forthecash-generatingunit.

TheGroupassessesateachreportingdatewhetherthereisanyindicationthatpreviouslyrecognisedimpairmentlossesmaynolongerexistormayhavedecreased.Apreviouslyrecognisedimpairmentlossisreversedonlyiftherehasbeenachangeintheimpairmentassumptionsconsideredwhenthelastimpairmentlosswasrecognised.Thereversalislimitedsothatthecarryingamountoftheassetneitherexceedsitsrecoverableamount,norishigherthanitscarryingamountnetofdepreciation,hadnoimpairmentlossbeenrecognisedinprioryears.


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asareplacementawardonthedatethatitisgranted,thecancelledandnewawardsaretreatedasiftheywereamodificationoftheoriginalaward,asdescribedinthepreviousparagraph.

Thedilutiveeffectofoutstandingoptionsisreflectedasadditionalsharedilutioninthecomputationofearningspershare.

Cash-settled transactions Thecostofcash-settledtransactionsismeasuredinitiallyatfairvalueatthegrantdateusingthebinomialmodel.Thisfairvalueisexpensedoverthevestingperiodwithrecognitionofacorrespondingliability.Theliabilityisremeasuredateachbalancesheetdateuptoandincludingthesettlementdatetofairvaluewithchangesthereinrecognizedintheincomestatement.

xix) leasesThedeterminationwhetheranarrangementcontainsorisaleasedependsonthesubstanceofthearrangementatinceptiondate.Iffulfilmentofthearrangementdependsontheuseofaspecificassetorconveystherighttousetheasset,itisdeemedtocontainaleaseelementandisrecordedaccordingly.

Financeleases,whichtransfertotheGroupsubstantiallyalltherisksandbenefitsincidentaltoownershipoftheleaseditem,arecapitalizedattheinceptionoftheleaseatthefairvalueoftheleasedpropertyor,if lower,atthepresentvalueoftheminimumleasepayments.Leasepaymentsareapportionedbetweenthefinancechargesandreductionoftheleaseliabilitysoastoachieveaconstantrateofinterestontheremainingbalanceoftheliability.Financechargesarechargeddirectlyagainstincome.Capitalizedleasedassetsaredepreciatedovertheshorteroftheestimatedusefullifeoftheassetortheleaseterm.Initialdirectcostsincurredinnegotiatingafinanceleaseareaddedtothecarryingamountoftheleasedassetandrecognizedovertheleasetermonthesamebasesas the lease income. Leaseswhere the lessor retains substantiallyall the risksandbenefitsofownershipof theassetareclassifiedasoperatingleases.Operatingleasepaymentsarerecognizedasanexpenseintheincomestatementonastraight-linebasisovertheleaseterm.

xx) government grantsGovernmentgrantsarerecognizedattheirfairvaluewherethereisreasonableassurancethatthegrantwillbereceivedandallattachingconditionswillbecompliedwith.Whenthegrantrelatestoanexpenseitem,itisrecognizedasincomeovertheyearsnecessarytomatchthegrantonasystematicbasistothecoststhatit is intendedtocompensate.Wherethegrantrelatestoanasset,thefairvalueiscreditedtoadeferredincomeaccountandisreleasedtotheincomestatementovertheexpectedusefullifeoftherelevantassetbyequalannualinstalments.

xxi) reservesReserves shown in theconsolidatedfinancial statementsdonot represent thedistributable reserves fordividendpurposes.Reservesfordividendpurposesaredeterminedbasedonthecompany-onlystatutoryearningsofTVKPlc.

Translation reservesThe translation reserve represents translation differences arising on consolidation of financial statements of foreign entities.Exchangedifferencesarisingonamonetaryitemthat,insubstance,formspartofthecompany’snetinvestmentinaforeignentityareclassifiedasothercomprehensiveincomeintheconsolidatedfinancialstatementsuntilthedisposalofthenetinvestment.Upondisposalofthecorrespondingassets,thecumulativerevaluationortranslationreservesarerecognizedasincomeorexpensesinthesameperiodinwhichthegainorlossondisposalisrecognized.

Fair valuation reservesThefairvaluationreserveincludesthecumulativenetchangeinthefairvalueofeffectivecashflowhedgesandavailableforsalefinancialinstruments.

Equity component of debt and difference in buy-back prices Equitycomponentofcompounddebtinstrumentsincludestheresidualamountoftheproceedsfromtheissuanceoftheinstrumentaboveitsliabilitycomponent,whichisdeterminedasthepresentvalueoffuturecashpaymentsassociatedwiththeinstrument.TheequitycomponentofcompounddebtinstrumentsisrecognizedwhentheGroupbecomespartytotheinstrument.

xxii) Treasury Shares Thenominalvalueoftreasurysharesheldisdeductedfromregisteredsharecapital.Anydifferencebetweenthenominalvalueandtheacquisitionpriceoftreasurysharesisrecordeddirectlytosharepremium.

theassociatedcostscanbereasonablyestimated.Generally, thetimingof theseprovisionscoincideswiththecommitment toaformalplanofactionor,ifearlier,ondivestmentoronclosureofinactivesites.Theamountrecognizedisthebestestimateoftheexpenditurerequired.Wheretheliabilitywillnotbesettledforanumberofyears,theamountrecognizedisthepresentvalueoftheestimatedfutureexpenditure.

Provision for litigationsTVKGroupentitiesarepartiestoanumberof litigations,proceedingsandcivilactionsarisingintheordinarycourseofbusiness.Managementusesestimationswhenthemostlikelyoutcomeoftheseactionsisassessedandprovisionisrecognizedonaconsistentbasis.

Provision for Retirement Benefits TheGroupoperateslongtermemployeebenefitprogram.Noneoftheseschemesrequirescontributiontobemadetoseparatelyadministeredfunds.Thecostofprovidingbenefitsunderthoseplansisdeterminedseparatelyforeachplanusingtheprojectedunitcreditactuarialvaluationmethod.Actuarialgainsandlossesarerecognizedasincomeorexpenseimmediately.Pastservicecosts,resultingfromtheintroductionof,orchangestothedefinedbenefitschemearerecognizedasanexpenseonastraight-linebasisovertheaverageperioduntilthebenefitsbecomevested.

Provision for Old Team benefitsBasedonthevalidCollectiveAgreement,theCompanypaysOldTeambenefitstoitsemployeesasfollows:

Everyfiveyears,theCompanypaysafixsetamounttoallemployeeswhohadworkedatleast10yearsfortheCompany.Basedonactuarialcalculations,theCompanymadeprovisionforOldTeambenefitsofcurrentemployeesthatreflectstheexpectedpaymentsbasedontheirpastservicelevels.

xvii) greenhouse gas emissionsTheGroupreceivesfreeemissionrightsinHungaryasaresultoftheEuropeanEmissionTradingSchemes.TherightsarereceivedonanannualbasisandinreturntheGroupisrequiredtoremitrightsequaltoitsactualemissions.TheGrouphasadoptedanetliabilityapproachtotheemissionrightsgranted.Aprovisionisonlyrecognizedwhenactualemissionsexceedtheemissionrightsgrantedandstillheld.Whereemissionrightsarepurchasedfromotherparties,theyarerecordedatcost,andtreatedasareimbursementright,wherebytheyarematchedtotheemissionliabilitiesandremeasuredtofairvalue.

xviii) Share-based payment transactionsCertain employees (including directors andmanagers) of the Group receive remuneration in the form of share-based paymenttransactions,wherebyemployeesrenderservicesinexchangeforsharesorrightsovershares(‘equity-settledtransactions’).

Equity-settled transactionsThecostofequity-settled transactionswithemployees ismeasuredby reference to the fairvalueat thedateatwhich theyaregranted.Thefairvalueisdeterminedbyapplyinggenerallyacceptedoptionpricingmodels(usuallybythebinomialmodel).Invaluingequity-settledtransactions,noaccountistakenofanyperformanceconditions,otherthanconditionslinkedtothepriceofthesharesoftheparentcompany(‘marketconditions’).

Thecostofequity-settledtransactionsisrecognized,togetherwithacorrespondingincreaseinequity,overtheperiodinwhichtheperformanceconditionsarefulfilled,endingonthedateonwhichtherelevantemployeesbecomefullyentitledtotheaward(‘vestingdate’).Thecumulativeexpenserecognizedforequitysettledtransactionsateachreportingdateuntilthevestingdatereflectstheextenttowhichthevestingperiodhasexpiredandthenumberofawardsthat,intheopinionofthedirectorsoftheGroupatthatdate,basedonthebestavailableestimateofthenumberofequityinstrumentsthatwillultimatelyvest.

Noexpense is recognized forawards thatdonotultimately vest, except forawardswherevesting is conditionaluponamarketcondition,which are treated as vesting irrespective ofwhether or not themarket condition is satisfied, provided that all otherperformanceconditionsaresatisfied.

Wherethetermsofanequity-settledawardaremodified,asaminimumanexpense is recognizedas if thetermshadnotbeenmodified.Anadditionalexpense is recognized forany increase in thevalueof the transactionasa resultof themodification,asmeasuredatthedateofmodification.

Whereanequity-settledaward iscancelled, it is treatedas if ithadvestedonthedateofcancellation,andanyexpensenotyetrecognizedfortheawardisrecognizedimmediately.However,ifanewawardissubstitutedforthecancelledaward,anddesignated


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Ateachbalancesheetdate,theCompanyre-assessesunrecognizeddeferredtaxassetsandthecarryingamountofdeferredtaxassets.Theenterpriserecognizesapreviouslyunrecognizeddeferredtaxassettotheextentthatithasbecomeprobablethatfuturetaxableprofitwillallowthedeferredtaxassettoberecovered.TheCompanyconverselyreducesthecarryingamountofadeferredtaxassettotheextentthatitisnolongerprobablethatsufficienttaxableprofitwillbeavailabletoallowthebenefitofpartorallofthedeferredtaxassettobeutilised.

Currenttaxanddeferredtaxarechargedorcrediteddirectlytoequityifthetaxrelatestoitemsthatarecreditedorcharged,inthesameoradifferentperiod,directlytoequity,includinganadjustmenttotheopeningbalanceofreservesresultingfromachangeinaccountingpolicythatisappliedretrospectively.

DeferredtaxassetsandliabilitiesareoffsetwhenthereisalegallyenforceablerighttosetoffcurrenttaxassetsagainstcurrenttaxliabilitieswhichrelatetoincometaxesimposedbythesametaxationauthorityandtheGroupintendstosettleitscurrenttaxassetsandliabilitiesonanetbasis.

Sales taxRevenues,expensesandassetsarerecognisednetoftheamountofsalestax,except:

•whenthesalestaxincurredonapurchaseofassetsorservicesisnotrecoverablefromthetaxationauthority,inwhichcase,thesalestaxisrecognisedaspartofthecostofacquisitionoftheassetoraspartoftheexpenseitem,asapplicable

•receivablesandpayablesthatarestatedwiththeamountofsalestaxincluded

Thenetamountofsalestaxrecoverablefrom,orpayableto,thetaxationauthorityisincludedaspartofreceivablesorpayablesinthestatementoffinancialposition

xxvii) Foreign Currency TransactionsForeigncurrencytransactionsarerecordedinthereportingcurrencybyapplyingtotheforeigncurrencyamounttheexchangerate between the reporting currency and the foreign currency at the date of the transaction. Exchange rate differencesarisingonthesettlementofmonetaryitemsatratesdifferentfromthoseatwhichtheywereinitiallyrecordedduringtheperiodsarerecognizedintheconsolidatedincomestatementintheperiodinwhichtheyarise.Monetaryassetsandliabilitiesdenominatedinforeigncurrenciesareretranslatedatthefunctionalcurrencyrateofexchangerulingatthebalancesheetdate.Itemsmeasuredatfairvalueinaforeigncurrencyaretranslatedusingtheexchangeratesatthedatewhenthefairvaluewasdetermined.Foreignexchangedifferencesontradereceivablesandpayablesareincludedinoperatingprofit,whileforeignexchangedifferencesonborrowingsarerecordedasfinancialincomeorexpense.

Financial statementsof foreignentitiesare translatedat year-endexchange rateswith respect to thebalance sheet, andat theweightedaverageexchangeratesfortheyearwithrespecttotheincomestatement.Allresultingtranslationdifferencesareincludedinthetranslationreserveinothercomprehensiveincome.Ondisposalofaforeignentity,thedeferredcumulativeamountrecognizedin other comprehensive income relating to that particular foreign operation shall be recognized in the income statement. Anyexchangedifferencesthathavepreviouslybeenattributedtonon-controllinginterestsarederecognised,buttheyarenotreclassifiedtoprofitorloss.

Incaseofapartialdisposalofasubsidiarywithoutanylossofcontrolintheforeignoperation,theproportionateshareofaccumulatedexchangedifferencesarere-attributedtonon-controllinginterestsandarenotrecognisedinprofitorloss.Forallotherdisposalssuchasassociatesorjointlycontrolledentitiesnotinvolvingachangeofaccountingbasis,theproportionateshareofaccumulatedexchangedifferencesisreclassifiedtoprofitorloss.

Goodwillandfairvalueadjustmentsarisingontheacquisitionofaforeignoperationaretreatedasassetsandliabilitiesoftheforeignoperationandtranslatedattheclosingrate.

xxviii) earnings per Share Thecalculationofbasicearningspershareisbasedontheprofitattributabletoordinaryshareholdersusingtheweightedaveragenumberofsharesoutstandingduringtheyearafterdeductionoftheaveragenumberoftreasurysharesheldovertheperiod.

Thecalculationofdilutedearningspershareisconsistentwiththecalculationofbasicearningspersharewhilegivingeffecttoalldilutivepotentialordinarysharesthatwereoutstandingduringtheperiod,thatis:

xxiii) DividendsDividendsarerecordedintheyearinwhichtheyareapprovedbytheshareholders.

xxiv) Revenue RecognitionRevenueisrecognizedwhenitisprobablethattheeconomicbenefitsassociatedwithatransactionwillflowtotheenterpriseandtheamountoftherevenuecanbemeasuredreliably.Salesarerecognizednetofsalestaxesanddiscountswhendeliveryofgoodsorrenderingoftheservicehastakenplaceandtransferofrisksandrewardshasbeencompleted.

Interestisrecognizedonatime-proportionatebasisthatreflectstheeffectiveyieldontherelatedasset.Dividendsduearerecognizedwhentheshareholder’s right to receivepayment isestablished.Changes in the fairvalueofderivativesnotqualifying forhedgeaccountingarereflectedinincomeintheperiodthechangeoccurs.

xxv) borrowing CostsBorrowingcosts thataredirectlyattributable to theacquisition,constructionorproductionofaqualifyingassetarecapitalized.Capitalizationofborrowingcostscommenceswhentheactivitiestopreparetheassetareinprogressandexpendituresandborrowingcostsarebeingincurred.Borrowingcostsarecapitalizeduntiltheassetsarereadyfortheirintendeduse.Borrowingcostsincludeinterestchargesandothercosts incurredinconnectionwiththeborrowingoffunds, includingexchangedifferencesarisingfromforeigncurrencyborrowingsusedtofinancetheseprojectstotheextentthattheyareregardedasanadjustmenttointerestcosts.

xxvi) Income and Sales taxesTheincometaxchargeconsistsofcurrentanddeferredtaxes.

Thecurrent incometax isbasedon taxableprofit for theyear.Taxableprofitdiffers fromprofitas reported in theconsolidatedincomestatementbecauseofitemsofincomeorexpensethatarenevertaxableordeductibleoraretaxableordeductibleinotheryears.TheGroup’scurrentincometaxiscalculatingusingtaxratesthathavebeenenactedorsubstantivelyenactedbytheendofthereportingyear.

Deferredtaxesarecalculatedusingthebalancesheetliabilitymethod.Deferredincometaxesreflectthenettaxeffectsoftemporarydifferencesbetweenthecarryingamountsofassetsandliabilitiesforfinancialreportingpurposesandtheamountsusedforincometaxpurposes.Deferredtaxassetsandliabilitiesaremeasuredusingthetaxratesexpectedtoapplytotaxableincomeintheyearsinwhichthosetemporarydifferencesareexpectedtoberecoveredorsettled.Themeasurementofdeferredtaxliabilitiesanddeferredtaxassetsreflectsthetaxconsequencesthatwouldfollowfromthemannerinwhichtheenterpriseexpects,atthebalancesheetdate,torecoverorsettlethecarryingamountofitsassetsandliabilities.

Deferredtaxassetsarerecognizedforalldeductibletemporarydifferences,carryforwardofunusedtaxcreditsandtaxlosseswhenitisprobablethatsufficienttaxableprofitswillbeavailableagainstwhichthedeferredtaxassetscanbeutilized,except:

•wherethedeferredincometaxassetrelatingtothedeductibletemporarydifferencearisesfromtheinitialrecognitionofanassetorliabilityinatransactionthatisnotabusinesscombinationand,atthetimeofthetransaction,affectsneithertheaccountingprofitnortaxableprofitorloss;and

•inrespectofdeductibletemporarydifferencesassociatedwithinvestmentsinsubsidiaries,associatesandinterestsinjointventures,deferredincometaxassetsarerecognizedonlytotheextentthatitisprobablethatthetemporarydifferenceswillreverseintheforeseeablefutureandtaxableprofitwillbeavailableagainstwhichthetemporarydifferencescanbeutilised.

Deferredincometaxliabilitiesarerecognizedforalltaxabletemporarydifferences,except:

•wherethedeferredincometaxliabilityarisesfromtheinitialrecognitionofgoodwillorofanassetorliabilityinatransactionthatisnotabusinesscombinationand,atthetimeofthetransaction,affectsneithertheaccountingprofitnortaxableprofitorloss;and

•inrespectoftaxabletemporarydifferencesassociatedwithinvestmentsinsubsidiaries,associatesandinterestsinjointventures,wherethetimingofthereversalofthetemporarydifferencescanbecontrolledanditisprobablethatthetemporarydifferenceswillnotreverseintheforeseeablefuture.


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2.3 Significant accounting judgments and estimates

Critical judgments in applying the accounting policiesIntheprocessofapplyingtheaccountingpolicies,whicharedescribedinnote2.2above,managementhasmadecertainjudgmentsthathaveasignificanteffectontheamountsrecognizedinthefinancialstatements(apartfromthoseinvolvingestimates,whicharedealtwithbelow).Thesearedetailedintherespectivenotes,however,themostsignificantjudgmentsrelateto:

•Outcomeofcertainlitigations•assessmentofcontrol(overoperation)ofTVKErőműKft.andTiszaWTP(Note1)

Sources of estimate uncertaintyThe preparation of financial statements in conformitywith IFRS requires the use of estimates and assumptions that affect theamountsreportedinthefinancialstatementsandtheNotesthereto.Althoughtheseestimatesarebasedonthemanagement’sbestknowledgeofcurrenteventsandactions,actualresultsmaydifferfromthoseestimates.Thesearedetailedintherespectivenotes,however,themostsignificantestimatesrelatetothefollowing:

•Scopeofenvironmentalprovisionandquantificationandtimingofenvironmentalliabilities(Note16,29)•Theavailabilityoftaxableincomeagainstwhichdeferredtaxassetscanberecognized(Note26)•Actuarialestimateappliedinthecalculationofretirementbenefitobligations(Note16)•Determinationofusefullivesofproperty,plantandequipmentandintangibles•Impairmentoftangibleassetsandintangibles(Notes4,5)

•thenetprofitfortheperiodattributabletoordinarysharesisincreasedbytheafter-taxamountofdividendsandinterestrecognisedintheperiodinrespectofthedilutivepotentialordinarysharesandadjustedforanyotherchangesinincomeorexpensethatwouldresultfromtheconversionofthedilutivepotentialordinaryshares.

•theweightedaveragenumberofordinarysharesoutstandingisincreasedbytheweightedaveragenumberofadditionalordinaryshareswhichwouldhavebeenoutstandingassumingtheconversionofalldilutivepotentialordinaryshares.

xxix) Segmental DisclosureTheGrouphastwomajordivisions(Petrochemicals–Corporateandother)thatserveastheprimarybasisfortheCompany’ssegmentreportingpurposes.TheGroupshowsnetsalesbygeographicalarea.

xxx) ContingenciesContingentliabilitiesarenotrecognizedintheconsolidatedfinancialstatementsunlesstheyareacquiredinabusinesscombination.TheyaredisclosedintheNotesunlessthepossibilityofanoutflowofresourcesembodyingeconomicbenefitsisremote.Acontingentassetisnotrecognizedintheconsolidatedfinancialstatementsbutdisclosedwhenaninflowofeconomicbenefitsisprobable.


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IfrS 10 Consolidated financial StatementsIFRS10replacestheportionofIAS27ConsolidatedandSeparateFinancialStatementsthataddressestheaccountingforconsolidatedfinancialstatements.ItalsoincludestheissuesraisedinSIC-12Consolidation—SpecialPurposeEntities.IFRS10establishesasinglecontrolmodelthatappliestoallentitiesincludingspecialpurposeentities.ThechangesintroducedbyIFRS10willrequiremanagementtoexercisesignificantjudgementtodeterminewhichentitiesarecontrolled,andtherefore,arerequiredtobeconsolidatedbyaparent,comparedwiththerequirementsthatwereinIAS27.BasedonthepreliminaryevaluationoftheGroup,theamendmentwillhavenomaterialimpact.Thisstandardbecomeseffectiveforannualperiodsbeginningonorafter1January2013.

IfrS 11 Joint ArrangementsIFRS11replacesIAS31InterestsinJointVenturesandSIC-13Jointly-controlledEntities—Non-monetaryContributionsbyVenturers.IFRS11removestheoptiontoaccountforjointlycontrolledentities(JCEs)usingproportionateconsolidation.Instead,JCEsthatmeetthedefinitionofajointventuremustbeaccountedforusingtheequitymethod.TheapplicationofthisnewstandardwillimpactthefinancialpositionoftheGroup.Thisisduetothecessationofproportionateconsolidationofjointlycontrolledentities(seenote9)meetingthedefinitionofjointventuresinIFRS11toequityaccountingfortheseinvestments.BasedonthepreliminaryevaluationoftheGroupsuchimpactwillnotbesignificant.Thisstandardbecomeseffectiveforannualperiodsbeginningonorafter1January2013.

IFRS 12 Disclosure of Involvement with Other EntitiesIFRS12includesallofthedisclosuresthatwerepreviouslyinIAS27relatedtoconsolidatedfinancialstatements,aswellasallofthedisclosuresthatwerepreviouslyincludedinIAS31andIAS28.Thesedisclosuresrelatetoanentity’sinterestsinsubsidiaries,jointarrangements,associatesandstructuredentities.Anumberofnewdisclosuresarealsorequired.Thisstandardbecomeseffectiveforannualperiodsbeginningonorafter1January2013.

IFRS 13 Fair Value MeasurementIFRS13establishesasinglesourceofguidanceunderIFRSforallfairvaluemeasurements.IFRS13doesnotchangewhenanentityisrequiredtousefairvalue,butratherprovidesguidanceonhowtomeasurefairvalueunderIFRSwhenfairvalueisrequiredorpermitted.TheGroupiscurrentlyassessingtheimpactthatthisstandardwillhaveonthefinancialpositionandperformance.Thisstandardbecomeseffectiveforannualperiodsbeginningonorafter1January2013.

2.4 issued but not yet effective international financial reporting Standards

At thedateofauthorisationof thesefinancial statements, the followingstandardsand interpretationswere in issuebutnotyeteffective:

IAS 1 Financial Statement Presentation – Presentation of Items of Other Comprehensive IncomeTheamendmentstoIAS1changethegroupingofitemspresentedinothercomprehensiveincome.Itemsthatcouldbereclassified(or‘recycled’)toprofitorlossatafuturepointintime(forexample,uponderecognitionorsettlement)wouldbepresentedseparatelyfromitemsthatwillneverbereclassified.TheamendmentaffectspresentationonlyandhasthereforenoimpactontheGroup’sfinancialpositionorperformance.Theamendmentbecomeseffectiveforannualperiodsbeginningonorafter1July2012.

IAS 12 Income Taxes – Recovery of Underlying AssetsThe amendment clarified the determination of deferred tax on investment property measured at fair value. The amendmentintroducesarebuttablepresumptionthatdeferredtaxoninvestmentpropertymeasuredusingthefairvaluemodelinIAS40shouldbedeterminedonthebasisthatitscarryingamountwillberecoveredthroughsale.Furthermore,itintroducestherequirementthatdeferredtaxonnon-depreciableassetsthataremeasuredusingtherevaluationmodelinIAS16alwaysbemeasuredonasalebasisoftheasset.Theamendmentbecomeseffectiveforannualperiodsbeginningonorafter1January2012andwillhavenoimpactontheGroup.

IAS 19 Employee Benefits (Amendment)The IASBhas issuednumerousamendments to IAS19. These range from fundamental changes suchas recognitionofunvestedpastservicecostandtransferringtheremeasurementcomponentofthedefinedbenefitcosttoOthercomprehensiveincometosimpleclarificationsandre-wording.TheGroupiscurrentlyassessingthefullimpactoftheamendmentsbutexpectsthosenottobematerial.Theamendmentbecomeseffectiveforannualperiodsbeginningonorafter1January2013.

IAS 27 Separate Financial Statements (as revised in 2011)AsaconsequenceofthenewIFRS10andIFRS12,whatremainsofIAS27islimitedtoaccountingforsubsidiaries,jointlycontrolledentities, andassociates in separatefinancial statements. TheGroupdoesnotpresent separatefinancial statementsprepared inaccordancewithIFRS.Theamendmentbecomeseffectiveforannualperiodsbeginningonorafter1January2013.

IAS 28 Investments in Associates and Joint Ventures (as revised in 2011)AsaconsequenceofthenewIFRS11andIFRS12,IAS28hasbeenrenamedIAS28InvestmentsinAssociatesandJointVentures,anddescribestheapplicationoftheequitymethodtoinvestmentsinjointventuresinadditiontoassociates.Theamendmentbecomeseffectiveforannualperiodsbeginningonorafter1January2013.

IAS 32 Financial instruments: Presentation and IFRS 7 Financial Instruments: Disclosures - Clarification on asset/liability offsettingTheIAS32amendmentsclarifysomeoftherequirementsforoffsettingfinancialassetsandfinancialliabilitiesinthestatementoffinancialposition, ie.thattherightofset-offmustbeavailabletodayandlegallyenforceableforallcounterparties inthenormalcourseofbusiness,aswellasintheeventofdefault, insolvencyorbankruptcy.ConsequentchangetoIFRS7intendstoenhancecurrentoffsettingdisclosures.Theamendmentsbecomeeffectiveforannualperiodsbeginningonorafter1January2014and1January2013,respectively.

IFRS 7 Financial Instruments: Disclosures — Enhanced Derecognition Disclosure RequirementsTheamendmentrequiresadditionaldisclosureaboutfinancialassetsthathavebeentransferredbutnotderecognisedtoenabletheuseroftheGroup’sfinancialstatementstounderstandtherelationshipwiththoseassetsthathavenotbeenderecognisedandtheirassociatedliabilities.Inaddition,theamendmentrequiresdisclosuresaboutcontinuinginvolvementinderecognisedassetstoenabletheusertoevaluatethenatureof,andrisksassociatedwith,theentity’scontinuinginvolvementinthosederecognisedassets.Theamendmentbecomeseffectiveforannualperiodsbeginningonorafter1July2011.TheamendmentaffectsdisclosureonlyandhasnoimpactontheGroup’sfinancialpositionorperformance.

IFRS 9 Financial Instruments: Classification and MeasurementIFRS9asissuedreflectsthefirstphaseoftheIASBsworkonthereplacementofIAS39andappliestoclassificationandmeasurementoffinancialassetsandfinancialliabilitiesasdefinedinIAS39.Thestandardiseffectiveforannualperiodsbeginningonorafter1January2015.Insubsequentphases,theIASBwillalsoaddresshedgeaccountingandimpairmentoffinancialassets.TheadoptionofthefirstphaseofIFRS9willhaveaneffectontheclassificationandmeasurementoftheGroup’sfinancialassets,butwillpotentiallyhavenoimpactonclassificationandmeasurementsoffinancialliabilities.TheGroupwillquantifytheeffectinconjunctionwiththeotherphases,whenissued,topresentacomprehensivepicture.


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2011 Assets and liabilities Petrochemicals Corporateandother Inter-segmenttransfers total

HUFmillion HUFmillion HUFmillion huf million

Property,plantandequipment,net 117,460 5,005 - 122,465

Intangibleassets,net 2,113 238 - 2,351

Inventories 11,779 69 - 11,848

Tradereceivables,net 50,792 89 - 50,881

Investmentsinassociates - 132 - 132

Notallocatedassets 21,353

total assets 209,030

Tradepayables 47,643 245 - 47,888

Notallocatedliabilities 161,142

Total liabilities 209,030

2010 Assets and liabilities Petrochemicals Corporateandother Inter-segmenttransfers total


Property,plantandequipment,net 123,525 4,955 - 128,480

Intangibleassets,net 2,451 197 - 2,648

Inventories 10,129 7 - 10,136

Tradereceivables,net 49,809 133 - 49,942

Investmentsinassociates - 132 - 132

Notallocatedassets 19,334

total assets 210,672

Tradepayables 40,384 236 - 40,620

Notallocatedliabilities 170,052

Total liabilities 210,672

3. Segmental information

2011 Petrochemicals Corporateandother Inter-segmenttransfers total


Net revenue

Salestoexternalcustomers 410,712 750 - 411,462

Inter-segmentsales 266 1,894 (2,160) -

total revenue 410,978 2,644 (2,160) 411,462

results

Profit/(loss)fromoperations (4,117) (1,785) - (5,902)

Netfinancecosts (2,992) (1,989) - (4,981)

Incomefromassociates - - - -

Profitbeforetax (7,109) (3,774) - (10,883)

Incometaxexpense/(benefit) 1,525 (1,182) - 343

Profitfortheyear (8,634) (2,592) - (11,226)

2010 Petrochemicals Corporateandother Inter-segmenttransfers total


Net revenue

Salestoexternalcustomers 364,490 695 - 365,185

Inter-segmentsales 218 1,950 (2,168) -

total revenue 364,708 2,645 (2,168) 365,185

results

Profit/(loss)fromoperations 2,961 (2,161) - 800

Netfinancecosts (1,533) (1,274) - (2,807)

Incomefromassociates - 18 - 18

Profitbeforetax 1,428 (3,417) - (1,989)

Incometaxexpense/(benefit) 712 (1,531) - (819)

Profitfortheyear 716 (1,886) - (1,170)


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4. intangible assets

TheGroup’sintangibleassetsasof31December2011and2010wereasfollows:

Goodwill Propertyrights Software Total

HUFmillion HUFmillion HUFmillion HUFmillion

At 1 January 2010

Grossbookvalue 92 2 7,020 7,114

Accumulatedamortizationandimpairment - - (4,116) (4,116)

Net book value 92 2 2,904 2,998

Year ended 31 December 2010

-additions - - 65 65

-amortizationfortheyear - - (413) (413)

-impairment - - - -

-transfers - (2) - (2)

Closingnetbookvalue 92 - 2,556 2,648

At 31 December, 2010

Grossbookvalue 92 - 7,073 7,165


Net book value 92 - 2,556 2,648


-additions - 18 99 117

-amortizationfortheyear - - (413) (413)

-impairment - - - -

-transfers - - (1) (1)

Closingnetbookvalue 92 18 2,241 2,351


Grossbookvalue 92 18 7,159 7,269


Net book value 92 18 2,241 2,351

goodwillGoodwillacquiredinabusinesscombinationisallocated,atacquisition,tothecashgeneratingunits(CGUs)thatareexpectedtobenefitfromthatbusinesscombination.Beforerecognitionofimpairmentlosses,thecarryingamountofgoodwillhadbeenallocatedasfollows:

31December2011 31December2010

Netbookvaluebeforeimpairment

Impairment NetbookvalueNetbook

valuebeforeimpairment

Impairment Netbookvalue

HUFmillion HUFmillion HUFmillion HUFmillion HUFmillion HUFmillion

TVKPolskaSpzoo 92 - 92 92 - 92

total goodwill 92 - 92 92 - 92

TheCompanyrecognizedgoodwillofHUF92millionrelatingtoTVKPolskaSpzoo,whichissubjecttoannualimpairmenttestaccordingtotherequirementsofIAS36–ImpairmentofAssets.

2011 Other segment information Petrochemicals Corporateandother Inter-segmenttransfers total


Capitalexpenditure: 6,256 239 - 6,495

Property,plantandequipment 6,218 160 - 6,378

Intangibleassets 38 79 - 117

Depreciationandamortization 12,950 381 - 13,331

Fromthis:impairmentlossesandreversalofimpairmentrecognizedinincomestatement

79 - - 79

2010 Other segment information Petrochemicals Corporateandother Inter-segmenttransfers total


Capitalexpenditure: 5,838 1,247 - 7,085

Property,plantandequipment 5,837 1,183 - 7,020

Intangibleassets 1 64 - 65

Depreciationandamortization 12,620 392 - 13,012

Fromthis:impairmentlossesandreversalofimpairmentrecognizedinincomestatement

207 - - 207

Theoperatingprofitofthesegmentsincludestheprofitarisingbothfromsalestothirdpartiesandtransferstotheotherbusinesssegments.Petrochemicalstransfersvariousby-productstotheCorporate.ThesubsidiariesoftheCorporatesegmentprovideotherservicestothePetrochemicals.Theinternaltransferpricesusedarebasedonprevailingmarketprices.Divisionalfigurescontaintheresultsofthefullyconsolidatedsubsidiariesengagedintherespectivedivisions.

ValueofassetsrelatingtoforeignlocationsamountstoHUF6million.Itisnotsignificanttothetotalamountofassets.


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Impairment



Scraps* 79 168

Effectofrescheduledperiodicmaintenance - 39

Impairmentonthebasisofmarketprice - -

total 79 207

*In2011impairmentexpensewasrecordedintheamountofHUF79million.Significantpartofitrelatedtotheaccountedpartscrapping,whichbelongedtoolefinreconstruction.

leased assetsProperty,plantandequipmentincludesmachineryunderfinanceleases:



Grossvalue 478 478

Accumulateddepreciation 453 441

Net book value 25 37

pledged assetsNoneoftheassetsoftheCompanywerepledgedasof31December2011and2010.AssetsofTVKErőműKft.(HUF9,380million)andassetsofTisza-WTPKft.(HUF1,185million)arepledgedascollateralforlong-terminvestmentloans.

borrowing CostsProperty,plantandequipmentincludeborrowingcostsincurredinconnectionwiththeconstructionofcertainassets.Therewerenocapitalisedborrowingcostsin2011and2010,thataredirectlyattributabletotheacquisition,constructionorproductionofaqualifyingasset.

5. Property, plant and equipment

TheGroup’stangibleassetsasof31December2011and2010wereasfollows:

Landandbuildings

Technicalequipment,vehicles

Other equipmentand

vehiclesCapitalprojects Total

HUFmillion HUFmillion HUFmillion HUFmillion HUFmillion

At 1 January 2010

Grossbookvalue 45,101 174,144 20,109 1,993 241,347

Accumulateddepreciationandimpairment (12,965) (81,000) (13,722) - (107,687)

Net book value 32,136 93,144 6,387 1,993 133,660


-additions - - - 7,020 7,020

-capitalization 587 6,171 919 (7,677) -

-depreciationfortheyear (1,416) (9,811) (1,165) - (12,392)

-impairment (10) (179) (18) - (207)

-disposals (23) - (2) - (25)

-transfersandotherchanges - (1) 425 - 424

Closingnetbookvalue 31,274 89,324 6,546 1,336 128,480


Grossbookvalue 45,639 178,030 21,345 1,336 246,350


Net book value 31,274 89,324 6,546 1,336 128,480


-additions - - - 6,378 6,378

-capitalization 910 3,637 800 (5,347) -

-depreciationfortheyear (1,418) (10,324) (1,097) - (12,839)

-impairment (10) (66) (3) - (79)

-disposals (4) - (2) - (6)

-transfersandotherchanges (131) (42) 704 - 531

Closingnetbookvalue 30,621 82,529 6,948 2,367 122,465


Grossbookvalue 46,367 180,146 22,578 2,367 251,458


Net book value 30,621 82,529 6,948 2,367 122,465


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7. Sale of subsidiaries

Carrying amount of disposed assets and liabilities of TVK Italia S.r.l (on 12December 2011) and TVK InterchemolGmbH (on 20December2011)andanalysisofnetcashinflowonsalesofthesubsidiarywasthefollowing:

TVKItaliaSrl TVKInter-ChemolGmbH Total

HUFmillion HUFmillion HUFmillion

Property,plantandequipment 1 1 2

Tradereceivables 86 305 391

Othercurrentassets(excludingcash) 46 59 105

Total assets (excluding cash) 133 365 498

Provisions 48 227 275

Othernon-currentliabilities 27 69 96

Tradepayables 2 290 292

Othercurrentliabilities 117 9 126

Total liabilities 194 595 789

Net assets (61) (230) (291)

Net gain (loss) on sale of subsidiaries 302 204 506

Cash inflow / (outflow) 241 (26) 215

8. other non-current assets

TheGroup’sothernon-currentassetsasof31December2011and2010wereasfollows:



Governmentbonds* 210 200

Advancesforconstructioninprogress 26 -

LoantoPlasticoS.A.** - -

Other*** 2 2

total 238 202

*Long-term securities include type2013/C government bondsmaturing inDecember 2013.Government bondsbear a floating interest rate equivalent to the

TreasuryBondsprevious6monthaverageinterestrate.Thesebondsareaccountedforasheldtomaturityinstruments.

**In2002,TVKPlc.solditsinvestmentinPlasticoS.A.In2006,basedonalegalopinion,theCompanyreassessedtherecoverabilityofitsoutstandingloanreceivable

fromPlasticoS.A.anddecidedtofullywriteitoff.NetofimpairmentofHUF575millionasof31December2011and2010,respectively(SeeNote11.).

***ItcontainsloansgivenwhichareinterestfreeintheamountofHUF2millionin2011(HUF2million2010).

6. Investment in associated companies

TheGroup’sfinancialinvestmentsasof31December2011and2010wereasfollows:

Company name Country Dateoffoundation Rangeofactivity Ownership

31Dec2011Ownership 31Dec2010

Netbookvalueofinvestment31Dec2011

Netbookvalueofinvestment31

Dec2010


Associates TMMTűzoltóésMűszakiMentőKft. Hungary 1995 Fireprevention,technical

rescue,technicalsupervision 30% 30% 132 132

total associates 132 132

total 132 132

Financial information on associatesMainfinancialdataoftheGroupassociatesat31December2011(Theseamountsrepresent100%ofthevaluesofthecompaniesreportedbythosecompaniesinaccordancewithIFRS):

total assets Liabilities Total operating revenues Profit and loss for the year


TMMTűzoltóésMűszakiMentőKft. 514 74 550 0

MainfinancialdataoftheGroupassociatesat31December2010(Theseamountsrepresent100%ofthevaluesofthecompaniesreportedbythosecompaniesinaccordancewithIFRS):

total assets Liabilities Total operating revenues Profit and loss for the year


TMMTűzoltóésMűszakiMentőKft. 505 66 537 31


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Asat31December2011and2010theanalysisoftradereceivablesthatwerepastdueisasfollows:



Neitherpastduenorimpaired 49,595 48,176

Pastduebutnotimpaired 1,286 1,766

Within90days 1,081 1,754

91-180days 7 4

Over180days 198 8

total 50,881 49,942

TheGrouprecordedawrite-offondoubtfuldebtsofHUF18millionandHUF30millionin2011and2010,respectively.IncomefrombaddebtsandwrittenoffreceivablesamountedtoHUF1millionandHUF5millionin2011and2010,respectively.

Toassessprovisionfordoubtfuldebts,theCompanyestimatedincurredlossesthatariseduetotheliquidityproblemsofcertainmajordebtors.Theprovisionhasbeendeterminedbyreferencetopastdefaultexperience.

ExportreceivablesaredenominatedprimarilyinEUR,USDandPLNandarerecordedattheexchangerateasof31December2011and2010.Theresultinggainorlossisclassifiedinanetamounteitherasotherincomeorotherexpense,respectively(seenotes21,24)intheaccompanyingincomestatements.

9. Inventories

Inventoriesasof31December2011and2010wereasfollows:

Atcost Netbookvalue Atcost Netbookvalue



Workinprogressandfinishedgoods 9,208 8,625 6,661 6,533

Raw-material 2,381 2,381 2,546 2,546

Othermaterials 1,073 800 1,036 788

Purchasedgoods 42 42 269 269

total 12,704 11,848 10,512 10,136

TheGroupbelievesthatthelevelofprovisionasof31December2011issufficienttocoverpotentialfuturelossesonsaleofinventories.

Asof31December2011and2010,noinventoryownedbyTVKPlc.waspledgedascollateral.

The total amount of impairmentwasHUF 856million andHUF 376million as of 31December 2011 and 2010, respectively (ascumulativefigures).

Inventoriesareregularlyreviewedforimpairment.

10. trade receivables, net

Receivablesasof31December2011and2010wereasfollows:



Domesticdebtors 26,977 26,763

-ofwhich:MOLGroupmembers 7,454 8,988

Borsodchem 4,153 3,222

Exportdebtors 24,115 23,368

-ofwhich:MOLGroupmembers 960 1,061

51,092 50,131

Less:provisionfordoubtfuldebts (211) (189)

total 50,881 49,942

Movementsintheprovisionfordoubtfulreceivableswereasfollows:



At1January 189 198

Additions 28 3

Reversal (6) (12)

At 31 December 211 189


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12. cash and cash equivalents

Cashandcashequivalentsasof31December2011and2010wereasfollows:



Cashatbank–EUR 3,095 3,731

Cashatbank–HUF 1,984 1,007

Cashatbank–USD 455 205

Cashatbank–PLN 145 121

Cashatbank–othercurrencies 33 12

Cashonhand–othercurrencies 2 3

Cashonhand–HUF 1 1

total 5,715 5,080

11. other current assets

Othercurrentassetsasof31December2011and2010wereasfollows:



ReclaimableVAT 14,407 12,380

LoantoMOL 325 1,000

Energysectorextratax 165 65

Advancestosuppliers 133 40

Prepayments 113 94

Loanstoemployeesandotherreceivables 15 21

Interestreceivables 5 6

Accruedincome 2 140

LoantoPlasticoS.A.* - -

Other 81 199

total 15,246 13,945

*Thelong-termpartoftheloanreceivablefromPlasticoS.A.reducedbytheproportionateimpairmentlosshasbeenrecordedasothernon-currentasset(See

Note8).

In2006,basedonalegalopinion,theCompanyreassessedtherecoverabilityofitsoutstandingloanreceivablefromPlasticoS.A.anddecidedtofullywriteitoff.

Analysisofloansreceivable



LoantoPlasticoS.A. 323 323

Writeoffdoubtfulreceivables (323) (323)

total - -

Movementsintheprovisionfordoubtfulloansreceivablewereasfollows:



At1January 323 323

Additions - -

Reversal - -

Amountswrittenoff - -

Currencydifferences - -

At 31 December 323 323


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Shareholderswithashareholdingabove5%registeredintheShareRegisterasof31December2010:

Shareholder Shareholding%

MOLHungarianOilandGasCompany 86.79

Slovnaftas 8.07

MOListheparentcompanyofSlovnaftas.,itistheultimateparentcompanyofTVK.

Sharecapitalbytypeofsharesasof31December2010:

Typeofshare Numberofshares Sharecapital(THUF)

Ordinarysharesrepresentingequalandequivalentrightsofmembers(facevalueofoneshareisHUF1,010)

24,290,843 24,533,751

total 24,290,843 24,533,751

14. reserves

ThetotalamountofreserveslegallyavailablefordistributionbasedonthestatutoryseparatefinancialstatementsofTVKPlc.isHUF94,266millionandHUF105,577millionasof31December2011and2010,respectively.

13. Share capital

Sharecapitalasof31December2011wasasfollows:

Shareholder Numberofshares Facevalue(HUF) Total(HUFmillion) Shareholding%

Domesticentities 21,401,032 1,010 21,615 88.10

Internationalentities 2,231,796 1,010 2,254 9.20

Domesticprivateinvestors 314,443 1,010 318 1.29

Internationalprivateinvestors 7,227 1,010 7 0.03

Unregisteredinvestors 336,345 1,010 340 1.38

total 24,290,843 24,534 100.00

Shareholderswithashareholdingabove5%registeredintheShareRegisterasof31December2011:

Shareholder Shareholding%

MOLHungarianOilandGasCompany 86.79

Slovnaftas 8.07

MOListheparentcompanyofSlovnaftas.,itistheultimateparentcompanyofTVK.

MOL’sdirectandindirectinfluenceovertheCompanyis94.86%.

Sharecapitalbytypeofsharesasof31December2011:

Typeofshare Numberofshares Sharecapital(THUF)

Ordinarysharesrepresentingequalandequivalentrightsofmembers(facevalueofoneshareisHUF1,010)

24,290,843 24,533,751

total 24,290,843 24,533,751

Sharecapitalasof31December2010wasasfollows:

Shareholder Numberofshares Facevalue(HUF) Total(HUFmillion) Shareholding%

Domesticentities 21,690,707 1,010 21,908 89.30

Internationalentities 2,237,133 1,010 2,260 9.21

Domesticprivateinvestors 288,245 1,010 291 1.19

Internationalprivateinvestors 6,190 1,010 6 0.02

Unregisteredinvestors 68,568 1,010 69 0.28

total 24,290,843 24,534 100.00


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16. Provision for liabilities and charges

Provisionsforexpectedliabilitiesandchargesasof31December2011and2010wereasfollows:

Environ-mental Severance

Longtermemployeeretirementbenefits

OldTeambenefit

earlyRetirementbenefits

Provisionforlitigation Total

HUFmillion

HUFmillion

HUFmillion

HUFmillion

HUFmillion

HUFmillion

HUFmillion

Balance as of 1 January 2010 1,971 56 307 206 64 - 2,604

Provisionmadeduringtheyearandrevisionofpreviousestimate 139 17 25 27 112 13 333

Unwindingofthediscount 138 - 6 7 - - 151

Provisionusedduringtheyearandrevisionofpreviousestimate (218) (6) (38) (34) (64) - (360)

Balance as of 31 December 2010 2,030 67 300 206 112 13 2,728

Provisionmadeduringtheyearandrevisionofpreviousestimate 279 19 40 85 49 16 488

Unwindingofthediscount 97 - 4 5 - - 106Provisionusedduringtheyearandrevisionofpreviousestimate (92) (31) (18) (24) (112) - (277)

Acquisitions,divestitions - (48) (183) (15) - (29) (275)

Balance as of 31 December 2011 2,314 7 143 257 49 - 2,770

Currentportion31December2010 194 32 33 23 112 13 407

Non-currentportion31December2010 1,836 35 267 183 - - 2,321

Currentportion31December2011 363 7 13 26 49 - 458

Non-currentportion31December2011 1,951 - 130 231 - - 2,312

environmental provisionThe amount of provision contains the discounted value of amounts estimated for 12 years. The environmental provisionmightfurtherincreasesubjecttothecompletionofanongoingenvironmentalsurvey.(SeeNote29)Theamountoftheprovisionhasbeendeterminedonthebasisofexistingtechnologyatcurrentpricesbycalculatingrisk-weightedcashflowsdiscountedusingestimatedrisk-freerealinterestrates.

provision for severance Theprovisionforseveranceequalstotheamountofseverancepaymentsduebutnotyetpaidasat31December2011.

15. long-term debt, net of current portion

Long-termdebt,netofcurrentportionasof31December2011and2010wereasfollows:

Weightedaverageinterestrate

Weightedaverageinterestrate

2011 2010 31December2011

31December2010

% % HUFmillion HUFmillion

SecuredbankloanofTVKErőműKft.inEUR* 2.17% 1.62% 7,246 7,318

SecuredbankloanofTisza-WTPKft.inEUR** 2.17% 1.63% 1,211 1,234

Unsecured loan in EUR from MOL Plc. (majoritystakeholder)*** 5,519 4,169

Other**** 3,431 3,446

total long term debt 17,407 16,167

Currentportionoflong-termdebt 1,159 976

Total long-term debt, net of current portion 16,248 15,191

*On26July2002,TVKErőműKft.signedaprojectfinancingagreementwithOTPBankRt.,andthefacility,thatamountedtoHUF9,810million(EUR40million),had

beenfullydrawnby31December2004.TheloanissecuredbyapledgeonTVKErőműKft’sassets.Attheendof2011theshort-termpartoftheloanamountsto

HUF989million(EUR3,180thousand)reportedasshort-termloanpayable.

**InordertoimplementawatertreatmentplanttobeoperatedbyTiszaWTPKft.,on17December2002,theKft.signedalong-termprojectanddevelopmentloan

agreementforHUF1,883million(EUR8million)withOTPBankRt.Bytheendoftheavailabilityperiod(29December2003),theKft.haddrawndownatotalofEUR

7,340,000fromthefacility.TheprojectloanissecuredbytheCompany’sassets.Attheendof2011,TiszaWTPKft.reclassifiedaninstalmentofHUF175million(EUR

562thousand)duein12monthstocurrentliabilities.

***On21December2009,arevolvingloancontractwasmadebetweenTVKPlc.andMOLPlc.inanamountofEUR100million.Thecompanymodifiedtheloan

contractanddividedthecreditthecreditlineintolongtermpart(EUR70million)andshorttermpart(EUR30million)during2011.

****AccordingtoserviceagreementtheshareholdingofthemajorityownersofthecapitalofTVKErőműKft.andTiszaWTPKft.istobereimbursedduringthe

lifetimeoftheproject,andisrecordedasotherlong-termdebtinaccordancewithIAS32,asitqualifiesasafinancialliability.

Securedloanswereobtainedforspecificcapitalexpenditureprojectsandaresecuredbytheassetsfinancedfromtheloan.Accordingtomaturitythelong-termdebtswereasfollows:



Maturitytwotofiveyears 10,923 8,725

Maturityoverfiveyears 5,325 6,466

total 16,248 15,191


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17. other non-current liabilities



LoansgrantedbyMOL/parentcompanyandsecuredbyCO2emissionquotas* - 2,552

Other 5 6

total 5 2,558

*Attheendof2011theshort-termpartoftheforwardofCO2emissionquotasreportedastradeandotherpayables.

(SeeNote18)

18. trade and other payables

TheGroup’spayablesandothercurrentliabilitiesasofDecember2011and2010wereasfollows:



Domestictradecreditors 41,981 36,532

-ofwhich:MOLGroupmembers 36,461 30,570

Associates 1,224 53

Suppliersrelatedtocapitalprojects 3,260 1,468

-ofwhich:MOLGroupmembers 1,645 556

Importcreditors 2,647 2,620

-ofwhich:MOLGroupmembers 556 283

Discountpayabletocustomers 4,017 4,950

LoansgrantedbyMOL/parentcompanyandsecuredbyCO2emissionquotas* 2,996 2,083

Accruedexpenses 1,916 2,659

DividendpayabletothemajorityownerofTVKErőműKft. 881 277

Amountsduetoemployeesandrelatedcontributions 315 330

DividendpayabletoownerofTisza-WTPKft. 91 94

Statebudgettaxes 53 94

Deferredotherrevenues 39 28

Dividendspayable** 4 8

Other 211 128

total 58,411 51,271

* See Note 17

**Dividendpayablein2011arerelatedto2007’s,2008’sand2010’sdividendswhichhavenotbeenpaidyet.

Provision for long term employee retirement benefitsTVKoperates benefit schemes that provide lump sumbenefit to all employees at thetimeof their retirement. TVK employeesareentitledformaximumof2monthsoffinalsalaryrespectively,dependingonthelengthofserviceperiod.Noneoftheseplanshaveseparatelyadministeredfunds.Thevalueofprovisionhasbeendeterminedusingtheprojectedunitcreditmethod,basedonfinancialandactuarialvariablesandassumptionsthatreflectrelevantofficialstatisticaldataandareinlinewiththoseincorporatedinthebusinessplanofTVK.Principalactuarialassumptionsstateanapproximately2%differencebetweenthediscountrateandthefuturesalaryincrease.Asof31December2011theCompanyhasrecognizedaprovisionofHUF143milliontocoveritsestimatedobligationregardingfutureretirementbenefitspayabletocurrentemployeesexpectedtoretirefromgroupentities.

Provision for Old Team benefitsEveryfiveyears,TVKpaysafixsetamounttoallemployeeswhohadworkedatleast10yearsfortheCompany.On31December2011,basedonactuarialcalculations,theCompanymadeHUF257millionprovisionforthefutureOldTeambenefitsofcurrentemployees.

The followingtablesummarises themainfinancialandactuarialvariablesandassumptionsbasedonwhichtheamountsof retirementbenefitsweredetermined:

2011 2010

Discountratein% 2.5-4.1 2.0-4.3

Averagewageincreasein% 0.5-2.1 0-2.3

Mortalityindex(male) 0.02-0.84 0.06-3.45

Mortalityindex(female) 0.01-0.35 0.02-1.50


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21. other operating income

Otheroperatingincomeasof31December2011and2010wereasfollows:

2011 2010


Foreignexchangegainonreceivablesandpayables,net 2,113 1,417

Defaultinterestreceived,indemnity,penalties 533 111

Netgain(loss)onsalesofsubsidiaries 506 -

GainonsaleofCO2emissionquotareceivedfreeofcharge 73 612

Donationsreceived 16 12

Gainonthedisposaloftangibleassets 15 60

Retrospectivediscount - 7

Other 108 60

total 3,364 2,279

22. raw materials and consumables used

Rawmaterialsandconsumablesasof31December2011and2010wereasfollows:

2011 2010


Material costs 356,885 299,332

Naphta,AGOandotherrawmaterials 321,257 268,025

energy 28,477 24,491

Otherindirectandauxi.materials 4,678 4,413

Othermaterials 2,434 2,391

Impairmentofmaterials 39 12

Material type services 15,462 14,742

Transportation,loading,storage 6,739 6,497

Maintenancecosts 4,493 4,032

Othercosts 3,012 2,971

Sundrysalescosts 599 568

Informationtechnologyservice 204 221

Technicaldevelopmentcost 198 230

Otherpostalservicecost 155 153

Hiringcostoflabour 31 37

Otheradministrationcost 31 33

Cost of goods sold 24,554 14,786

Cost of services sold 399 13,290

total 397,300 342,150

19. Short-term debt



RevolvingloaninEURfromMOLPlc.(majorityshareholder)* 6,623 286

Unsecuredloans - -

total short term debt 6,623 286

*On21December2009,arevolvingloancontractwasmadebetweenTVKPlc.andMOLPlc.inanamountofEUR100million.Thecompanymodifiedtheloan

contractanddividedthecreditlineintolongtermpart(EUR70million)andshorttermpart(EUR30million)during2011.

20. net sales by geographical area

Netsalesbygeographicalareaasof31December2011and2010wereasfollows:

2011 2010


Hungary(reducedbyquantitydiscount) 210,977 189,295

Italy 34,275 26,279

Germany 33,004 31,347

Poland 30,557 29,550

CzechRepublic 20,641 10,247

Slovakia 11,970 12,729

Austria 9,230 7,622

Ukraine 8,050 6,650

Romania 7,885 7,554

Switzerland 5,867 5,152

France 5,100 4,827

UnitedKingdom 3,257 3,558

OtherEuropeanCountries 28,532 23,773

Non-EuropeanCountries 4,676 9,233

Less:Quantitydiscountofforeignsales (2,559) (2,631)

total 411,462 365,185


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25. financial income / (expense)

Thefinancialincome/(expense)asof31December2011and2010wasasfollows:

2011 2010


Interestreceived 143 192

Impairment,reverseimpairmentandrevaluationofsecurities 9 16

Other 124 17

Total financial income 276 225

Foreignexchangelossesofloansandotherfinancialassets (2,987) (1,181)

Interestexpense* (1,990) (1,288)

Interestonprovision (106) (151)

Commitmentfeeofbankloans (96) (113)

Discountsgivenforearlypaymentofreceivables (69) (292)

Other (9) (7)

Total financial expenses (5,257) (3,032)

Total financial income / (expense), net (4,981) (2,807)

*InterestexpenseoftheGroupfor2011includesHUF925million(2010:HUF357million),beingthesharefromthenetincomeofTVKErőműKft.ofitsmajority

shareholder(ÉMÁSZNyrt.),andTiszaWTPKft.ofshareholder(SinergyKft.).

26. Income taxes

Corporate income tax:In2011,TVKPlc.hadanegativeprofitbeforetaxation,whichwasfurtherdecreasedbythetaxbasecorrections,thusnocorporateincometaxoccurred.Thecurrentcorporateincometaxescontaintheconsolidatedcompanies’corporateincometaxes.TVKPlc.deferredtheoccurredloss.

Income taxes: Totalapplicableincometaxesreportedintheconsolidatedfinancialstatementsfortheyearsended31December2011and2010includethefollowingcomponents:

2011 2010


Localtradetax 599 757

Currentcorporateincometaxes 254 490

RobinHoodtax 35 48

Innovationfee 14 12

Deferredincometaxes (559) (2,126)

Total income tax expense / (benefit) 343 (819)

23. Personnel expenses

Personnelexpensesasof31December2011and2010wereasfollows:

2011 2010


Wagesandsalaries 6,284 6,590

Socialsecurity 1,941 1,975

Otherpersonnelexpenses 1,179 1,081

total 9,404 9,646

24. other operating expenses

Otheroperatingexpensesasof31December2011and2010wereasfollows:

2011 2010


Insurancepremium 969 1,088

Rentalcosts,leasing 439 422

Propertyprotectionandfireprevention 418 424

Localandothertaxes 284 262

Administrativechargesandduties 221 307

Consulting,advisoryandauditingcosts 202 175

PRandpromotion 176 159

Publicsanitation 164 212

Damages,defaultinterest,penalties,fines 143 132

Energysectorextratax 138 303

Eliminationofwaste 135 140

Bankcharges 91 105

Donations,contributionstosetoffcostsandexpenses 66 69

Receivablesimpairment,net 44 16

Debtforgiven - 1

Other* 680 546

total 4,170 4,361

*Includingenvironmentalcostsandprovisions.


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27. earnings per share (ePS)

TheGroup’searningspersharebasedonconsolidatedinformationfor31December2011and2010areasfollows:

2011 2010

Netincome/(loss),IFRS(millionHUF) (11,226) (1,170)

Weightedaverageofsharesoutstandingintheperiod(pieces) 24,290,843 24,290,843

EPS(HUF1,010facevalue) HUF(462) HUF(48)

TheGroup’searningspershare(calculatedfromcomprehensiveincome)basedonconsolidatedinformationfor31December2011and2010areasfollows:

2011 2010

Comprehensiveincome/(loss),IFRS(millionHUF) (11,292) (1,146)

Weightedaverageofsharesoutstandingintheperiod(pieces) 24,290,843 24,290,843

EPS(HUF1,010facevalue) HUF(465) HUF(47)

Theaveragenumberofordinaryshareswasdeterminedbasedontheweightedmathematicalaveragemethod.Employeeshareswerealsoconsideredinthecalculationasemployeesarealsoentitledtodividends.

DilutedEPSisthesameasbasicEPSastheCompanyhasnodilutinginstrumentsorpurchaseoptions.

Deferred tax: Thedeferredincome/expenseconsistedofthefollowingitemsasof31December2011and2010:

Balancesheet Effectonprofitandloss

2011 2010 2011 2010


Depreciation 13,042 6,301 6,741 (4,307)

Environmentalprovision (440) (203) (237) 171

Statutorytaxlossescarriedforward (11,375) (4,348) (7,027) 1,106

Impairmentlossesandotherprovisions (544) (491) (53) 889

DifferencesduetocapitalisationaccordingtoIFRS 20 15 5 (22)

Capitalizedperiodicmaintenancecost 159 147 12 37

Other - - - -

Total deferred tax liability 862 1,421 (559) (2,126)

TheGrouprecognizedHUF11,375milliondeferredtaxassetsfromtaxlossesofHUF60,612million(ofwhichTVKPlc.HUF58,014million,TVK-ErőműKft.HUF1,329million,TVKIngatlankezelőKft.HUF1,268million)thatareavailableindefinitelyforoffsetagainstfuturetaxableprofitsofthecompaniesinwhichthelossesarose.TheamountofsuchtaxlosseswasHUF43,482millionasof31December2010.Deferredtaxassetsarisingfromnegativeprofitbeforetaxatgroupcompaniesshallberecognizedifitisprobablethatfuturetaxableincomewillbeavailabletooffsetthesedeferredtaxassets.In2011theGrouphasrecognizeddeferredtaxeffectsinrespectoflossesatGroupcompanies.

Thetemporarydifferencerelatingtoforeignsubsidiarieshavenotbeenrecognizedbecauseofthexxvi.)sectionoftheaccountingpolicy.Deferredtaxoftheforeignsubsidiarieswasnotsignificant.

Anumericalreconciliationbetweentaxexpenseandtheproductofaccountingprofitmultipliedbytheapplicabletaxratesisasthefollows:

2011 2010


Profitbeforetaxperconsolidatedincomestatement (10,883) (1,989)

Taxattheapplicabletaxrate (2,068) (378)

ImpactofchangesinHungariantaxlegislation 1,157 (1,314)

RobinHoodtax 35 39

Differencesnotexpectedtoreverse 241 340

Effectofdifferenttaxrates 81 87

Localtax 486 614

Other 411 (207)

Total income tax expense / (benefit) 343 (819)


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Thenetbookvalueandfairvalueoffinancialinstrumentsasthefollows:

Net book value fair value

2011 2010 2011 2010


financial assets

Loansgiven(notes8,11) 330 1,009 330 1,009

Tradereceivables(note10) 50,881 49,942 50,881 49,942

Cashandcashequivalents(note12) 5,715 5,080 5,715 5,080Othercurrentassets(excludingloansgivenandprepaidandrecoverabletaxes)

(note11)511 558 511 558

total 57,437 56,589 57,437 56,589

Net book value fair value

2011 2010 2011 2010


Financial liabilities

Interest-bearing loans and borrowings:

Floatingratelong-termbankloans(note15) 8,457 8,552 8,457 8,552

Floatingrateotherlong-termloans(note15) 5,519 4,169 5,519 4,169

Floatingrateothershort-termloans(note19) 6,623 286 6,623 286

Other(notes15,19,) 3,431 3,446 3,431 3,446

Liabilitiesfromemissionallowances 2,996 4,635 2,996 4,635

Tradeandotherpayables(note18) 58,411 51,271 58,411 51,271

total 85,437 72,359 85,437 72,359

28. Financial instruments

Financialinstrumentsinthebalancesheetincludeassociatedinvestments,othernon-currentassets,tradereceivables,othercurrentassets, cash and cash equivalents, short-term and long-term debt, other non-current liabilities, trade and other payables. Thefinancialassetsandliabilitiesarecarriedatamortizedcost.

The following tables sets out the carrying amount, bymaturity of theGroup’s financial instruments that bear interest as of 31December2011:

Within1year 1-2years 2-3years 3-4years 4-5years Over5years


Floating rate

Cashandcashequivalents* 5,715 - - - - -

Governmentbonds**(2013/C) - 210 - - - -

LoantoMOL 325 - - - - -

BorrowingfromMOLPlc.* (6,623) - - (5,519) - -

Capitalprojectloan (1,346) (1,396) (1,465) (1,515) (1,560) (1,934)

Forwardquota (2,996) - - - - -

*CarryingamountofcashandcashequivalentsandborrowingfromMOLPlc.equalstothecontractedamounts.

**Contractedamountofthegovernmentbonds(2013/C)isHUF231million.

Within1year 1-2years 2-3years 3-4years 4-5years Over5years Total

HUFmillion HUFmillion HUFmillion HUFmillion HUFmillion HUFmillion HUFmillion

Capital project loan

Netbookvalue (1,159) (1,231) (1,307) (1,390) (1,476) (1,894) (8,457)

Interest (187) (165) (158) (125) (84) (40) (759)

Undiscountedcontractualamounts (1,346) (1,396) (1,465) (1,515) (1,560) (1,934) (9,216)

The following tables sets out the carrying amount, bymaturity of theGroup’s financial instruments that bear interest as of 31December2010:

Within1year 1-2years 2-3years 3-4years 4-5years Over5years


Floating rate

Cashandcashequivalents* 5,080 - - - - -

Governmentbonds**(2013/C) - - 200 - - -

LoantoMOL 1,000 - - - - -

BorrowingfromMOLPlc.* (286) - - (4,169) - -

Capitalprojectloan (1,148) (1,223) (1,288) (1,351) (1,388) (3,162)

Forwardquota (2,083) (2,552) - - - -

Within1year 1-2years 2-3years 3-4years 4-5years Over5years Total

HUFmillion HUFmillion HUFmillion HUFmillion HUFmillion HUFmillion HUFmillion

Capital project loan

Netbookvalue (976) (1,038) (1,102) (1,171) (1,245) (3,020) (8,552)

Interest (172) (185) (186) (180) (143) (142) (1,008)

Undiscountedcontractualamounts (1,148) (1,223) (1,288) (1,351) (1,388) (3,162) (9,560)


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financial risk management

Foreign exchange and commodity price risks Thepricesofthemost importantrawmaterialsandthoseofolefinandpolymerproductsproducedbyTVKPlc.fluctuateaccordingtointernationalmarket rates.Salesaresignificantlyaffectedby theEUR/HUFexchangerate,whilepurchasesareprimarilyUSDbased. In2011TVKPlc.didnothaveanyforwardoroptioncontractnorhadotherderivativestohedgeFXrisks. TheloangrantedtotheCompanyisdenominatedinEURinordertoreduceexchangeraterisks.

Sensitivity analysis for key exposuresIn linewith the international benchmark, Group RiskManagement prepares sensitivity analysis. According to the Financial RiskManagementModel,thekeysensitivitiesarethefollowing:

Effectonprofitfromoperations 2011HUFbillion

2010HUFbillion

Petrochemical

Brentcrudeoilprice(changeby+/-10USD/bbl;withfixedcrackspreadsandpetrochemicalmargin) -/+4.4 -/+5.9

Integratedpetrochemicalmargin(changeby+/-10EUR/t) +/-2.0 +/-2.0

Exchangerates(changeby+/-10HUF/USD;withfixedcrackspreads) -/+12.4 -/+10.0

Exchangerates(changeby+/-10HUF/EUR;withfixedcrackspreads/targetedpetrochemicalmargin) +/-10.8 +/-9.8

Credit risk CreditriskarisesfromthepossibilitythatcustomersmaynotbeabletosettletheirliabilitiestotheCompanywithinthenormaltermsoftrade.Creditriskarisesfromtheriskoflatepaymentbyanotherparty.Inordertomitigatetheserisks,theCompanycarefullyassesseseachdebtorandthedebtor’sabilitytorepayitsdebtonaregularbasis.Thecompanycoversasignificantpartoftradereceivablesbycreditinsurance.Managementisoftheopinionthatthemaximumcreditrisksapproximatethecarryingamountsoftherespectiveassets.

Interest rate risk managementAsachemicalcompany,TVKhaslimitedinterestrateexposure.

Asof31December2011and2010,100%oftheCompany’sdebtwasatvariableratesrespectively.

Asof31December2011and2010,therewasnoopeninterestrateswaptransaction.

Liquidity riskTheCompanyistomaintainsufficientcashandcashequivalentsorhaveavailablefundingthroughanadequateamountofcommittedcreditfacilitiestocovertheliquidityriskinaccordancewithitsfinancingstrategy.Theamountofundrawnfacilitiesasof31December2011consiststhefollowings:

2011 2010


Short-termfacilitiesavailable

-bank 3,000 3,000

-majoritystakeholder 2,711 5,289

Long-termfacilitiesavailable

-majoritystakeholder 16,261 19,131

Total loan facilities available 21,972 27,420

Capital managementTheprimaryobjectiveoftheGroup’scapitalmanagementistoensurethatitmaintainsastrongcreditratingandhealthycapitalratiosinordertosupportitsbusinessandmaximiseshareholdervalue.

TheGroupmanagesitscapitalstructureandmakesadjustmentstoit,inlightofchangesineconomicconditions.Tomaintainoradjustthecapitalstructure,theGroupmayadjustthedividendpaymenttoshareholders,returncapitaltoshareholdersorissuenewshares.Nochangesweremadeintheobjectives,policiesorprocessesduringtheyears2011and2010.

The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. ThreedifferentstrategiesarefollowedbasedonthelevelofNetGearing.Inthethreevariousscenarios,RiskManagementfocusesonthefollowings:

•HighGearingsituationisdeclaredwhentheNetGearingratiowillexceed40%foranyofthenextconsecutivefourbusinessquartersaccordingtoactual12monthrollingforecast.Inahighgearingsituation,theprimeobjectiveofriskmanagementistoreducetheprobabilityofbreachingdebtcovenants,whereabreachwouldseriouslyimpairthecompany’sabilitytofunditsoperations.

•ModerateGearingsituationistriggeredwhentheNetGearingratioisbetween20%and40%.InModerateGearingsituation,riskmanagementaimstoenhancethecommitmentinmaintenanceofinvestmentgradecreditrating.Havingpublicinvestmentgradecreditratingensuressignificantfinancialflexibilityascapitalmarketsourcesarealsoavailableatreasonablecostlevel.

•LowGearingstatusoccursiftheNetGearingrationisbelow20%.Inthisstatus,thefocusofriskmanagementshallbedirectedmoretowardguardingofshareholdervaluebymaintainingdisciplineinCAPEXspending,ensuringrisk-awareprojectselection.



Long-termdebt,netofcurrentportion 16,248 15,191

Currentportionoflong-termdebt 1,159 976

Short-termdebt 6,623 286

Less:Cashandcashequivalents 5,715 5,080

Netdebt 18,315 11,373

Equityattributabletoequityholdersoftheparent 122,952 136,241

Non-controllinginterest - -

Totalcapital 122,952 136,241

Capitalandnetdebt 141,267 147,614

Gearingratio(%) 12.96 7.70


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Environmental protectionIn1996,beforetheprivatisationofTVKPlc.,anenvironmentalauditoftheCompanyhadbeencarriedout.Basedonthefindingsoftheaudit,therestorationofthecontaminatedsoilintheareaoftheOlefinplantbegan.TherestorationontheareaofthePaintFactorycontinued.Therestorationofcontaminatedsoilandwaterinotherareasstartedin1999,forwhichtheCompanycontractedexternalexpertcompany.

Basedonthefindingsofthisenvironmentalaudit,theCompanyrecordedaprovisionfortheestimatedtotalenvironmentalexpensesto clean up existing pollution in 1996. As a full-scale assessment of the Company’s potential environmental obligation is stilloutstanding,theamountofprovisionhasbeenupdatedeveryyearbasedontheresultsoftheoriginalstudy,theactualcleanupworkperformedandonmanagementestimate.

Themanagementofthecompanyregularlyassessedthemeasuresand/orinvestmentsnecessaryinordertomeetnewHungarianenvironmentalrequirementsissuedbasedonapplicableEUdirectives.

Inconnectionwiththis,anassessmentoftheundergroundpollutionoftheareasunderdecontaminationbeganinthesecondhalfof 2002. Further to thefindingsof anenvironmental reviewcarriedoutbyanexternal consultant,HUF2,101millionadditionalenvironmentalprovisionswerecreatedforexpectedextrarestorationcosts in2002.Theamountofprovisionscoversonlythoseexpensesthatcouldbeassessedandproperlyquantifiedatthetimeofreporting.

In2003theCompanycontinuedthesurveyoftheundergroundpollutioninordertogetsufficientinformationaboutextensionofenvironmentalpollutionanddeterminethemostapplicabletechnologyforenvironmentalrestoration.Thesurveysfoundextensiveundergroundpollutioncausedinthepast.TheCompanysubmittedthesummaryreportontheenvironmentalsurveycompletedattheendof2003totheNorth-HungaryAreaEnvironmentAuthority(ÉMIKÖTEVIFE)bytherequireddeadlinein2004.Theenvironmentalauthorityrequestedfurtheradditionstotheclosingdocument.AlltherequestedadditionswerepreparedbyTVKPlc.andhavebeensubmittedtotheauthority.Basedonthedocumentationsubmitted,theNorth-HungaryAuthorityfortheEnvironment,NatureandWaterissuedanotetoTVKPlc.toprepareandsubmitatechnicalactionplanby30September2005.

The submitted Technical InterventionAction Plan has been prepared in accordancewith relevant legislation in force andcontains,inascheduledmanner,allthestrategicmeasuresandactionstobetakenintheshortandmiddle-termtoachievestandardmanagement of environmental responsibilities and to ensure compliance with environmental regulations withrespecttotheentireareaoftheTVK-TIFOindustrialsite.TheCompanymanagesliabilitiesandcommitmentsrelatedtopastoperationsaspartofanintegratedprojectinco-operationwithMOLPlc.ThejointliabilitywasagreedtobybothTVKPlc.andMOLPlc.intheirCo-operationAgreementsignedinJuly2006.

InitsdecisiondatedinDecember2006inrelationtothecomplexTechnicalInterventionPlan,theAuthorityissuedadecontaminationordertobothTVKandMOLwithrespecttotheentireareaoftheTVK-TIFOindustrialsite.Thedecisionapprovedthecompanies’shortandmiddle-termactionplanthataimstomanagedecontaminationcommitmentsonariskandexposurebasiswhilefocusingonthecontinuousoptimisationofenvironmentalexpensesandondecontaminationsolutions.Onthebasisoftheactionplan,asamajormilestone,wedrewacompletepollutionriskmapin2009.Themapwillthenbeusedtore-definemiddle-termenvironmentalgoalsandtoprioritiseimplementation.

WithintheTVKPlc’ssite,workiscarriedouttoavoidfurtherpollutiononthesouthernpartoftheplantandtheCompanyismakingsignificanteffortstogaugetheextentofthepollutionaswellastoidentifyandmapthepossiblemovementofthepollutants.

Resultedfromthecomplexityandtheextentofthepollutedareas,theCompanyinitiatedalongthisprojectcontinuedthecommonriskbasedconceptstrategyapproachofrecognizingenvironmentalliabilityatTVK-TIFOplantparticipatingbycontractedexternalexpertcompany.Inlinewithstrategicenvironmentalplanning,thehighestprioritiesattheTVK-TIFOindustrialsitearetoprotecthumanecologicalreceptorsandtominimiseenvironmentalexposures(i.e.toidentifyandpreventbothhorizontalandverticalspreadofpollution).

Inordertogaugethedeeppollutanttowardsthesouth-eastoftheCompany’spremises,theboundariesofthepollutedarea(bothverticallyandhorizontally)wereidentifiedwithasocalled“pollutantdynamismmonitoringsystem”.Samplingandanalysisalreadyinprogressneedtobefinalisedinordertounderstandthepollutant’smovementanddynamics.PollutionisunchangedorisrecedingattheEmergencystoragefacilityareaoftheOlefincontainerpark.The resultsof riskassessment reviewsfirst started in2006havealready limited thenumberof risks.Healthhazards reviewsoffarmlandin2006and2007foundthatcropsproducedinfarmlandattheeasternboundaryoftheTVK-TIFOsiteasreviewedinphase1andphase2,didnotrepresentover-the-limithealthhazardforbreedingstockorforhumans.

29. commitments and contingency liabilities

NAV revisionIn2011,theNationalTaxandCustomsAdministration(NAV)conductedafullscopetaxauditattheCompanywithrespecttotheyear2006to2008.TheresultofthetaxauditwastaxdifferenceofHUF15.7million,whichgeneratedHUF5.3milliontaxpenaltyandHUF2.8milliondefaultsurcharge,ofwhich,theamountsthatweren’tappealed(HUF5.3million)recognizedinJanuary,2012.

Operating leasesTheoperatingleasecommitmentsofTVKUkrainatov.areasfollows:



Duenotlaterthan1year 3 -

Over 1 year - -

total 3 -

Capital and contractual commitmentsThetotalvalueofcapitalcommitmentsasof31December2011isHUF2,527million,whichisfullyattributabletoTVKPlc.

Gas Purchase Obligation, Take or Pay ContractTheTVKErőműKft.hasconcludedlong-termgaspurchasecontractwithMOLEnergiakereskedőZrt.inorderforcontinuousoperationofequipmentsinthepowerplant.Asof31December2011,566millioncubicmetersofnaturalgaswillbepurchasedduringtheperiodending2018basedon this contract. (fromwhich481mcmunder take-or-pay commitment calculatedwitha contractualaverageprice)

TVKPlc.signedalong-termnaturalgaspurchasecontractwithMOLPlc.andMOLEnergiakereskedőZrt..Thebuyers(TVKPlc.andMOLPlc.)engagethemselvestoreceiveandpaytheannualminimumquantity,whichisthe85%ofthecontractualannualquantity.Asof31December2011,281millioncubicmetersofnaturalgaswillbepurchasedduringtheperiodending2015basedonthiscontract


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30. Related party transactions

Transactions with associated companies in the normal course of business

MOLGrouphasbeenTVKPlc’smainrawmaterialsupplierandbuyerofTVKproductseversincetheCompanywasestablished.Thecontract,whichwassignedbytheCompanywithMOLTRADE-MineralimpexZrt.in2001andrelatedtothelong-termrawmaterialsupplyandby-productrepurchasebetween2004and2013,wasmodifiedin2011.ItgrantedsupplyboththedivisionofrawmaterialsupplybetweenMOLPlc.andMOLTRADE-MineralimpexZrt.and thecontinuoussupplyof theCompany.TheCompanysignedacontractwithMOLPlc.in2011aboutthenaphthaandlightpyrolysisrawmaterialsupplyandby-productrepurchase.TheatmosphericgasolinewassuppliedmainlybyMOLTRADE-MineralimpexZrt.,whichwascomplementedwithasmallquantityfromMOLPlc.

2011 2010


Sales

-ofwhich:toMOLGroupcompanies 84,014 91,881

ofwhichMoltrade-MineralimpexZrt. - 52,786

SlovnaftPethrochemicalss.r.o. 11,736 12,651

MOLPlc. 71,895 25,530

MOLCommodityTrading. 73 614

PetroszolgKft. 152 140

Slovnafta.s. - 62

tootherrelatedparties 2 3

ofwhichTűzoltóésMűszakiMentőKft. 2 3

purchases

-ofwhich:fromMOLGroupcompanies 357,110 287,540

ofwhichMoltrade-MineralimpexZrt. 10,697 216,309

MOLPlc. 320,428 52,969

MOLEnergiakereskedőKft. 11,731 6,050

PetroszolgKft. 6,593 5,838

SlovnaftPethrochemicalss.r.o. 5,240 4,851

MOLCommodityTrading 1,314 1,165

fromotherrelatedparties 268 264

ofwhichTűzoltóésMűszakiMentőKft. 268 264

Wemadeaquantitativeriskassessmentin2008whoseinstantaneousfindingsshowedthatnoagricultural,humanexposureandecologicalrisksareexpectedtoturnupthatcouldbeattributedtoacontaminatedsubsoilundertheindustrialcomplex.Giventhattheinformationcreatingtheinputdataforriskanalysesneedcontinuousupdating,weaddedbiologicalmonitoringtoourchemicalanalyticaltestingandmonitoringprogrammein2009inordertoexploreanyquantityofsoilgas,whichhasasignificantimpactonhumanhealthandlong-termimpactonlivingorganisms.

TheTVK-TIFO site’sexplorationandestablishmentof factsand its complementary informationwerepreparedand submitted toÉMIKÖTEVIFEin2009.Onthebasisofthesedocuments,theAuthorityprescribedthecontinuationoftheexplorationandtheactualtechnicaltasksofrestorationwithjointresponsibility.Thefilingdeadlineoftheexploration’sclosingdocuments isonDecember,2012.

During2011, themappingupof the resourceswasfinished,geological structureof thesiteand thewaterstreamswere furtherspecifiedandwecompleted their integration into thehydrodynamic transportmodel.On thebasisof surveys, theextensionofenvironmentalpollutionwasdeterminedanditsquantityisolationwasdone.Wehavebegunidentifyingthetechnicalinterventionfordamageelimination,whichispotentiallyrequiredbecauseoftheexplorationprocesses,andbegunstudyingthepotentialimpactsandefficiencyanalysisofsuchinterventionthroughahydrodynamictransportmodel.Topreventanypollutionfromescapingfromthearea,theCompanyspentHUF92millionin2011andHUF130millionin2010onactionsassociatedwithmonitoringandtheexplorationofthefactsperformedaspartoftheadditionaltests.

Concerningtheclosingactionsrequiredfortheslagandashdepositbuiltin2000,weraisedaspecialreserveworthHUF170million.Tocoverthecostsofafter-managementactions,ayearlybudgetofHUF3millionshallbeseparatedasaspecial reserveforthesubsequent 30 years. TheCompanyhadnegotiations about the futureof the slag deposit. Basedonprevious coordination, theCompany initiatedtheenlargementofthedeposit.Theactionsand licensingproceduresrequiredfortheexpansionwillbegin in2012.Theproceduresassociatedwiththeexpansiondonotrequireanyspecialreserveforthepossibleactionsofenvironmentalprotection.

TVKPlc.andMOLPlc.,involvingoutsiderspecialists,setuparesearchproject,andasaconsortiumsuccessfullyappliedforthetender„ForaLiveableEnvironment”invitedbytheNationalResearchTechnologicalAgency.Themainobjectiveoftheresearchprogrammeistopreventthetransportofcontaminantsinthe16-32mdeepwater-bearingzoneandtostudythemethodsofthereductionoftheirconcentration.TheCompanyreceivedsubsidyintheamountofHUF65million,ofwhichitutilizedHUF30millionuntil2011.Underthisproject,wehadgoodresultsinstudyingtheremovalofindependentphasehydrocarbonsheavierthanwater,aswellasinthelandscaperehabilitationprogramaimedtodrawthedecontaminatedareasunderagriculturalcultivation.In2011,MAGZrt,beingthesupportorganisationtotheproject,successfullypreparedthetechnicalandfinancialreportontheproject.

ÉMI-KTVF ordered a partial assessment of pollution in the surrounding area of well T-15 at AKZO’s premises. The area wasdecontaminatedin2002andthesituationhasbeenregularlyfollowed-upeversince.AnincreasedconcentrationofcontaminantsledustoconcludethatAKZOhasre-contaminatedthearea.

Wepreparedaclosingreportonthefollow-upprocessandsentittoboththeauthorityandAKZO.Inresponsetothereport,theauthorityissueddecisionN°10431-14/2011andrequiredbothTVKNyrt.andAKZONOBELCo.,underseveralandjointliability,tomakeafactualassessmentofthesituation.WeappealedagainstthedecisiononthegroundsthatproofispresentedinourearlierdocumentssubmittedtotheauthoritythatTVKNyrt.isnotresponsiblefortheincreasedconcentrationsofpollutants.Noresponsetoourappealhasbeenreceivedasyet.

TheCompanyrecognized–inconsiderationoftheabove-mentionedrisks-environmentalprovisionbasedonthecurrentlyavailablequantifiablefutureexpensesintheamountofHUF2,314millionasof31December2011(HUF2,030millionasof31December2010).

Beyondtheprovisionrecognized in theBalanceSheet, thereare furthercontingentenvironmental liabilitieswhoseamountmayexceedHUF4billion.However,theprobabilityofhavingthesetaskscompletedislessthan50%duetothefactthatthereisnolegalobligationtocarrythemoutandthattheirexacttechnicalcontentisuncertain.


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Detailsoftheshareoptionrightsgrantedduringtheyearareasfollows:

Number of shares

2011 2010 2009 2008 2007 2006 total

share share share share share share

Outstanding at the beginning of 2006 0 0 0 0 0 0 0

Grantedduringtheyear 13,000 13,000

Forfeited/Exercisedduringtheyear 0

Outstanding at the end of 2006 0 0 0 0 0 13,000 13,000


Forfeited/Exercisedduringtheyear (1,512) (583) (2,095)

outstanding at the end of 2007 0 0 0 0 13,427 12,417 25,844


Forfeited/Exercisedduringtheyear 0

Outstanding at the end of 2008 0 0 0 15,000 13,427 12,417 40,844


Forfeited/Exercisedduringtheyear (600) (600)

outstanding at the end of 2009 0 0 14,500 14,400 13,427 12,417 54,744


Forfeited/Exercisedduringtheyear (12,417) (12,417)

outstanding at the end of 2010 0 7,500 14,500 14,400 13,427 0 49,827


Forfeited/Exercisedduringtheyear (2,500) (5,996) (4,400) (13,427) (26,323)

outstanding at the end of 2011 4,111 5,000 8,504 10,000 0 0 27,615

Asrequiredby IFRS2, thisshare-basedcompensation isaccountedforascash-settledpayments,expensingthe fairvalueof thebenefitasdeterminedatvestingdateduringthevestingperiod.ExpenseincurredbythisschemewasHUF(80)million,andHUF93millionin2011and2010,respectively,recordedaspersonnel-typeexpenseswithacorrespondingincreaseinTradeandotherpayables.

Liabilities(withoutpayrollrelatedcontributions)inrespectoftheshare-basedpaymentplansamountedtoHUF75millionasat31December2011(31December2010:HUF224million),recordedinTradeandotherpayables.

Fairvalueasofthebalancesheetdatewascalculatedusingthebinomialoptionpricingmodel.The inputstothemodelwereasfollows:

2011 2010 2009 2009 2008

(2yearswaitingperiod)

(3yearswaitingperiod)

Weightedaverageexerciseprice* 72.94 58.69 41.88 41.88 104.82

Weightedaverageshareprice* 56.1 56.1 56.1 56.1 56.1

Expectedvolatilitybasedonhistoricaldata 46.42% 42.16% 36.89% 36.89% 37.57%

Expecteddividendyield 1.23% 1.23% 1.23% 1.23% 1.23%

Expectedlife(years) 4.0 3.0 2.0 2.0 1.0

Riskfreeinterestrate 0.51% 0.29% 0.16% 0.16% (0.04)%

Weightedaveragefairvalueoftheoptions 13.2 13.5 17.5 17.5 0.0

* The units of measurement of values are EUR/share.

31. Share-based payment plans

General Incentive Schemes for managementThe 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. Expenses incurred by this scheme were HUF 250 million, and HUF 118 million in2011and2010,respectively.

Theliabilitiesrelatedtoincentiveschemeasof31December2011and2010wereasfollows:



Shorttermincentive 254 256

254 256

Share-option incentive from 2006The 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, withthefollowingcharacteristics:

•coversa5-yearperiodstartingannually,whereperiodssplitinto

ºa3-yearwaitingperiodanda2-yearredemptionperiodincaseofmanagersstayingintheprevioussystemfor2009,

ºa2-yearwaitingperiodanda3-yearredemptionperiodincaseofmanagerschoosingthenewsystemalreadyforY2009,anditisvalidforalloftheentitledmanagersfromY2010.

•itsrateisdefinedbythequantityofunitsspecifiedbyMOLjobcategory

•thevalueoftheunitsissetannually(ineachyearsincetheinitiationofthescheme,1unitequalsto100MOLshares).

Accordingtothenewsystemit isnotpossibletoredeemtheshareoptionuntiltheendofthesecondyear(waitingperiod);theredemptionperiodlastsfrom1Januaryofthe3rdyearuntil31Decemberofthe5thyear.

The incentive ispaid in the redemptionperiodaccording to thedeclarationof redemption.Thepaidamountof the incentive isdeterminedastheproductofthedefinednumberandpriceincrease(differencebetweentheredemptionpriceandtheinitialprice)ofshares.


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Key management compensation

2011 2010


Salariesandothershort-termemployeebenefits 241 201

Terminationbenefits 59 -

Post-employmentbenefits - -

Otherlong-termbenefits - -

Share-basedpayment (17) 69

Honoraria 87 126

total 370 396

Loans to the members of the Board of Directors and Supervisory Board

NoloanshavebeengrantedtoDirectorsormembersoftheSupervisoryBoard.


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Key Corporate Data 2001-2010 (Huf)

IFRS,consolidated,audited(HUFmillion) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Sales 135,124 150,284 175,883 249,693 308,736 337,646 323,406 265,372 365,185 411,462

EarningsBeforeInterestandTaxes(EBIT) 443 4,177 12,153 13,136 22,058 32,973 4,555 (7,510) 800 (5,902)

Depreciation 8,111 7,797 6,925 9,723 12,405 12,948 13,148 12,609 13,012 13,331

EBITDA 8,554 11,974 19,078 22,859 34,463 45,921 17,703 5,099 13,812 7,429

Netprofit 1,819 5,278 8,947 6,409 17,271 23,684 (146) (9,192) (1,170) (11,226)

Capitalexpenditure 20,132 55,420 42,553 6,981 6,644 7,251 4,539 8,223 7,085 6,495

Balancesheettotal 134,274 182,082 202,326 227,714 229,998 234,963 209,781 211,404 210,672 209,030

Shareholders’equity 97,112 102,363 111,282 117,718 133,959 157,642 148,541 137,387 136,241 122,952

Registeredcapital 24,510 24,501 24,495 24,492 24,534 24,534 24,534 24,534 24,534 24,534

Major ratios

EPS–Earningspershare(HUF/share) 75 218 369 264 712 975 (6) (378) (48) (462)

ROE–Returnonequity(%) 1.87 5.16 8.04 5.44 12.89 15.02 (0.10) (6.69) (0.86) (9.13)

ROA–Returnonassets(%) 1.35 2.90 4.42 2.81 7.51 10.08 (0.07) (4.35) (0.56) (5.37)

Closing price of TVK shares on the Budapest Stock Exchange (HUF)

-Highest 4,800 4,550 5,375 5,890 5,995 8,490 7,060 3,495 3,780 3,540

-Lowest 2,800 3,940 3,400 4,605 4,855 5,250 2,405 1,760 2,760 2,150

-OnDecember31 3,940 3,955 5,060 5,240 5,345 7,010 2,405 3,400 3,300 2,240

Capitalisation(onDecember31closingprice,million) 95,485 95,849 122,628 126,990 129,835 179,752 58,420 82,589 80,160 54,412

other Data

Averageheadcount 2,126 2,015 1,686 1,542 1,396 1,187 1,153 1,158 1,138 1,119

Numberofshares 24,423,843 24,423,843 24,423,843 24,423,843 24,290,843 24,290,843 24,290,843 24,290,843 24,290,843 24,290,843

-Ordinaryshares 24,234,843 24,234,843 24,234,843 24,234,843 24,290,843 24,290,843 24,290,843 24,290,843 24,290,843 24,290,843

-Employeestock 189,000 189,000 189,000 189,000 0 0 0 0 0 0

Numberofconsolidatedcompanies 10 7 7 8 10 9 9 9 9 9


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Key Corporate Data2001-2010 (eur)

IFRS,consolidated,audited(EURthousand) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Sales 572,802 573,100 712,279 987,983 1,223,686 1,332,725 1,221,414 979,811 1,310,081 1,322,476

EarningsBeforeInterestandTaxes(EBIT) 1,878 15,929 49,216 51,976 87,428 130,148 17,203 (27,729) 2,870 (18,970)

Depreciation 34,383 29,733 28,044 38,472 49,168 51,107 49,656 46,555 46,680 42,847

EBITDA 36,261 45,662 77,261 90,448 136,595 181,255 66,859 18,827 49,550 23,877

Netprofit 7,711 20,127 36,233 25,359 68,454 93,483 (551) (33,939) (4,197) (36,081)

Capitalexpenditure 85,341 211,341 172,328 27,622 26,334 28,620 17,143 30,361 25,417 20,876

Balancesheettotal 569,199 694,360 819,366 901,017 911,605 927,425 792,284 780,549 755,774 671,841

Shareholders’equity 411,666 390,356 450,662 465,786 530,951 622,230 560,998 507,263 488,757 395,179

Registeredcapital 103,900 93,433 99,198 96,910 97,241 96,838 92,658 90,585 88,014 78,854

Major ratios

EPS–Earningspershare(EUR/share) 0.32 0.83 1.5 1.04 2.82 3.85 (0.02) (1.4) (0.17) (1.49)

ROE–Returnonequity(%) 1.87 5.16 8.04 5.44 12.89 15.02 (0.10) (6.69) (0.86) (9.13)

ROA–Returnonassets(%) 1.35 2.90 4.42 2.81 7.51 10.08 (0.07) (4.35) (0.56) (5.37)

Closing price of TVK shares on the Budapest Stock Exchange (EUR)

-Highest 20.35 17.35 21.77 23.31 23.76 33.51 26.66 6.50 13.60 11.38

-Lowest 11.87 15.02 13.77 18.22 19.24 20.72 9.08 12.90 9.90 6.91

-OnDecember31 16.70 15.08 20.49 20.73 21.19 27.67 9.08 12.55 11.80 7.20

Capitalisation(onDecember31closingprice,million) 404.77 365.52 496.61 502.47 514.61 709.5 220.64 304.94 287.60 174.89

Remarks:

EUR/HUFmidFXratequotedbytheNBHforDecember31,2002:235.90











Sustainability


Theseinitiativescoveringtwentytopicssuchasenergyefficiency,climatechange,productstewardshipandtheattractionoftalentedrecruits, embraceall theCompany’s activitiesandare indeed considered tobe “key success factors” in theachievementofourstrategic corporatebusinessobjectives. “Strategy” implies action; thereforeTVKhas launchedmanyprojects thatwill bring theCompanyclosertoitslong-termgoalofsustainableoperations.

Objectives

1. Climate change „Tomanagerisksandopportunitiesrelatedtoclimatechange”

2. environment „Reduceenvironmentalfootprint”

3. Health and safety „Ensurehealth&safetyofallofouremployeesandcontractors”

4. Communities „Enhancetrustandcredibilityamongstakeholders”

5. Human capital „Focusonthenextgeneration”

6. Economic sustainability „Focusonfactorscontributingtolongtermeconomicdevelopments”

MAINRESULTSANDGOALS

2011 performance

Performance supporting economic sustainabilityIn2011,thepetrochemicalmarketsinEuropewerepoisonedbythegeneralnegativesentimentoneconomicoutlook.Whilsttheglobaleconomyisgrowing,economiesinEuropearehitbythecreditcrunchandeconomicrestrictions,whichhadanimmediateeffectontheplasticsmarkets.Afterasteadyfirsthalf,theEurope-andemandforpolymershasslumpedconsiderablyin2011,duetotheeconomicproblemsinEuropewhichsuppressedbuying,whilst theannualaverageof thequotedprice fornaphthahasgraduallyincreased,inlinewiththecrudeoilprice.Theannualaverageofintegratedpetrochemicalmarginhasshrunkby14%from2010.After a reasonable increase in the first half of 2011, quotedpolymerpriceswereondecreasingalongtheyear.FromJanuarytoDecember,theLDPEshrunkby26%,HDPEby14%andPPbyapproximately20%.Polymer producers in Europewere on the verge of profitableoperationorbeneath.As consequence,polymeroutput in Eu-rope has slowed significantly by the year end. So we had toconcentratemainlyonmaintainingouroperationandfinancialstability.Despiteoftheunfavourablebusinessenvironmentwewereabletopermanentlysupplyourcustomerswithoutrelevantcapacitycut, while our European competitors cut capacities and shutdownplants, due topoor profitability andweakdemand.Our‘crudeoiltoplastic’philosophy-inoptimizingourrefiningandpetrochemicalproductionthroughthewholehydrocarbonvaluechain – providedus thenecessaryflexibility to keepour unitsoperationalinthesecondhalfoftheyear.

In this kind of environment, our performances were directedmainly towards exploiting our existing production capacities,increasing production efficiency, diversifying polymer productportfolio,replacingtheamortizedassets, furthermoretowardssupportingourgeneraleconomicsustainability.Weusedmostofouravailableresourcesforthosemeasuresandactionsthatarerelatedtotheabovedirections.So intheyearof2011,wealsofocusedondecreasingthematerial,energyandwasteneedsofourproductsandservicestomitigatetheoperationalsafety,healthandenvironmentalrisks.

Increasing the steam crackers’ efficiency remained a top-priority target.•TheprojectofPreheatingofcombustionair forF8001boiler

also aims increasing its energy-efficiency by utilizing theseasonal excess of low pressure steam, saving natural gasaccordingly.Projectpreparationhasalsobeenfinished;firmswere selected through a tendering procedure for supplyand installation of the new heat exchanger to be built in.Implementation is scheduled for 2012, year of SC-1 plant’sturnover.

•By reducing temperature of the flue-gas from F8001 boilerweintendtofurtherincreasethermalefficiencyoftheboilerthrough enlargement of the economizer (BFW pre-heater)section. The related feasibility study is already available;implementationisplannedbetween2012and2016.

•MainaimwithinProcessingofolefinby-productsprojectistorecoverbutadienefromthecrudeC4-fraction,whichforthetimebeingishydrogenatedandusedasrawmaterialforthecrackers.Projectofferspossibilities for favourablyexploitingrefineryandpetrochemicalsynergies.

Portfolio management supporting economic sustainability:•Development of new products is stressed part of our basicactivity:- Based on customer requests, several new products weredevelopedandfinalizedin2011.• Theproductportfolioof theHDPE-1plantwidenedwiththe implementationof theTipelinBB620-17grade(forblowmouldingapplication),whileintheHDPE2plant,the development of the newTipelin 6010B gradewasfinished (also forblowmouldingapplication,withgreatlyimprovedcolourstability).

• In connection with the PP-3 plant, thedevelopmentsoftheTipplenR159A(for injectionmoulding application) and the R780 (for theautomotiveindustryandforfoamedsheets)-startedin2010–werealsofinishedandfinalized.

- Alsofocusingonthenewestmarketneeds,formanyofourgrades, we have worked out modified additive recipes atourlaboratories.Theimplementationofthesechangesontoplant scale were partly accomplished (FS340-03; H388F),and partly are in progress (7100S; R1059A, K850, H890,K899).

- Inordertoreduceenvironmentalimpacts,wecontinuedourcooperation with internal and external partner institutes,to modify our traditional plastic products, ensuring theiracceleratedbiodegradation.Asa resultof the2011yearlyand earlier research activities, the accredited laboratoryof the Széchenyi István University, issued test reportsabouttheexaminationoffurther11(previously8 in2010)combinationsofTVK’sproductsanddegradationsupporting

SustainabilityReport

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 2011 results are presented not separately in annual financial and sustainability report, but in this integrated report. Visit our website (www.tvk.hu) to view detailed information of the below issues. The table of contents of and accurate references to the full SD report are laid out at the end of this chapter.

tVK announced its commitment to sustainable development. In order to support this ambitious commitment, six group-level strategic SD initiatives were identified, aimed to take place in the period of 2011-2015.

Sustaina

bility


masterbatches,whichmeets requirementsof theKörnye-zetbarátTermékNon-ProfitKft.regardingto“biodegradablepackagingmaterials”.

Economic sustainability objectives with regard to development of new products:•With the implementationof theTEAL/TEBunloadingsystemin theHDPE1plant,wearenowcapable touseco-catalysts.Becauseof this,wehavetheopportunitytodevelopfurthergrades thatweredeterminedby theHDPEproductportfolioteamin2010.Theplanttrialswillbemostprobablyin2012.

• In2011,thefirsttrialsoftwonewgrades(Tipelin8200B-blowmouldingapplicationand8800F-filmapplication)tookplaceintheHDPE2plant.Thesetestsareplannedtobecontinuedin2012.

• ThePetchemPPportfoliostrategywasupdatedin2011.• In 2011 the strategy of the additive recipe optimization -mainlyabouttheusedclarifyingagents-inTVK’sclarifiedran-domPPgradeswasdetermined.Theconnectingtestserieswillcontinuein2012.

Social performance

Health and Safety•Therewas1losttimeinjuryworkrelatedaccident.• Therewere6 roadaccidents,what is notoccurredpersonalinjury.

• The number of Total Reportable Occupational Illness equalwithzero.

• TheIncidentinquiryrate(IIR)reached100%.•HSEriskassessmentwaspreparedforPSMcriticalprocesses.• ExecutedContractorsafetyprogram.•WestartedHSEculturedevelopmentprogram.•We intend to increase to 94% the participation ratio ofour employees in health protection programs organised atworkplaces.

• The attendance rate of PETTVK employees achieved 22%regularityintheSTEP(WHP)programbytheendoftheyear.

Fire Protection•Ourfireprotectionactivitywascarriedoutinaccordancewiththeinstructionsinforce.

• Therewasnofireincidentintheyear2011.• Inthecauseofauthorityinspectionsnofailureswererevealedthatwouldcauseimposingoffines.

•Reconstructionoffirefightingpipelinewasdone in the tankyardunit.

• EstablishdrysprinklersystematEthylene-2plantforPyrogascompressorprotection.

•Renovate passive fire protection systems at Ethylene-1, andHDPE-1plants.

• Establishnewup-todateLowPolymeruploadstationatHDPE-2unit.

human resources•After the introduction,wehavesuccessfullyoperatedofourPerformance Evaluation System (PES), which set the rate ofincentivespaidagainstperformance in2011at9%ofannualbasicwages.

•WecontinuedourStafétaprogramwith12participants.• In2011,21expertsandlinemanagersareenrolledforatwo-yearcompetencedevelopmentprogram.

•We are running a training course for chemical engineeringtechnicians in cooperationwith Erdey-Grúz Tibor SecondaryVocationalSchoolinTiszaújváros.Atpresentthereare26MOLGroupemployeesparticipating.

• 13 freshly graduated degree holders joined the company’sGrowwwprogrammein2011.

•We spentHUF 75million in 2011 on training and educationcourseswithaltogethermorethan500personsparticipating.

environmental performance•ThewastecollectionandstoragemethodformedasaresultofopeningtheCentralWasteCollectionYardissatisfactorybothtotheorganisationalunitsoftheCompanyandtoourpartnersundercontract.Therewerenonon-compliances.

•By the cost-efficientperformingof the tasks included in theTechnical InterventionPlanwedecreasedourenvironmentalprotectionobligationsknownattheendoftheyear2010,andhaving fullyobserved theauthority instructionswe releasedHUF149milliononfulfillingthetasks.

• Improving energy efficiency and decreasing specific CO2 emissionbyimplementingmajortechnologicaldevelopmentsandoptimisingexistingES&DSandproductionassetsbothonthesideofsupplyanddemandhavespecificemission1.027tCO2/tHVC.

•Within Recovery of CH (propylene) gases at the railwayloading-unloadingstation,twosubprojectsarebeingpreparedin parallel: the propylene recovery and the LPG productsrecovery.BycollectingandprocessingapartoftheCH-gases,inevitablyvaporizedandpresentlyflaredduringthetankcarsloadingprocess,rawmaterialconsumptionandCO2emissionarereducedsimultaneously.

•A project was started for Replacement of the oil firing inSC-1 F8001 boiler with normal (NG) and inert-containednatural gas (AFG – Alternative Fuel Gas). The technical andeconomic preparation of the project has been finished; theimplementationisplannedforthe2011-2012period,asithasto be harmonizedwith the SC-1 general overhaul scheduledin 2012. Reduction of the CO2 emission and of the energyconsumptionistargetedwiththeproject.

• ExecutedtherenovationsewersystemandsulphuricacidandalkalitanksatHDPE-2unit.

Sustaina

bility

ATTAINMeNT OF TARGeTS SeT FOR 2011

tArgetS eVAluAtIoN

Health protection

TotalReportableOccupationalIllnessFrequency(TROIF)shallbeonlyzero. 0 J

TheattendancerateofPETTVKemployeesachieved20%regularityintheSTEP(WHP)programbytheendoftheyear.

22% J

TheattendancerateofPetrochemicalDivisionemployeesat‘Takeastepforyourhealth’(STEP)programisatleast90%.

94.06% J

Labour protection and fire protection

Lethalworkincidentsshalloccurneitheramongtheemployees,noramongthecontractors.

0 J

Inaccordancewiththelong-termtendenciesLostTimeInjuryFrequency(LTIF)shallnotexceed0,61

0.51 J

Bydevelopingourdefensivedrivingculturewetrytokeeptheratiooftrafficaccidents(RAR)under1.77.

2.76 L

Weinvestigated100%oftheextraordinary(workincidents,firecasesandquasiincidents)events.

done J

HSEriskassessmentswillbepreparedforPSMcriticalprocesses.ThePSMcriticalprocesseswasidentifiedtheriskassessmentsareongoing J

Environmental protection

Byexecutingthetaskscost-effectivelydeterminedintheTechnicalInterventionPlan,in2011wewillreduceourenvironmentalprovision-basedliabilitiesknownattheendof2010by5%inlinewithriskbasedremediationapproach.

Wereducedourprovision5%ofknownliabilities J

ImprovingenergyefficiencyanddecreasingspecificCO2emissionbyimplementingmajortechnologicaldevelopmentsandoptimisingexistingES&DSandproductionassetsbothonthesideofsupplyanddemandkeepingspecificemission1.06tCO2/tHVC.

ThespecificCO2emissionwas1,027.ExecutedseveralactionsforimproveenergyefficiencyandtoreduceCO2emissionrelatedtoSDactionplan

J

Byutilisingtheopportunitiesofintegratedwatersupplywewillminimizefreshwaterconsumptionat3.9millionm3in2011.

Therewas3.7m3freshwaterconsumption. J

Setupbiodiversitysystem.It’srelevantforMOLgrouplevelforstrategicnewinvestments.NorelevantforTVK K

hSe governance

ExecuteHSEcultureimproveprogram. ExecutedthePhaseII. J

ReachHSEbasicawarenesslevelofnewlyappointedlinemanagers. Theleadertrainingwasimplemented K

ExecuteContractorsafetyprogram. Executed J


FUTURECHALLENGES2012

Economic sustainability objectivesOur main goals from the past and for the near future areclosely connected, in our slowly changing industry branch isnot characteristic their abrupt change. TVK’s basic activity isnotsupposedtobechangedsoon;itscompetitivenessdependson our capability to satisfy real economic needs, to operatesupportingeconomicsustainability.Maingoalscarriedoverto2012andgoalsoftheprojectsinitiatedin2012respectively,arepracticallysamewiththosedefinedinthelastyears:

- high levelexploitingof theexistingproductioncapacities,efficiencyimprovement

- enlargement of the product portfolios according tocustomers’requirements,improvingproductquality

- furtherdevelopmentoftheoperationalsafety- rationalizingtherawmaterialsandenergyneeds- reduction of wastes and emissions related to appliedtechnologies

- mitigation of the risks threatening health and impact onenvironment.

Our economic, environmental and social awareness andresponsibility will not change in the future. Our present andfuturecompetitivenesshassenseonlyinframeofsustainability.

The concrete project targets appear more tighten, but morepreciselydefinedcomparedtotheabovemaingoals.

More favourable fuel structures, reduction of the energyconsumptionsandoftheGHGemissionsaretargetedincaseofnextprojectsbeinginprogress,orplanned:

- Replacement of the oil firing in SC-1 F8001 boiler withnaturalgas(NG)andAFGinOlefin-1Plant

- Combustion-airpre-heatingforF8001boiler- Reducingflue-gastemperaturefromF8001boiler- Processingolefinby-products

SD&HSEOBJECTIVESANDTARGETS

WedrawupTVKPlc.SDandHSEtargetsandobjectivesbasedon theMOL-groupacceptedguidelines andDSPetrochemicalsY2012targetsandobjectives.

CONTROL - Promoting HSE culture and management frameworks •Create a behaviour-based culture; achieve and maintain topquartileHSEperformanceby2015.

•DevelopandmaintainaneffectivecontractorHSEManagementProgrammeandensureitsmechanismbyend2012.

•We regard the criteria of sustainable development as anunavoidablefactortoouroperation,andthroughourproactiveconductweencourageourpartnerstodothesamein2012aswell.

AWARENESS - Involving employees & contractors• Implement a programme that aims at zero injuries andoccupationalillnessesby2015.

•No occupational accident resulting in death should occuramongouremployees, contractorsand thirdpartiesdirectlycontrolledbytheTVKPlc.

• LostTimeInjuriesFrequency(LTIF)mustnotexceed0.61.• Incidentinquiryrate(IIR)reaches100%.•Adopt a health promotion programme and keep regularityratestoatleast30%bytheendof2012and40%fromtheendoftheimplementationprogramme(2015).

• Ensureemployees,contractorsandourbusinesspartnersareHSEcompetentandhavetheresourcesnecessarytoperformtheirtasks.

• ExtendDefensive&Ecovehicle-drivingpracticestoallrelevantemployeesandtheRoadAccidentRate(RAR)mustnotexceed1.77.

RISK - Maintaining operational excellence•Assess Personnel, Process and Product safety riskssystematically(usingriskmaps)by2013toreachlevelsaslowasreasonablypracticablebyend2015,eliminatehighhealth-riskworkplacesby2014.

•Create andoperate an emergency response framework thatsupportsbusinesscontinuity.

•OperatetheProcessSafetyManagementSystemandkeepit’sKPI’stoavoidProcessIncidents.

eNVIroNMeNtAl SteWArDShIp - taking a wider environmental perspective• Improving energy efficiency and decreasing specific CO2 emissionbyimplementingmajortechnologicaldevelopmentsandoptimisingexistingES&DSandproductionassetsbothonthesideofsupplyanddemandby1%onTVKlevel(comparedto2010).

•By cost-effectively executing the tasks determined in theTechnical Intervention Plan decrease the amount of known(year 2010) environmental liabilities of TVK Plc. using riskbasedapproachby5.8%.

•Reduce total water withdrawal & specific generated wastesfrom routine operations and increase the ratio of reused/recycledwastes.

•AccordingtotheGrouplevelBiodiversityActionPlan(GBAP)todevelopandimplementaBiodiversityActionPlan(BBAP)fornewprojectsfrom2012onwardsandmonitortheecologicalstatusofcriticaloperationsfrom2014.

Basedonourperformanceduringtheyear,theMinistryofNatio-nalDevelopmentawardedtheprizeCyclistFriendlyWorkPlaceinthecategoryoflargecompaniestoourCompany.TheprizewillbeofficiallyawardedattheendofFebruary2012.TVKwonthesameprizein2010and2009,too.

It had been for the fourth time in 2011 that Superbrands hadawarded us the prize Business Superbrands since the time of itsfoundation.TheorganisationhadawardedtheprizesMagyarbrandsfor the secondtime in 2011: TVKwas again among the rated25companies, and thistime, itwas ratedhigher than in2011whenit had come in 9th. (The international SuperbrandsprogramwaslaunchedinGreatBritainbyprestigiousprofessionalsofmarketingandcommunicationoneandahalfdecadesago.Indicativeofthesuccessoftheprogram,theprizeisawardedin86countriesoffivecontinents,today.)

p r i z e s a n d r e c o g n i T i o n

CYClISt frIeNDlY WorKplACe

buSINeSS SuperbrANDS,

MAgYArbrANDS

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Protectingtheenvironment

harmonizedwiththeSC-1generaloverhaulscheduledin2012.ReductionoftheCO2emissionandoftheenergyconsumptionistargetedwiththeproject.

•WithinRecoveryofCH(propylene)gasesattherailwayloading-unloadingstation,twosubprojectsarebeingpreparedinpa-rallel:thepropylenerecoveryandtheLPGproductsrecovery.BycollectingandprocessingapartoftheCH-gases,inevitablyvaporized and presently flared during the tank cars loadingprocess, raw material consumption and CO2 emission arereducedsimultaneously.

• StartedtoimplementofOperationalManagementandMoni-toringSystem(OMMS.)

TheaimoftheprojectistointegratetheproductionunitsDCSsystemsandenergynetworkmonitoringsystems toprovideactual database for monitoring of the total system energyoptimisation/assetoperation

•According to the interconnection pipeline connecting theSteamCracker plantswe decreased significantly natural gasconsumption of Steam Cracker 1 by fuel gas transfer fromSteam Cracker 2. Due to the applied operational methodnatural gas consumptionhas been reducedby 8millionm3besidesachievedCO2emissionsavingwas17kt.

•Bya full reconstructionofF-1009 furnace (convectionzone,radiationzone,quenchcooler,inwall,burners,insulation)theheatexchangingandsteamproducingonquenchoilcoolingsectionmoreefficientthuswedecreasedthedutyofboiler.Due to the efficiency increase we saved 1.3 million m3 ofnaturalgasand2.4ktofCO2.

Clean airEmissionmonitoringdatasuggestthatplantprocessemissionsofpollutantscompliedwiththeeffectivecontrollimits.WespentHUF 2million on controlling compliance in 2011.We use theintermittentmeasurementmethodenvisagedinlegalprovisionsandregulatoryrequirementsattherequiredfrequencytocontrollocal point sources. The tests are performed by accreditedlaboratories.

AirconditioningdevicesoperatedatTVKarefilledwithozonedecomposing gases. Air conditioners are registered on theAuthoritywebsiteandairconditionerleakagetestsarecarriedoutbyaccreditedpartnersinaccordancewiththeapplicablelegalrequirements.ThewebsiteregistrationfeeofairconditionersisHUF0.3million. National Air Pollutant Monitoring Network performs regularchecksof thepresencepollutants intheambientairnearTVKand evaluates air quality. Air pollution levels are recorded bythe immission measurement stations located in neighbouring

Change of Co2 emissions:As each processwe operate complieswith BAT requirements,we have very little room to reduce CO2 emissions any more.Moreover,petrolchemistryishighlyenergyintensiveandhen-ceenergyconsumptionisamajorcost itemofouroperations.Consequently, improving energy efficiency can couple withfurther reductionsofCO2emissions.Recognising this,wehavelaunched several projects aiming at improving our energyefficiency and in doing so we took into account the financialimplicationsofpotentialCO2emissionsduringtheevaluationofourprojectplansandinvestmentdecisions.

Wehavetakenimportantmeasurestocontributetoimplementingourclimatestrategyandtoreachingadditionalimprovementsoftheefficiencyofenergyconsumption,includingthefollowingkeyactions:• ThequantityofsteamnecessaryforTVKoperationsisensuredby TVK Power Plant (TVK Erőmű)with high CO2 and energyefficiency.Herewealsoutilizefluegasheatcontentindistrictheatingsystem.

•A project was started for Replacement of the oil firing inSC-1 F8001 boiler with normal (NG) and inert-containednatural gas (AFG – Alternative Fuel Gas). The technical andeconomic preparation of the project has been finished; theimplementationisharmonizedwiththeSC-1generaloverhaulscheduledin2012.ReductionoftheCO2emissionandoftheenergyconsumptionistargetedwiththeproject.

• TheprojectofPreheatingofcombustionairforF8001boileralsoaims increasing itsenergy-efficiencybyutilizingtheseasonalexcessoflowpressuresteam,savingnaturalgasaccordingly.Projectpreparationhasalsobeenfinished;firmswereselectedthrough a tendering procedure for supply and installationof thenewheatexchanger tobebuilt in. Implementation isscheduledfor2012,yearofSC-1plant’sturnover.

•A project was started for Replacement of the oil firing inSC-1 F8001 boiler with normal (NG) and inert-containednatural gas (AFG – Alternative Fuel Gas). The technical andeconomic preparation of the project has been finished; theimplementationisplannedforthe2011-2012,as ithastobe

CLIMATECHANGE

TVK and MOL have fully harmonized their operations also in connection with green house gases.

We have a permission to emit gases by the UHG5479-1 license. In 2011, Co2 etS relevant emissions was 1.117 million tons, which is lower than the allocated quantity recorded in the National Allocation Plan.

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Cleanair2007-2011

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eMISSION OF PM ReFeR TO 1KTETHYLENEPRODUCTIONT/Y

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eMISSION OF VOC ReFeR TO 1KTETHYLENEPRODUCTIONT/Y

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ethyleneproduction

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Sustaina

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settlementsandtherecordedlevelsarereadandcheckedbytheNorthern Hungarian Directorate of Environmental Protection,NatureConservationandWaterManagement(theDirectorate).We received no notice from the Directorate of pollutantconcentrationsabovecontrol limitandthatanysuchinstanceswereattributabletoouractivities.

Waste managementIn2009–atMOLGroupagrouplevel–concludedwastecontracts.Through involving the services of both active and passivepartnerscost-efficiencyofallwastesandmonitoringofwasteslifetimebecameensured.

As a result of concluding the long-term joining contracts werealized significant cost saving regarding the normal wastesalreadyin2011.

Waste management at our Company is properly regulated inaccordancewiththeEuropeanUnion’snorms.Intheyear2011ourwastemanagementactivitymettheinstructions.

Theupdatedrecordingofwastes(hazardousandnon-hazardous)atTVKPlc is carriedout in thebreak-downasperunit line, inaccordancewithformationprocesses.

In2011,5,587tonsofwasteformedattheCompany.Wegave5,368tonstocontractedpartnersforutilizationandreuse.WecreateHUF69millionincomesduetotreatmentofwaste.

In2011,thehazardouswastetreatmentitreachedHUF33million.

Changeofhazardouswastevolumeisdetailed inthefollowingdiagram:

The sold, then recycled products and recycled packaging InordertomeettheobligationsontheutilisationofpackagingmaterialsTVKPlc.concludedacontractwithÖko-PannonKhtforundertakingmanufacturer’sobligations.TheÖko-PannonKht.–asacoordinatingorganisation–performsitsobligationsinsteadofTVKPlc., inorder to reachexemption fromtheproduct feepayment – in such a way that it concludes contracts withwaste treating and waste recycling companies, and performs

itsobligationsset inthelegalrulesrelatingtotheproperratioutilisationofpackagingwastesusing theservicesof theabovecompanies.Inordertoimplementtheabove,TVKPlc.quarterlysupplies the data on quantities of the released packagingmaterials and pays the utilisation fee to the coordinatingorganisation.Öko-Pannon Kht. ensures implementation of therequiredutilisationratiosagainstpayment.

Water and soilPotable water is provided by operating our own plant thatproduces,cleansanddistributesdrinkingwater.Thisplantalsosupplies potable water to MOL’s TIFO Refinery via our owndrinkingwaternetwork.

Water quality protection and damage avert materials and equipment purchaseNewwaterqualityprotectionanddamageavertplanwasmadefor thewholeareaof the site in2010.Theplanwasacceptedby ÉMI-KTVF. The predicted materials and equipment werepurchasedandwasstoredin2011,asdefinedintheemergencyresponseplan.

legal Compliance• Informationandconfessionreportweremettheauthorities’obligations.

•Wemadeaframecontractforcontinuousrenewalwaterlicen-cesdocumentations

• Theremediationandmonitoringofaftertreatmentlakesystemwerecontinuedinyear2011.ThemonitoringreportwassenttoÉMI-KTVFtillJanuary31,2012.

Water permitting•WaterpermitforoperationforEthylene-1plantpre-treatmentsystem.

•Water permit for establish fire fighting pipeline renewal atTankyard.

•Water permit for operation fire fighting pipeline renewal atTankyard.

•Water permit for operation for treatment water fromremediationactivityatWasteWaterTreatmentPlant.

•Actualized documentation of self-control of treatedwastewateremission.

•RenewalofwaterpermissionfortheoperationoftherainwaterandnotcontemnedwaterpipesystematTVKIndustrialsite.

•Renewalofwaterpermission for theoperationofNo.VI-VIIrecirculationcoolingsystem.

• StartingpermittingprocedureforoperationwaterwithdrawalunitofPowerplantofTiszapalkonya.

Nopollutantemissionsinexcessofcontrollimitwereidentifiedinthewastewaterdischargedintotherecipient(RiverTisza)duringthesewerinspectionsheldbythesupervisoryauthority;hencenopenaltywasimposedinrespectofwastewaterdischargedin2011.Noenvironmental spillageof chemical substances in volumeslargerthan1m3occurredin2011.WespentHUF347milliononsewagetreatmentandkeptwaterqualitysubstantiallyabovethelevelrequiredunderlaw.SurfacewaterwithdrawalwashappenedfromRiverTisza.

0,0 1,0 2,0 3,0 4,0 5,0

VOLUMEOFHAZARDOUSWASTESREFERTO1KTETHYLENEPRODUCTIONT/KT

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Hazardouswasteper1ktofethyleneoutput2007-2011


TheHealth Improving Program (STEP) approved as part of theNewEuropeProgramcontinuedintheyear2011aswell.Healthcareisfirstofallaculture-changingprogram,aimofwhichistoprovideassistancetoouremployeesinrevealingtheirhealthsta-tusandimprovingthat.

InPhase3oftheWorkplaceHealthPromotionProgramthekeyobjectiveistocreateanadequatecompanyhealthculturewhichencompassesthecompany’shealthpromotiontraditions.MainprogramelementsareExtraScreening,STEPActiveandEffectiveHealthCommunication.In 2011, the rate of participation in the TVK Nyrt STEP was94.06%. 53 employees joined the STEP programme. Theparticipationrateindicatorwasintroducedasof2011todenotethose TVK employeeswho took part inmass sports events orhealth screenings provided by STEP at least three times. Therate of participants was 22.09% which demonstrates that themajorityoftheemployeesregularlypursuitsomesportsanddopayattentiontothehealthywayoflife.

In 2011, we received again (after 2009 and 2010) the title of“Cycling-friend Workplace 2011” advertised by Ministry ofEnvironmentalandWaterandMinistryofNationalDevelopmentandwon by TVK, after the committee approved our summaryaboutactionsperformedinthisyear.

Work safetyWearecommittedtostrengtheningthecultureofworksafetyandsecuritycontinuously,whichmeans inplain terms thatwetrytoavoidanyandallworkrelatedinjuries.OurCompanyhasrecordsofworkrelatedaccidentsgoingbackto1961.Inadditionto the indicators used across theMOL Group for the analysisofaccidents,wealsousetoaspecificvaluecalculated(foronethousandbluecollarworkers)fromreportableincidents(injurieshealingoverthreedays)asabenchmarkasitallowscomparisonwith other employers and sectors. Our statistical record ofaccidenthasshownapositivetrendsince2000andonlyasinglenumberofreportableaccidentoccurredlastyear,whichresultedinanegligiblespecificvalue.Asboththenumberandseverityofaccidentsshowsapositivetrend,theriskratingofourbusinessfellsubstantially.

Wecontinuedtoinvestigateworkrelatedaccidentsincompliancewiththerelevant lawsandprofessionalexpectations.Weusedthe TRIPODmethodology with software support for revealingcauseandeffectrelationshipsandforformulatingcomprehensivemeasures.

Wealsotookseveralmeasurestoimproveouraccidentstatisticsandtopreventextraordinaryeventsinthecourseoftheyear:•We regularly review security aspects at various stages ofconstructionprojectstoensurethatfutureoperationscomplywiththetechnicalrequirementofsafety.

•Wemonitorextraordinaryeventsand issuewarnings if risksareexpectedtochange.

•We have finished the implementation of COMPASS projectthat ensures unified, comprehensive risk investigation andapplication of it we executed workplace risk assessmentsin 2011. Parallel with it we continued the monthly riskassessmentsinframeofsitevisits.

•We have also performed risk analyses for all job positionsconcerned.

• Inordertoenhancesafetyevaluatingofthepreliminaryrisksofrepairjobsperformedwhileoperatingwasmadeinseveralcases.

•Different levelmanagerial checksassistedexplorationof risksources. One specific form of such checks is the so calledbehaviour audits. During 509 performed behaviour audits.1,201 positive and 1,473 negative observations were done.25%ofthelatteroneswereassociatedwithsafetyinstructions(SRV),31%withunsafeactivity(UA),44%withfailuretocreatesafelabourconditions(UC).

•We exerted robust effort to enhance the road safety(by improving road conditions, installing traffic lights,performingchecksandpostingwarnings).

• Public road conditions were examined on a regular(monthly)basis.

Thebehaviourauditsconductedaspartofour“SafetyatWork”projectplayedakeyroleinimprovingouraccidentstatistics. Rolling out behaviour audits to all employees inmanagementpositionsislikelytomakejobssaferandtopreventnearmissesfromturningintoaccidents.The case studies published in our HSE Info helped drawconclusionsacrosstheorganisation.

Process Safety Management System (PSM):•DuPont experts held PSM trainings for system operationaccordingtobestpractice.

• TheTVKPSMManualisupdatedaccordingtothenewversionofMOLGroupPSMregulation.Pre-start-up safety reviewofplantsandequipmentsinTVKlocalregulationwasissued.

•WeconductedHAZOPanalysesof SCTank farmandquenchoiluploadingstationsoallproductionunitshavevalidProcessHazardsAnalysis.

• PSMauditshelp continuously improve thePSMsystemwithapplicationoforiginalDuPontchecklists.

healthProfessional medical control is especially important becauseof the large number of potential hazards of different natureemployees may get exposed to and the severity of potentialconsequences.Itisascertainedbyjobaptitudeteststhatcoverchecking general health status, heart, blood, urine, hearing,visionandrespiratoryfunctions.Toensuretheprovisionofprofessionalandrapidfirstaid,unitmanagershadtomakesure thatapersontrained inprovidingfirstaidisavailableineachworkareaandineachshift:atpresentthereare298trainedfirstaidprovidersat48locations.Ateachfirst aid providing place there is a modern first aid box thatcontains evenmore facilities than it is prescribed in the legalrule,andadditionalequipment(tourniquet,aluminium-coveredelastic patch, eye flusher, revitalizingmask, first aid bandage)ensureprovidingefficientfirstaid.Employees receive basic training and professional upgradingfromprofessionalambulanceofficersspecialising infirstaid.Around-the-clock emergency service ensures that injuries andimpairmentsare treatedprofessionallyand swiftly (ambulancecarwithambulanceofficer).

In 2011 definite steps were made in the area of healthimprovement.Inadditiontothemeasuresrequiredinthelegalrulethefollowingwereintroduced:• inordertosurveythehealthstatusandtoinitiatethenecessarytreatmentmedicalexaminationsandscreeningtestprogramswerecarriedout,atwhichtotally363personstookpart.

Type of screening personCardiovascular 24Abdomenultrasound 91Dermatology 41Tumour-marker 106movementdisordersscreening 48Thermalmapscreening 25Allergology 28

•General health status examinations (blood pressure, bloodsugar, bodyweight-bodymass)were institutionallymade toseveralhundredemployeesintwocases(JunefestivityandtheautumnSTEPday);

•Healthplanssupportingtrainingonhealthywayoflivingwerecompiledin12cases.

• 58peoplewereeducatedinfirstaid.• 152peoplegotimmunizationagainstH1N1.• In 2011, a mobile lung screening station was set up in theTVKareaand777employeesmadeuseofthelungscreeningopportunity.

Humanfocus

Sustaina

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•Thefindings of SPCPSMGO LIVEProject (checkbyDuPont)weretakenintoconsiderationinTVK.IndividualtargetsettingshavesupportedtheoperationofPSMsystemaswell.

•Goodpractice:knowledgesharingwithotherbusinesses.

Safety on Our Roads (SAFE TRAFFIC PROGRAM)Inviewofourfunctionalfeatures,TVKemployeesaretravellinga lot,firstofallbycar.Thereforetheroadsafety isoneofoursignificantworkplace risk factors,whichwehave todealwith.Insteadofthefollowingdisposaloftheroadaccidents,wemakeefforts forprevention. To reduce the risksour colleagues faceon the roads,wehavearrangeddefensivedriving trainingandsupplementaldrivingcoursesforthoseemployeeswhoseworkrequiresregulardriving.

Importantroad-safetyeventsin2011:•We prepared an accession contract, joining to the MOLdefensive driving training contract, what is made sure toexecutedefensivedrivingtrainingstill2012.

•We placed two wall-newspapers in connection with roadsafetyinTVKsite,andgaveattentionitsregularlyupdating.

•We informour colleagues about changingof “KRESZ” in thecourse of training. We deal with special regard to bicycletraffic.

•Weinvestigatedallofroadaccidentsandincidentsin2011.Wepreparedbasedonthenextyearactionplans.

•WeparticipateontheMOLGroupRoadSafetyworkinggroupworksbyourexpert.

•Wemakeopportunitytothosecolleagueswhosedrivingalottoparticipantsupplementaldrivingtraining.

•Wetookpart inregularlyrefreshofMOLGroupRoadSafetyon-linesite(MOS)togivespecificcommitmentsinconnectionwithroadsafety.

road accidentsWe had no road accident involved personal injuries in year2011.OurRAR(roadaccidentrate,RA/1Mdrivenkm)increasedunfortunately (6 events), and higher than the tolerated value.Wepreparedactionplanstoavertfurtheranalogouscases.

SeVeSo II complianceWeperformedthepracticeofInternalDefencePlanaccordingto18/2006.(I.26.)decree16.§inthisyeartooandNEDtookpartinitandpaidtributetoit.ThemodifiedandstandardizedSafetyReportwasaccomplishedmadeinaccordancewiththerelevantlegalrequirements.During theyear, andappeared tobeeffective from January1,2012 for Civil Protection Act and its implementing regulationprovided for in connection with additional tasks, we haveundertakenintherelevantinternalregulationsamendment.

Fire safetyPreventionoffireanddamagecasesisahighlightedissueinTVKPlc.’sstrategy.Inordertoachievethesegoals,ourCompanylaysemphasisonprovidingtherequiredpropertechnicalconditions.2011therewasnofirecaseattheterritoryofTVKPlc.

Thefirepreventionactivityhasdoneaccordingtotherelevantlegalrequirement.Duringtheinspectionsheldbythesupervisoryauthority there wasn’t any negligence; hence no penalty wasimposedinrespectoffirepreventionactivityin2011.

According to fire prevention strategy we take the followingactionstoimprovethefiresafety.•ReconstructionoffirefightingpipelinewasdoneinTankyardunit.

• Establish dry sprinkler system at Olefin-2 plant for Pyrogascompressorprotection.

•Renovate passive fire protection systems at Olefin-1, andHDPE-1plants.

• Establishnewup-todateLowPolymeruploadstationatHDPE-2unit.

• ToimprovethesafetyweimplementtheSILinPP-4unit.•We integrated the control of fire safety activities in onesupplier(TMMLtd.).

havaria drillsInorder topracticeactions tobe taken inemergencycases in2011weheld34anti-damagedrills,involvingtheemployeesandfellow organisations. The above drillsweremainly carried outattheacutefireandexplosiondangerousunits.Afterthedrillswith participating units we evaluated on site the experiencesandtookmeasuresforeliminatingthedeficienciesemerged.Thedrillslevelshavebeenincreasing.28drillshaveexcellentand6havegoodclassification.

Wepreparedacumulativeevaluationontheexperiences,whichwaspresentedtotraininginstructorsandattrainingofvoluntaryinstitutional fire-fighters during the courses. Based on theevaluation,anactionplanwillbepreparedtosolvetheproblemsoccurredduringtheexercises.

Labour practices and working conditionsRecruiting, developing and retaining trained resources ofhigh quality are key components in attaining our corporatestrategicgoals.Weseektoincreaseemployeeloyalty,toexposeemployeestochallengingtasksandtoofferthemopportunitiesineachoperationalareawhileofferingthebestavailableworkingconditionsandremuneration.Moreover,ourregularemployeesatisfactionsurveysandhumanresourcerelatedindicatorsofferuscontinuousfeedbackaboutourHRperformanceandtheareasthatneedtobedeveloped.

Complex Performance Management System (PMS) for managementThePerformanceManagementSystem(PMS)-aspartofMOL-Group’sAnnualPeopleCycle-harmonizestheGroup’sstrategy,thebusinessplanandthe individualgoalsandactivitiesof themanagersemployedatthecompany.

BecauseofthecomplexityofthePMSitrelateswithotherHu-man Resource processes as well. The performance evaluationinfluences theamountof theannualmanagerial incentiveandthe fulfilment of the individual goals is a critical input of theannualsalaryincreaseaswell.AspartoftheAnnualPeopleCycleitprovides informationforcareerandsuccessionplanningandforthepreparationoftheIndividualdevelopmentPlans.SoPMSsupportstheprofessionalandleadershipdevelopmentneedsofthemanagersindirectly.

ManagersentitledforPMS–aswellashis/herdirectlymanagedteam– influencedivisionalandgroup-levelachievementswiththeirperformance.ThroughPMSweensurethatthiscontributionisrealizedinadistinguishedimportantareaincompliancewiththeannualbusinessplan.Thiswaythemanagerscanfollowuponhowtheycontributetothesuccessofthecompanyandhowtheyarerewardedforit.

Weapplyadifferentperformanceevaluationsystembasedonquantifiedperformance indicators for thosewhowork insalesareasinordertoemphasizethefinancialandefficiencyindicatorsofthecompanyandtoincreaseemployeeengagement.

Performance Evaluation System (PES)Atour companyweoperateaperformanceevaluation system(PES)coveringallemployeesinordertoincreaseouremployees’motivation. It also helps us successfully adapt to the rapidchanges of our economic environment. The goal of the PES isto demonstrate existing relationship between corporate andindividualperformance thuspromoting the realizationofbusi-ness goals. In this system the evaluating manager evaluatestheperformanceof theemployeebasedonapre-definedandagreedtargetsetting.Theobjectivedeliberationdoesnotstartatthetimeofevaluation,butatthetimeoftargetsetting.Eachemployeehastwoorganizationalgoalsandtwotosixindividualgoals.

human capital developmentOurcompanyoperatesaHAYsystem.Itmeansthatjobpositions

will alwaysbeusedas thebasis for the remuneration system.The largest benefit of the system is that it makes differentremuneration systems used by different companies easy tocompare. Our wage policymeasures are determined by basicwageincreasesinlinewiththeprojectedrateofinflationaswellas by case by casewage increases associatedwith evaluatingindividualjobpositionstakinglabourmarketincomeslevelsintoaccountandbytherecognitionofexceptionalperformance.

Career ManagementCareer Management System (CMS) is based on business’strategic requirements and it supports succession planningand theharmonizeddevelopmentof theorganizationand theindividualsaswell:• ensures a formal, targeted and yearly repeated successionplanningofmanagerialandexpertpositions,

• createsaninternaltalentpoolinordertoprovidesuccessionfor thecurrentorganizationandthereforealsosupports thegrowthstrategy,

• supports the definition of the individual and organizationaldevelopmentneeds,

• supportstherotationplanningwithinthegroup,• ensuresunanimousguidelinesandtransparencyforadvancingontheindividualcareerpathsforallemployeeswhotakepartinthissystem.

Employing Fresh GraduatesWe continued fresh graduates program in 2011 aswell, whatis designed to offer job opportunities in a rapidly developingorganisation operating in an international environment tocareer starters. The participants of this one-year programwere selected fromseveral applicantswith testsandwith theassistance of Assessment Centres. The program itself involves“on-the-job” training and other forms of development aswell as events that promote seamless integration andsupport the attainment of the functional and humancompetenciesneededforperformingsuccessfully.Inthefirstyear,participantshavetheoptiontorotatebetweenvariousunitsoftheorganisation.Whentheydoso,theyalwaysreceiveindividuallytailoredchallengingtasksandaretherebyofferedan insight intotheoperationsofourcompany.Mentorshelpparticipantswithintegrationaswellaswithpersonalandprofessionalgrowth.Oncetheprogramiscompleted,participantsandtheirmanagersdecidejointlyabouthowtoprogressatthecompany.12outofthe12graduateswhojoinedtheprogramin2010wereofferedtheoptiontoconcludeafixedtermemploymentcontractwithTVKandcontinueworkingwithus in2011.13freshgraduates joinedthecompanyundersimilarcircumstancesin2011.

Employing young talentsIn2011wefocussedsharplyonchemicalsecondaryeducationstudentsandengineerstudents.Strategicrecruitmentactivitieswere performed at educational institutions. Our experiencedcolleaguesheldlectures.Severalunitsofthecompanyreceivedstudentsforprofessionalpracticeinthesummer,studentswerewelcomedtocontactTVKengineerstoconsultabouttheirthesis

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and we also provided financial and professional support tostudentsofoutstandingtalentaspartofourscholarshipprog-ram. In 2011 TVK scholarship for chemical secondary schoolstudentswascarriedon.20talentedchildrenreceivedfinancialsupportforayear.TVK petrochemical departments at the University of Mis-kolc and at the University of Debrecen keep on supportingour goal to educate the future engineer generation. The off-sitepetrochemical departmentsof theUniversities at theTVKsite promote cooperation in research and education and alsosupport the recruitmentactivitiesofboth theuniversities andthe company. Our experienced colleagues and world classtechnologiessupportthepracticalpartoftheeducation.

training and developmentIt is our basic philosophy that highly qualified and motivatedlabourfullycommittedtothecompanyisoneofthemostfactorscontributingtothesuccessfulattainmentofourstrategicgoals.Thedevelopmentofthecompanyrequiresanincreasingnumberof well-trained and talented professional people. The rapidchangesofbusinessenvironmentandtheconstantmodificationof job responsibilities requireemployees toacquirenew traderelatedknowledgeandskillsmuchfasternowthanatanytimeinthepast.

Wehavemaintainedourstrategicgoalofensuringtheavailabilityof highly trained staff. Accordingly, our employees participateinprofessional trainingsandcompetencebuildingcourses.Wegiveprioritytoconsciousdevelopmentprogramsandfocusonconnecting employees from several units of the organisation.Emphasis is given to case studies and dialogue evenings bymembers of senior management, which complement trainingcourses.

WespentHUF75millionin2011ontrainingandeducation. Our Staféta programme, which we launched in 2006, wascontinued successfully. The program is a conscious andorchestrated effort by the company to develop a secondline of foremen and chief system operators in our polymerand olefin plants. Participants receive complex education,including training sessions and a rotation system. Rotationhelpsemployeesacquireseveraltechnologiesoperatedoutsidetheir own plant and understand corporate level processes.Rotationisadvantageousasitreducesmonotony,createswideropportunities for substitution, facilitates organising work andincreases the potential skills of the company and individuals.Rotationcycleslast5-10daysandaStafétaparticipantnormallyhastotakepart in7-8rotationcyclesbasedonan individuallytailoredrotationplan.

New challenges, like changes caused by globalization, sustain-able development mean new requirements for quality manage-ment.

WeholdthequalityapproachasoneofthemostimportantcorevaluesinourCompany’smanagementandoperation,aswellasinitsrelationshipwithsocialandeconomicenvironment.

In May 2011, SGS Hungária Ltd. carried out a successfulsurveillance audit on the renewal of certifications about theintegratedmanagementsystem,operatingatourcompany(ISO9001,ISO14001,OHSAS18001).

Major tasks were set for our accredited laboratories: thesurveillanceauditofTechnicalInspectionTechnicalInvestigationLaboratory and the renewal certification audit of CentralLaboratory (according to MSZ EN ISO/IEC 17025) which wereconductedbyNationalAccreditationOrganization.Bothauditswereperformedsuccessfully.

The Standards’ requirements of the integrated managementsystem and accredited laboratories have been checked in theframeworkofinternalaudits.Attheseauditspreventionandthepropagationof “bestpractices”wereemphasized.OutsourcedactivitiesconnectingtotheCompany’soperationaresupervisedbyplannedand/oradhocaudits.Actionstoimprovethesystemand to correct determined non-conformities were taken andchecked.InordertomeetCustomers’requirementsTQMtoolshave been applied successfully during the claim investigationprocess. TheCustomersatisfactionhasbeenmeasuredforseveralyears.In the frame of measuring customer satisfaction nearly 500partnerswere interviewed in2011.Thepurposeof thesurveywas to identify our strengths as well as the areas needingimprovement and to monitor the effects of the correctivemeasurestakenastheresultoftheprevioussurveys.Aftertheanalysisoftheinformationnewactionplanswillbepreparedtoimproveouractivitiesandprocesses.

Innovative atmosphere and involving colleagues intoimprovements have always high importance at our Company.IdeaSupportingSystem(ISS)hasbeenoperatingsincemorethan10years,mainpurposeofwhichistofindoutandtogettoknowcolleagues’ ideas, proposals aiming more efficient and saferoperation.DuetoISSsignificantsavingwasrealizedyearbyyear.

OurIntegratedManagementSystems

Sustaina

bility


Social investmentInordertosecuresufficientlyqualifiedspecialists,wekeepcloseand wide-ranging relationships with the institutes of mediumand higher education and support their educationalwork andresearchactivities.Inthepastyear,wegavedevelopmentsupporttofouruniversitiesandfourvocationalmiddleschools.(SeethedetailsinsubchaptersLabourPracticeandWorkEnvironment).

Insupportoftheeducationandtrainingoffuturegenerations,weendeavourtoworkupprogramsinorderto•MaketheoperationsofthechemicalindustryandtheactivityofTVKbetterknown;

• Improvethedegreeofoursocialrecognitionandtomakeourusefulnessacknowledged;

• Tomakeourmeasuresforthepreservationofthenaturalandsocialenvironmentsknown;

• Supportthedemandfortheemploymentofnewrecruits.

OurprojectAroundtheTVKinonedayinitiatedinspringof2009,supportstheimplementationoftheseobjectives.Adjustedtothe featuresof the target agegroupofpupils,wehad comicbooks and animated films made to present TVK operations.In order to catch the pupils’ attention, two characters, Etillaand Propilla symbolizing ethylene and propylene moleculestake the children through the processes converting chemicalfeedstock into polymer pellets first to supply raw materialsfor the production of plastic products and parts for daily

theendoftheyearmorethan430persons,representingalmost40%oftheemployeeshadfilledintheelectronicquestionnaireprepared to collect the data online. At present, we areevaluatingtheanswers,andwhentheanalysisof thedatahasbeencompleted in2012,wewillbeable togiveadvice toouremployeeshowtoreducetheir individualecological footprintsandpersonalcarbondioxideemissions.Internationalexperienceshowsthatthoseadoptingenvironmental-consciousattitudesintheir private lives follow the same conduct atwork. Thisway,thesuccessoftheprogramcancontributetothereducedcarbondioxideemissionsofTVK.

Sponsorship policy and principleskBeing dedicated to the education of the young generation bytradition, our Company pays special attention to popularizehealthylifestyle,tobuildaresponsibleapproachtothenaturalandsocialenvironments,andtoappreciatesciencesandarts.

We make efforts to share our resources with those who doprofessional work, have high skills, and are able to produceextraordinary individual and group-scale achievements. Weintendtobuildlong-termrelationshipsandfocusonsupportingthosewhoseperformanceremainsoutstandinginthelongrun.

Our sponsorship is concentrated on the region of the BorsodCountyincludingthe31settlementsintheSouthBorsodregionandthetownofTiszaújváros.Accordingtothetypesofsupport,wegivepreferencetothoseworkingin• cultureandsciences;• sports;• educationandraisingofchildren.

While allocating our donations, we give preference to theapplicationsmeetingtheaboveprinciples,insteadofgivingad-hocdonations.Ourdecision ismadeonthebasisonpredeterminedprofessional, strategic, and ethical aspects, while committeesof independent professionals assist our social investmentprograms.Accordingtotheprinciplesofcredibility,reliability,andindependence, our sponsoring and donating actions are madeaccordingtothemoststringentethicalnorms,andweexpectallofouremployeesandsupporterstomeetthose.

Based on these principles, we do not support any politicalobjectives or parties, or governmental organisations or anyother organisations or programs, which abuse human rights,orareagainstcommongoodorpublicmorals,orrepresentanydiscriminativeopinion

Without the intention of completeness, here is a list of our supporters

Foundations:- FortheFutureofTiszaújváros(TJA–operatedjointlywiththeLocalGovernment,Tiszaújváros)

- TVKfortheSouthBorsodRegion(DBAforthe31settlementsexceptTiszaújváros)

Bothfoundationsweresetupinthemiddleof2000.Duringtheyearssincetheirfoundationtotheendof2011,TJAdistributedatotalamountofHUF850millionasdonations,whileDBawardedHUF150million.In theacademicyearbeginning inautumn2011,ourCompanygrantedscholarshipsofHUF6,000,each, to42giftedpupils inneedin26schoolsintheregionfor10months.Thefoundationdonatedmore thanHUF 5.1million to 23 applications for theequipmentandrevampofthecommunityandwelfareroomsineducationalinstitutions.

Culture and sciences:- MiskolcNationalTheatre- MiskolcInternationalOperaFestival- TiszadobPianoFestival- HermanOttóMuseum- HungarianChemicalMuseum- HungarianChemists’AssociationSports:- TVK-MaliTriathlonClub- HungarianTriathlonAssociation- TVKTriathlonWeekandWorldCup- TiszaújvárosWaterSportsAssociation–Kayak-Canoe

In addition to supporting these highlighted programs, weconsiderthetrainingofyoungathletesanequallyimportanttask;therefore, we gave financial support to the Tiszaújváros sportsclubssecuringtrainingopportunitiestothechildrenoftheregion,inrelationtothenumberofthemembersofeachclub.

Our Company spent nearly HUF 50 million for sponsorshipanddonations in2011.Oursupport isbasedupontheparties’voluntary participation and agreement, and it is implementedaccording to predetermined conditions and objectives. Duringsuchcooperation,wespecificallyrespecttheindependence,freeopinions,objectivesandactivitiesofthesponsoredpersons,andwedonotacceptorofferanyunfairadvantage,eitherdirectorindirect.

Our strategy focuses on the joint implementation of our economic targets, environmental and social objectives. Our social role and environmental objectives associated with the economic targets are implemented through our HSE policy and the quality, environmental, health, and safety systems we operate on a company scale. Our Company regards its commitment to the employees, safe work environment, environmental protection, quality-centred approach, and social role as being its highly important duties. We treat our employees responsibly. We respect human rights as well as the values and differences of the local and national cultures. Our objective is to secure equal opportunities to all our employees in order to help them further train themselves and do their daily work in safe conditions.

Oursocialcommitment

Sustaina

bility

use. Indicativeofthesuccessoftheprogram,theopenweek,launchedintheKazinczySchool,Tiszaújvárosin2009,hasbeenarrangedeveryyeareversinceandexpandedontosomeotherregionalschoolsintheformofaonedayquiz.

Toexpandtheprogram,inthemonthsofNovemberandDec-emberof2011,2,433pupilsundertheageoftenin15schoolsin the South Borsod region had the chance to see a puppetshowtellingabouttherolesofplasticsinamodernsocietyandaboutTVKasplasticfeedstockproducer.

Theyear2011wastheInternationalYearofChemistry.Aspartofaseriesofinternationalprograms•WesupportedtheAkadémiaiKiadó(AcademicPublishers) topublishabookMisbelievesinChemistry;

• Jointlywithothercompaniesandorganisations,wecontributedtothepreparationoftheindependenthomepagefortheprog-ram;

•Wehosted thewinners of the competition arranged for theyouthbyMAVESZonasitevisittoTVK;

•We supported the programs of Chemists’ Night organizedbytheMiskolcUniversity, includingthesettingofaGuinnessrecordinthecategoryofchemicalexperiments.

As part of a program to spread an environmental-consciousattitude, in autumn 2011, we initiated a research program toasses the individualecological footprintsofouremployees.By


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economic power indicators

Main business data 2006 2007 2008 2009 2010 2011 grI

Revenues(mHUF) 308,736 337,646 323,406 265,372 365,185 411,462 eC1

Otherrevenues(mHUF) 403 808 216 2,049 2,279 3,364 eC1

Operatingcost(mHUF) 287,081 305 481 319,067 274,931 366,777 420,728 eC1

Employeewagesandbenefits(mHUF) 9,766 10,134 9,328 9,743 9,646 9,404 eC1

Paymentstocapitalinvestors(mHUF) 1,025 0 8,963 1,992 0 1,991 eC1

Paymentstogovernments(mHUF) 5,009 9,556 6,702 7,519 5,032 4,695 eC1

Financialassistancereceivedfromgovernment(mHUF) 15 0 1 0 11 15 eC4

Customer Satisfaction 2006 2007 2008 2009 2010 2011 grI

Petrochemicalscustomerloyaltyindex(%)* 12.96 13.28 14.39 19.52 15.52 16.60 PR6

environmental power indicators

Air 2006 2007 2008 2009 2010 2011 grI

CO2 (ton) 1,111,518 1,210,730 1,147,068 1,056,552 1,127,707 1,116,721 eN16

CO2(underETS)(ton) 69 27 1,147,068 1,056,552 1,127,707 1,116,721 eN16Indirectgreenhousegasemissionsfromelectricityconsumption–estimated(t) n.a. n.a. n.a. 190,041 184,754 181,584 eN16

Indirectgreenhousegasemissionsfromotherindirectenergyconsumption(steam,heat,etc.)–estimated(t) n.a. n.a. n.a. 141,727 133,210 139,720 eN16

ODS(Ozone-DepletingSubstances)(ton) n.a. n.a. 0 0 0 0 eN19

SO2(ton) 57 72 62 88.17 53.39 68.24 eN20

VOC(VolatileOrganicCompounds)(ton) 27 28 24 28.54 1.75 2.33 eN20

NOx(ton) 552 618 560 809.87 539.36 550.95 eN20

CO(ton) 71 83 96 167.6 109.6 163.26 eN20

PM(ParticulateMatter)(ton) 23 23 25 16.86 23.08 39.18 eN20

Hazardousairpollutants(HAP)(ton) n.a. n.a. 0.0727 0.028 n.a. n.a. eN20

Water 2006 2007 2008 2009 2010 2011 grI

Drinkingwaterconsumption(m3) 410,845 368,641 345,385 234,934 260,955 221,298 eN8

Totalwaterwithdrawal(m3) 11,136,324 11,411,436 11,048,817 10,277,495 10,277,095 10,229,938 eN8

Surfacewaterwithdrawal(m3) n.a. n.a. 4,138,027 4,216,203 3,290,075 3,703,767 eN8

Groundwaterwithdrawal(m3) n.a. n.a. 345,385 234,934 260,955 221,298 eN8

Rainwatercollecteddirectlyandstored(m3) n.a. n.a. 0 0 0 0 eN8

Wastewaterfromanotherorganization(m3) n.a. n.a. 6,565,406 5,826,358 6,726,065 6,304,873 eN8

Totalvolumeofrecycledandreusedwater(m3) n.a. n.a. 934,770 859,944 1,372,293 1,373,944 eN8

Totalwaterdischarge(m3) n.a. n.a. 5,075,205 4,864,544 5,214,677 5,031,114 eN21

TPH(TotalPetroleumHydrocarbons)(ton) 22.5 16 11.5 19.20 14.94 14.6 eN21

COD(ChemicalOxygenDemand)(ton) 275 265 172 227.40 179.9 203.8 eN21

BOD(BiologicalOxygenDemand)(ton) 162 154 100 121.6 88,6 94,3 eN21

SS(SolidSubstances)(ton) 88.6 94.3 eN21 49,5 66,7 eN21

Performanceindicators

Waste (t) n.a n.a n.a 57.4 49.5 66.7 eN21

HazardousWaste(fromthecurrentactivity) 2,444 1,862 2,440 2,507 2,437 2,326 eN22

HazardousWaste(fromtheoldactivity) 11 1,478 33 44 13 45 eN22

NonHazardousWaste(fromthecurrentactivity) 1,657 711 854 4,806 1,414 3,216 eN22

NonHazardousWaste(Communal) 713 692 714 334 326 323 eN22

NonHazardousWaste(Fromtheoldactivity) 59,279 14,928 0 6 4 0.6 eN22

AllEliminatedWaste 3,301 2,576 3,200 3,001 3,707 4,941 eN22

Reused/RecycledHazardousandNonHazardousWaste 59,724 17,100 808 4,653 488 427 eN22

WasteDisposed/Landfilled n.a. n.a. 144 20 0 0 eN22

WasteReused/Recycled n.a. n.a. 0 0 0 0 eN22

WasteComposted n.a. n.a. 4 566 41 673 eN22

WasteIncinerated n.a. n.a. 205 856 490 145 eN22

WastetoDeepWellInjection n.a. n.a. 0 0 0 0 eN22

Energy Consumption Data (GJ) 2006 2007 2008 2009 2010 2011 grI

Naturalgas n.a. n.a. n.a. 1,403,194 1,693,172 1,167,828 eN3

Otherhydrocarbon(fuel,gas,etc.) n.a. n.a. n.a. 17,322,049 18,391,049 18,674,513 eN3

Totalprimaryenergyconsumption n.a. n.a. n.a. 18,725,243 20,084,221 19,842,341 eN3

Electricity n.a. n.a. n.a. 1,938,093 2,015,495 1,980,912 eN4

Otherindirectenergy(steam,heat,etc.) n.a. n.a. n.a. 2,362,124 2,337,710 2,328,664 eN4

Totalindirectenergyconsumption n.a. n.a. n.a. 4,300,217 4,353,205 4,309,576 eN4

Spills and discharges 2006 2007 2008 2009 2010 2011 grI

Numberofspills(pieces) 0 0 0 0 0 0 eN23

Volumeofspills(m3) 0 0 0 0 0 0 eN23

hSe related expenditures 2006 2007 2008 2009 2010 2011 grI

Environmentalinvestments(mHUF) 49 294 38 127 223 315 eN30

HSErelatedpenalties(mHUF) 1.02 1.20 0 0 0 0.1 eN28

Environmentalrulecontravention(pieces) n.a. n.a. 0 0 0 1 eN28


Social performance indicators

Employees 2006 2007 2008 2009 2010 2011 grI

Totalworkforce(Closingon31stDecember)(person) 1,200 1,147 1,139 1,139 1,114 1,103 LA1

Numberoffull-timeemployees(Annualaverage)(person) 1,396 1,187 1,153 1,158 1,138 1,119 LA1

Numberofemployeeslaidoff(person) 282 76 52 44 60 37 LA2

Employeeturnoverrate(%) 20.2 6.4 4.5 3.8 5.4 3.3 LA2

Absenteerate(AR)(%) 18.9 16.3 15.8 16.4 15.3 14.2

Employeesrepresentedbytradeunions(%) 64.5 56.1 53 52.6 51.5 49.3

Safety 2006 2007 2008 2009 2010 2011 grI

LostTimeInjury(LTI)(pieces) 5 0 1 1 1 1 LA7

LostTimeInjuryFrequency(LTIF) 2.08 0 0.49 0.50 0.50 0.51 LA7

TROIF(TotalReportableOccupationalIllnessesFrequency) 0 0 0 0 0 0 LA7

Numberoffatalitiesforemployees(pieces) 0 0 0 0 0 0 LA7

Numberoffatalitiesforcontractors(pieces) 0 0 0 0 0 0 LA7

Numberoffires(pieces) 4 3 0 0 3 0

Firedamage(mHUF) 43.51 25.8 0 0 2.5 0

Diversity 2006 2007 2008 2009 2010 2011 grI

Ratioofwomenintotalworkforce(%) 31.9 33.1 34.5 32.5 32.6 32.1 LA13

Ratioofwomeninmanagerialposition(%) 13.3 8.3 5.3 7.5 7.5 5.4 LA13

Ratioofwomeninnon-managerialposition(%) 38.1 34.2 36.8 33.5 33.8 33.2 LA13

other social 2006 2007 2008 2009 2010 2011 grI

Totaltrainingcost/totalFTE(HUF) n.a. n.a. 150,000 76,212 74,500 67,628 LA10

Donations(mHUF) 90.8 88.2 66.7 66.9 49,89 49,95

Traininghours/totalFTE(hours) n.a. n.a. n.a. 31.59 79,8 25,5 LA10

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BOARDOFDIRECTORS

TVK’s Board ofDirectors acts as the highest governance bodyoftheCompanyandassuchhascollectiveresponsibilityforallcorporateoperations.The Board’s key activities are focused on achieving increasingshareholder value, improving efficiency and profitability, andensuring transparency in corporate activities. It also aims toensureappropriateriskmanagement,environmentalprotection,andconditionsforsafetyatwork.Given that TVK and its subsidiaries effectively operate as asingleunit, theBoard isalso responsible forenforcing itsaimsandpolicies,andforpromotingtheTVKculturethroughouttheentireGroup.The principles, policies and goals take account of the Board’sspecific and unique relationship with TVK’s shareholders, theexecutivemanagement and the Company. The composition oftheBoardreflectsthiswiththemajority (fourofsixmembers)madeupofnon-executive,non-independentdirectors.

ThemembersoftheBoardofDirectorsandtheirindependencestatus (professional CVs of the members are available oncorporatehomepage):

Name Position Date of assignment Independence status

GyörgyMosonyi ChairmanoftheBoard 26.04.2002 non-independent

GyulaGansperger Boardmember 20.04.2006 independent

FerencHorváth Boardmember 01.05.2011 non-independent

MiklósKamarás Boardmember 01.05.2011 independent

Dr.PéterMedgyessy Boardmember 20.04.2006 independent

dr.ZoltánNagy Boardmember 01.05.2011 independent

ÁrpádOlvasó DeputyChairmanoftheBoard 29.08.2000-31.05.2011 non-independent

Michel-MarcDelcommune Boardmember 03.11.2000-30.04.2011 non-independent

MolnárJózsef Boardmember 20.04.2001-30.04.2011 non-independent

VratkoKassovic Boardmember 28.04.2005-30.04.2011 independent

Operation of the Board of DirectorsTheBoardactsandmakesresolutionsasacollectivebody.

TheBoardadoptedasetofrules(Charter)togovernitsownactivitieswhenthecompanywasfounded(onDecember31,1991);theserulesareregularlyupdatedtoensurecontinuedadherencetobestpracticestandards.

TheBoardChartercovers:-scopeoftheauthorityandresponsibilitiesoftheBoard,-provisionofinformationtotheBoard,thefrequencyofreports,-mainresponsibilitiesoftheChairmanandtheDeputyChairman,-orderandpreparationofBoardmeetingsandthepermanentitemsoftheagenda,and-decision-makingmechanism,andthemannerinwhichtheimplementationofresolutionsismonitored.

MembersoftheBoardhavesignedadeclarationonconflictofinterestandtheyhavereportedtheirpositionasdirectorintheBoardtotheiremployerorprincipalasregardsotherkeymanagementpositions.TheBoardofDirectorsanditsCommitteereviewscontinuouslyitsactivityonayearlybasis.

Report of the Board of Directors on its 2011 activitiesIn2011,theBoardofDirectorsheld4meetingswithanaverageattendancerateof92%.RegularagendaitemsonthemeetingarereportsbytheCEOontheactivitiespursuedsincethelastBoardmeeting,anoverviewofpetrochemicalmarketandthecurrentsituationofthecompany.

TheBoardofDirectorsrespectivelypaidhighlightedattentiontotheimprovingefficiency,cost-cutting,decreasingexternalenvironmenteffects,productionandsalesimprovement,marketgrabbingandproductdevelopment,andcapitalexpenditureprojects.

Committees of the Board of DirectorsCertainspecifictasksarecarriedoutbytheBoard’sCommittees.ThefollowingrulesdoapplytotheCommittees,createdbytheBoD.:These Committees have the right to approve preliminary resolutions concerning issues specified in the Decision-making andAuthoritiesList,whichsetsoutthedivisionofauthorityandresponsibilitybetweentheBoardandtheexecutivemanagement.


TVK has always been committed to apply the highest standards of Corporate governance structure and practice. the basis of that is using such Corporate governance system that meets the national and even the international expectations. TVK summits its declaration on Corporate Government practice in line with the Corporate governance Recommendations issued by the Budapest Stock Exchange (BSE) each year since 2004. The Board of Directors accepts and does its best to observe the Recommendations in the course of running the Company and its operations.

the Corporate governance of tVK plc. complies with the requirements of the Budapest Stock Exchange, the guidelines of the Hungarian Financial Supervisory Authority and the relevant capital market regulations. Furthermore TVK regularly reviews the principles it applies in order to comply with international best practices in this area of the business as well. 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 where the company publishes its Corporate governance policy, convocations to the general meeting, articles of association, and Code of Ethics.

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- TheresponsibilitiesoftheCommitteesaredeterminedbytheBoardofDirectors.- TheChairmanoftheBoardofDirectorsmayalsorequesttheCommitteestoperformcertaintasksThemembersandchairsoftheCommitteesareelectedbytheBoardofDirectors.

Currently,theBoardallocatesresponsibilitiestothefollowingCommittee:

Finance and Audit Committee:Membersanddatesofappointment(professionalbackgroundsofmembersareavailableoncompanyhomepage):

Name Position Date of assignment

FerencHorváth Chairman 01.05.2011

MiklósKamarás Member 01.05.2011

Dr.ZoltánNagy Member 01.05.2011

JózsefMolnár Chairman 26.04.2002–30.04.2011

Michel-MarcDelcommune Member 26.04.2002–30.04.2011

VratkoKassovic Member 28.04.2005–30.04.2011

ÁrpádOlvasó Member 26.04.2002–31.05.2011

Responsibilities: Thecommittee is responsible forpromoting theefficiencyof theBoard regarding issues related tofinance, riskmanagementandfinancialauditaswellasformattersdesignatedtoitbytheBoard.

Report of the Audit Committee on its 2011 activitiesIn2011,theFinanceandAuditCommitteeheld4meetingswitha100%averageattendancerate.Theregularagendaitemsincludedtheauditofallpublicfinancialreports,providingassistancewiththeauditor’sworkandtheregularmonitoringofinternalaudit.

RELATIONSHIPBETWEENTHEBOARDANDTHEEXECUTIVEMANAGEMENT

TheMatrix of DecisionMaking Competencies (MDMC) specifies the powers and competencies delegated by the Board to theManagementinanattempttoensurethemostefficientenforcementofthebusiness,HSEQ,ethics,riskmanagementandinternalcontrolpoliciesspecifiedbytheBoard.TheobjectiveoftheMDMCistomaximisetheshareholdervalueoftheCompanyandtocaptureunambiguouslythedecision-makingpowersandcompetenciessoastoreachoperationalandfinancialexcellence.

Theroleof theMDMC is to“translate”Corporategovernancerulesbycapturing thekeydecisionmakingpoint inoperatingthebusinessandtherelatedcompetencesintheorganization.HencetheMDMCidentifiesthemajorcontrolpointsrequiredforefficientprocessdevelopmentandoperation.

Senior managementMembersanddatesofappointment(professionalbackgroundsofmembersareavailableoncompanyhomepage):

Name Position Date of assignment

ZsoltPethő SeniorVicePresidentPetrochemicals,ChiefExecutiveOfficer 01.06.2011

ÁrpádOlvasó ChiefExecutiveOfficer01.07.2003–

31.05.2011GyulaHodossy ChiefFinancialOfficer 01.07.2007

KrisztinaPetrényinéSzabó PolymerMarketingandSalesManager 01.10.2009

TivadarVályiNagy PetrochemicalProductionManager 01.07.2007

JánosBóta HeadofPetrochemicalTechnologyandProjectDevelopment 01.08.2007

TamásPénzes HeadofHumanResources01.07.2004-31.12.2011

AdriennRácznéBodnár HeadofHumanResources 03.01.2012

Note:Mr.TamásPénzes,HeadofHR,leftTVK,andasfromJanuary3,2012AdriennBodnárRáczistheSeniorManagerofHumanResources

Incentives provided for non-executive directorsThebasisoftheeffectiveincentiveschemefornon-executivedirectorswasapprovedbytheordinaryAnnualGeneralMeeting(AGM)in2007.

• Fixed remuneration: AresolutionoftheAnnualOrdinaryGeneralMeetingatApril19,2007providedthateffectiveasofthedayoftheAnnualGeneralMeetingthoseBoardmemberswhoarenotemployedbyTVKPlc.oranyothersubsidiariesofMOLGroupshouldreceivethetimeproportionatenetpaymentperyearoftheirmandateasfollows:- Boardmembers 50,000EUR/year- Chairman 75,000EUR/year

• Other benefits:NonresidentBoardmemberswhoarenon–HungariancitizensandhavetotraveltoHungarytoattendthemeetingsshallreceiveEUR1,500foramaximumoffifteenmeetingsattendedinperson. Incentive system for the top management TheBoardevaluatestheperformanceofthemanagementoftheCompanyindividuallyandatcompanylevelonceayearandsetstheresponsibilitiesandtherelatedtargetsofachievementformanagementforthegivenperiodaccordingtothesystemofincentives.

Operatingasystemofcompensationandadoptingpractical solutions in linewith thestrategyof thecompany isaguideline fordeveloping the structureofperformanceevaluationand remuneration inaway that itmaybeusedefficiently forattaining theobjectivesoftheCompanywhilstgivingprioritytomotivatingkeyemployeesintheorganisation.Incaseofmanagersofthecompany,inallfinancialyear,performancegoals,relevanttothebusinessstrategyaredetermined,andtheseareevaluatedbytheonelevelhighermanager,incaseoftheseniormanagementitisdonebytheCEO.

Other fringe benefits: These include companyoptional benefits (Cafeteria), cars (also used for private purposes), life insurance,accidentinsurance,travelinsurance,liabilityinsurance,andanannualmedicalcheckup.

Principles and framework of the Company’s long-term incentive scheme for senior employees According to Section 302of theCompanyAct, “it is the exclusive competenceof themembers’meeting to bring obligatory ornon-obligatorydecisionsaboutthe long-termremunerationandtheguidelinesorframeworksofthe long-termincentivesystemrelatedtotheseniorofficers,supervisoryboardmembersandemployeesinmanagerialpositions,dependingontheprovisionsoftheArticlesofAssociation”.

TheGeneralMeetinghasalreadydecidedontheremunerationofseniorofficerswiththeGMresolutionsof15/2010.(04.15.).

Regarding itssenioremployeesandmanagement,TVKPlc.operatessuchan incentivesystemthatencourages inshorttermtheachievementoftheannualfinancialindexesandthepersonaltasksandservestheinterestinincreasingthesharepriceinlongrun,whileitalsocreateslong-termandsustainableinterestinimprovingprofitability.

Thelong-termincentivesystemconsistsoftwoparts:theincentivebasedonshareoptions(optionincentive)andtheincentivebuiltonprofitsharing(orbasedonaddedvalue).

Theoptionincentiveisacash-basedwageincentive,calculatedannuallybasedonthecalloptionrelatedtotheMOLshares,whichoperatesin5-year(2+3years)periodsstartingannually.Thetermoftheoptionis5years.Thefirstyearofeveryoptionperiodistheyearwhichtheincentiveaimsat.Thewaitingperiodlaststilltheendofthesecondyear,duringthisperiodthereisnochancetoredeemtheincentive.Incentivecanberedeemedonlyinthelastthreeyears.

Theincentivebuiltonprofitsharingencouragesthelong-termsustainableincreaseofprofitabilitybasedonthe“methodologyofaddedvalue”,thusensuringthatinterestsofthoseparticipatingintheincentivesystemarethesameastheinterestsoftheshareholdersoftheCompany.Theincentivebuiltonprofitsharingisacash-basedwageincentive,calculatedannuallybasedontheincreaseintheaddedvalueacknowledgedbytheextentofthedeterminedbaseincentiveincomparisonwiththeover-costresultoftheinvestedcapital.

Theextentoftheincentivebuiltonprofitsharingisdeterminedaccordingtotheclassificationcategoriesbelongingtothemanageriallevels.

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SUPERVISORYBOARD

TheSupervisoryBoardisresponsibleformonitoringandsupervisingtheBoardofDirectorsonbehalfoftheshareholders.TheArticlesofAssociationofTVKprovidesthattheSupervisoryBoardoftheCompanyshouldhaveatleastthree,butnomorethanfifteenmembers.AtpresenttheSupervisoryBoardhasfivemembers.AsprovidedintheCompanyAct,1/3ofthemembersofthisbodyincludeemployeerepresentatives,hencetwomembersoftheSupervisoryBoardofTVKrepresentemployeesandtherearethreenon-executivemembersappointedbytheshareholders.

Themembers of the Supervisory Board and their independence status (professional backgrounds ofmembers are available oncompanyhomepage):

Name Position Date of assignment Independence status

LászlóGyurovszkySBchairmanSBmember

22.06.200719.04.2007

independent

dr.GyulaBakacsi SBmember 19.04.2007 independentdr.GyörgyBíró SBmember 19.04.2007 independent

LászlóRéti SBmember 29.04.2010 non-independent(employeeepresentative)

TuróczyJudit SBmember 21.04.2011 non-independent(employeerepresentative)

TamásMagyarSBdeputychairSBmember

22.06.2007-20.04.201120.04.2001-20.04.2011

non-independent(employeerepresentative)

In2011,theSupervisoryBoardheld4meetingswithanaverageattendancerateof100%.

Remuneration of the members of the Supervisory Board

Accordingtotheresolutionof theAnnualGeneralMeetingheldonApril19,2007,effectiveasof thedayof theAnnualGeneralMeetingtheSupervisoryBoardmembersshouldreceivethenetpaymentpermonthoftheirmandateasfollows:-Boardmembers 1,000EUR/month-Chairman 1,500EUR/monthNonresidentSupervisoryBoardmemberswhoarenon–HungariancitizensandhavetotraveltoHungarytoattendthemeetingsshallreceiveEUR500foramaximumoffifteenmeetingsattendedinperson.

AUDITCOMMITTEE

In2007,thegeneralmeetingappointedtheAuditCommitteecomprisedof independentmembersoftheSupervisoryBoard.TheAuditCommitteestrengthenstheindependentcontroloverthefinancialandaccountingpolicyoftheCompany.TheindependentAuditCommittee’sresponsibilitiesincludethefollowingactivities:-providingopiniononthereportasprescribedbytheAccountingAct,-auditorproposalandremuneration,-preparationoftheagreementwiththeauditor,-monitoringthecomplianceoftheconflictofinterestrulesandprofessionalrequirementsapplicabletotheauditor,co-operationwiththeauditor,andproposaltotheBoardofDirectorsorGeneralMeetingonnecessarymeasurestobetaken,ifnecessary,

-evaluationoftheoperationofthefinancialreportingsystem,proposalonnecessarymeasurestobetaken,and-providingassistancetotheoperationoftheSupervisoryBoardforthesakeofsupervisionofthefinancialreportingsystem.

Members of the Audit Committee and dates of appointment (professional backgrounds ofmembers are available on companyhomepage):

Name Position beginning of assignment

LászlóGyurovszkyACchairmanACmember

22.06.200719.04.2007

dr.GyulaBakacsiACdeputychairACmember

22.06.200719.04.2007

dr.GyörgyBíró ACmember 19.04.2007

Report of the Audit Committee on its 2011 activities In2011,theAuditCommitteeheld4meetingswitha100%averageattendancerate.Inadditiontotheregularitemsontheagenda,includingtheauditofallpublicfinancialreports,providingassistancewiththeauditor’sworkandtheregularmonitoringofinternalaudit,theCommitteealsodevotedaconsiderableamountoftimetothefollowingtopics:-controloffinancialandrelevantreports,-observationoftheeffectivenessofinternalauditsystem,-ensuringtheindependencyandobjectivityoftheexternalauditor.

EXTERNALAUDITORS

TheauditoriselectedbytheGeneralMeetingofTVK.

Ernst&YoungKönyvvizsgálóKft.actsastheauditorofTVKsince2003.TheOrdinaryAnnualGeneralMeetingheldonApril14,2011electedErnst&YoungKönyvvizsgálóKft.onceagainasauditoroftheCompanyandanagreementwasconcludedforauditingtheannualreportsclosingthebusinessyearof2011.TheengagementisinforceuntiltheconclusionoftheOrdinaryAnnualGeneralMeetingheldin2012todecideontheapprovalofthe2011annualreports.

TheauditagreementprovidesthatErnst&YoungKft.shouldaudittheconsolidatedandnon-consolidatedannualreportsdrawnupunder theAccountingActand theconsolidatedandnon-consolidatedannual reportsdrawnupunder International FinancialReportingStandards(IFRS,formerlyIAS).TheaforementionedfinancialstatementshavebeenauditedasrequiredbyNationalAuditStandards,InternationalStandardsofAuditingandtheprovisionsoftheAccountingActandanyotheractsandlawsonauditing.TheauditorsensurethecontinuousnatureofperformingtheauditassignmentbyworkingonsiteandbyparticipatingatthemeetingsofkeyTVKbodiesaswellasthroughotherformsofconsultation.

Furthermore,theauditorreviewsthequarterlystockexchangeflashreportbutissuesnoauditor’sstatement,asflashreportsarenotfullyaudited.

In2011,Ernst&YoungKft.alsodeliveredotherservicestoTVKPlc.asfollows:SupervisedthedataofTVK’sHungariansubsidiariessuppliedtotheconsolidation.(Incaseoftheforeignsubsidiariestheoperationalprocessbecamesignificantlysimplified,thereforethecontroloftheaccountingprocesswasmadebytheAccountingdepartmentofthecompany.)

FeesPaidtoAuditors,2010-2011(HUFmillion)

2010 2011

FeefortheauditofTVKPlc. 35.1 35.1

Otherauditrelatedservices 4.2 4.2

ValidationofNRTAproject 0.0 0.5

total 39.3 39.8

TheBoardofDirectorsdoesnot think that anyof the services renderedbyErnst&YoungKft.under theaforementionedtitlesjeopardiseitsindependenceasauditor.

RELATIONSHIPWITHTHESHAREHOLDERS,INSIDERTRADING

The Board is aware of its commitment to represent and promote shareholders’ interests, and recognises that it is fullyaccountablefortheperformanceandactivitiesoftheTVKGroup.TohelpensurethattheCompanycanmeetshareholders’expectationsinallareas,theBoardcontinuallyanalysesandevaluatesdevelopments,bothinthebroaderexternalenvironmentaswellasatanoperationallevel.

FormalchannelsofcommunicationwithshareholdersincludetheAnnualReportandAccountsandthequarterlyresultsreports,aswellasotherpublicannouncementsmadethroughtheBudapestStockExchange(primaryexchange)andtheLondonStockExchange.RegularandextraordinaryannouncementsarepublishedonPSZÁF(HungarianFinancialSupervisoryAuthority)publicationsiteandonTVK’shomepage.Inaddition,presentationsonthebusiness,itsperformanceandstrategyaregiventoshareholdersattheAnnualGeneralMeetingandextraordinaryGeneralMeetings.Furthermore,investorsareabletoraisequestionsormakeproposalsatanytimeduringtheyear,includingtheCompany’sGeneralMeeting.InvestorfeedbacksareregularlyreportedtotheBoardofDirectors.

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TVK’sInvestorRelationspecialistisresponsiblefortheorganisationoftheaboveactivitiesaswellasfortheday-to-daymanagementofTVK’srelationshipwithitsshareholders(contactdetailsareprovidedinthecompany’shomepage).ExtensiveinformationisalsomadeavailableonTVK’swebsite(www.tvk.hu),whichhasadedicatedsectionforshareholdersandthefinancialcommunity.

TVKGroup iscommitted to the fairmarketingofpublicly-tradedsecurities. Insiderdealing in securities is regardedasacriminaloffenceinmostofthecountriesinwhichwecarryoutbusiness.Therefore,werequirenotonlyfullcompliancewithrelevantlaws,butalsotheavoidanceofeventheappearanceofinsidersecuritiestradingandconsultancy.

TVKGroupemployees:- shouldnotbuyorsellsharesinTVKoranyothercompanywhileinpossessionofinsiderinformation,- shouldnotdiscloseinsiderinformationtoanyoneoutsidethecompany,withoutpriorapproval,- shouldbe careful, evenwithotherTVKGroupemployees, shoulddisclose insider information toa co-workerwhen theyhavepermissiontodosoandifitisnecessarytodotheirjob,

- shouldprotectinsiderinformationfromaccidentaldisclosure.

EXERCISEOFSHAREHOLDERS’RIGHTS,GENERALMEETINGPARTICIPATION

Votingrightsonthegeneralmeetingcanbeexercisedbasedonthevotingrightsattachedtosharesheldbytheshareholders.Everyordinaryshareentitlestheholderthereoftohaveoneandonehundredthvote.Theactualvotingpowerdependsonhowmanysharesareregisteredbytheshareholdersparticipatinginthegeneralmeeting.

Aconditionofparticipationandvotingatthegeneralmeetingforshareholdersisthattheholderoftheshare(s)shallberegisteredin theShareRegister. Thedepositary shall be responsible for registering the shareholders in theShareRegisterpursuant to theinstructionsofsuchshareholdersinlinewiththeconditionssetbythegeneralmeetinginvitation.

Theconditionstoparticipateinthegeneralmeetingarepublishedintheinvitationtothegeneralmeeting.Invitationstothegeneralmeetingarepublishedoncompanyhomepage.Theordinarygeneralmeetingisusuallyheld in lateApril, in linewiththecurrentregulation.

The ordinary generalmeeting, based on the proposal of Board of Directors approved by the Supervisory Board, shall have theauthoritytodetermineprofitdistribution, i.e.theamountoftheprofitaftertaxationtobereinvestedintotheCompanyandtheamounttobepaidoutasdividends.

ThestartingdateforthepaymentofdividendsshallbedefinedbytheBoardofDirectorsinsuchwayastoensureaperiodofatleast10workingdaysbetweenthefirstpublicationdateofsuchannouncementandtheinitialdateofdividenddistribution.Onlythoseshareholdersareentitledtoreceivedividend,whoareregisteredintheshareregisteroftheCompanyonthebasisofshareholdersidentificationexecutedonthedatepublishedbytheBoardofDirectorsintheannouncementonthedividendpayment.SuchdaterelevanttothedividendpaymentdeterminedbytheBoardofDirectorsmaydeviatefromthedateofgeneralmeetingdecidingonthepaymentofdividend.However,thedateoftheshareholderidentificationmadeincompliancewiththeregulationsofKELERinrespectofthedividendpaymentshallnottakeplacemorethanfiveworkingdaysafterthegeneralmeetingpassingaresolutiononthepaymentofdividend.

INTEGRATEDRISKMANAGEMENT

TheaimofriskmanagementinTVKistosupportcorporateoperationstobeassafeaspossible.Theriskmanagementpolicyofthecompanyhandlessignificantrisksassociatedwithitsbusinessactivities.

Theriskmanagementguidelinescoveringthemanagementofforeignexchangerateandcommoditypricerisks,aswellaspropertydamage,businessinterruption,liability,customer,technical,safety,complianceandenvironmentalrisks.

Since2006, theEnterpriseRiskManagement (ERM)systemhasbeenapplied tomanage risksatMOLGroup level.TheERM isawidelyacceptedriskmanagementmethodthatalsocontributestothecorporatevaluecreationasadecision-supportingtooltherebyenhancingtheprotectionoftheshareholdervalue.Thecentralideabehindtheconceptistheapplicationofacommonmethodinaconsolidatedwaytocalculateandmanagethevarietyof(financial,operating,complianceandstrategic)risks.DuringtheERMprocesspotentialrisksareidentifiedandtherisk-returnrelationshipsofindividualdivisions,projectsanddecisionsbecomecomparable,whichcontributestodevelopingacultureofriskawarenesswithintheorganization.Themeasurementofrisksfacilitatestheidentification

oftherootcausesofrisksandcontributestoagreaterawarenessofdifferentrisktypes.Asaresult,seniormanagementcangetafirmergripontherisksthatinfluencecorporateprofitsandcandeterminetheelementsofrisktoberetainedandthoseonesthatrequiremitigationactions.Moreover,withawell-definedriskappetite,ERMhelpstosetupabusinessportfoliowithoptimumrisk-returnfeaturesbytakingriskanalysisresultsintoaccountinthedecisionsoncapitalallocation.

ERMalsosetstheframeworkfordevelopingbusinesscontinuityplans,crisismanagementandotherriskmanagementactivities.In2009theframeworkofBusinessContinuityManagementwaspreparedatMOLPetrochemicalDivision.Thisaimstoshortentheperiodofreturningtonormaloperationsafterahighimpactoperationalbreakdownandwillalsohighlightissuesandareasmustbedeveloped.

ThepricesofthemostimportantfeedstockusedbythecompanyandtheolefinandpolymerproductsproducedbyTVKarepeggedtotheglobalmarketpricesofthesameproducts.FromeconomicpointofviewTVKhasanetlongpositioninEUR,whileithasnetshortUSDandHUFcashflowpositions.

In2011,TVKdidnotconcludeanyderivativetransactionstohedgeagainstforeignexchangerateriskshowevershort-termhedgedealsweredoneinordertomanagethecommodityriskexposure.ThecompanyhadnoopenforeignexchangefuturespositionsasofDecember31,2011.

ThecreditfacilitiesofthecompanyweredenominatedinEURinordertoreducetheforeignexchangerateriskembeddedintheoperation.Thecompanycoversmostofitstradereceivableswithcreditinsurancetomitigateliquidityrisk.Also,itcarefullyexaminesthecreditworthinessoftheprospectivecustomersandassesseswhetherornottheconditionsforcontinuouspaymentareattainablebeforesigninganewcontract.

InordertoexploitopportunitiesoftheportfolioeffectsTVK’sfinancialriskexposures(e.g.commodity,FXrates,interestsrates)aremanagedonMOLGrouplevel.

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Hungaryfrom1995to1997.Starting1997,heworkedasmanagerforpartnerrelationsatMOLGroupDSuntilhisappointmentasheadoftheChemicalDivisionin1999andinturnasDirectorofChemicalPortfolioManagementin2001.TheCEOofTVKPlcbetweenJuly1,2003andMay31,2011.ThedirectorofthePetrochemicalDivisionofMOLGroupsinceMarch8,2006.Since1997,Mr.OlvasóhasbeenmemberofthePresidiumoftheHungarianChemicalIndustryAssociationwherehehasactedaspresidentsinceDecember15,2004.TheGeneralAssemblyofAPPEelectedMr.OlvasóaMemberoftheBoardon2ndJune2005.Mr.OlvasówasaMemberoftheBoardbytheGeneralAssemblyofCEFICbetweenAugust2006andOctober2008.AsofSeptember12,2008heishonoraryassociateprofessoratPannonUniversityofVeszprém.

4. MICHEL-MARC DELCOMMUNE (64)MemberoftheBoardfromNovember3,2000toApril30,2011ChiefAdvisortothePresidentofMOLGroupsinceJuly1,2006QualifiedChemicalEngineer,MBACurrentlySeniorAdvisortoMOLGroupExecutiveChairman,afteracareerof40yearintheoilindustrythatsawhimoccupyExecutiveDirectorpositionsfirstasCFOatPetroFinabetween1990and1998andatMOLGroupasCFOandChiefStrategyOfficerbetween2000and2006.HelefttheBoardofMOLin2008.BetweenNovember3,2000andApril30,2011hewasthememberoftheBoardofTVKplc.HeholdsadegreeinChemicalEngineeringfromLiegeUniversityandanMBAfromCornellUniversity.HeisaBelgiancitizen.

5. GYULA GANSPERGER (49)MemberoftheBoardsinceApril20,2006DeputychairmanofKÉSZHoldingZrt.Qualifiedeconomist.Mr. Gansperger graduated in 1986 fromUniversity of Economics Budapest, Department of Finance. He obtain his professionalexpertises between 1986-1987. at ElektrocoopCompany as ExecutiveOfficer, between 1987-1990. at CETBudapest TervezőRt.asChiefaccountant,between1990-1998.atTAXORGKönyvelőésAdótanácsadóKft.asManagingDirector,between1998-2001.atHungarianPrivatizationandStateHoldingCompanyasChairmanandCEO,between2001-2002.atBudapestAirportPte.Ltd.asChairmanandCEO,between2003-2005.atWallisPlc.asCFO.HewastheChiefExecutiveOfficerofWallisLtd.between2006-2007andthen,untilDecember2008theVicePresidentofKÉSZHoldingPrivateLimitedCompany,memberoftheBoardofDirectors.AtthepresentheistheCEOofofMORANDOKockázatiTőkealap-kezelőPlc.Titles:2009- MORANDOKockázatiTőkealap-kezelőPlc.,memberoftheBoardofDirectors2008- ConstansInvestKft.,ManagingDirector2006- TVKPlc.,memberoftheBoardofDirectors2007-2008 KészHoldingPlc.,memberoftheBoardofDirectors2005-2007 WallisPlc.,memberoftheBoardofDirectors2005-2007 GraboplastPlc.,memberoftheBoardofDirectors2001-2003. MATÁVLtd.,memberoftheBoardofDirectors1998-2000. HungarianPostCo.Ltd.,memberoftheBoardofDirectors1995-1998. HungarianPrivatizationandStateHoldingCompany,memberoftheSupervisoryBoard

1. GYöRGY MOSONYI (63)VicePresidentoftheSupervisoryBoardofINAd.d.ChairmanoftheSupervisoryBoardofSLOVNAFTa.s.ChairmanoftheSustainableDevelopmentCommitteeofMOL’sBoardofDirectorsbetween2006and2011;permanentinviteesince2011.From1974onwards,heworkedfortheHungarianAgencyofShellInternationalPetroleumCo.andfrom1986heheldthepositionofcommercialdirector. In1991heworkedatShellheadquarters, London.Between1992-1993hewas themanagingdirectorofShell-InteragLtd.andbetween1994-1999ChairmanandChiefExecutiveOfficerofShellHungaryRt.DuringthisperiodhebecameChairmanofShell’sCentral&EastEuropeanRegionandCEOofShellCzechRepublicin1998.Vice-chairmanoftheHungarianChamberofCommerce&Industry.,memberoftheJointVentureAssociation’sPresidium,presidentoftheWorldPetroleumCouncilHungarianNationalCommittee.MOLGroupCEOandmemberoftheBoardofDirectorsofMOLPlc.between1999and2011.

2. FERENC HORVÁTH (52)DeputyChairmanoftheBoardsinceJune22,2011MemberoftheBoardsinceMay1,2011ExecutiveVicePresidentofMOLGroupDownstreamDivisionsinceMay1,2011HeistheChairmanoftheBoardofDirectorsofIESMantuasinceNovember,2007andhehasmemberoftheBoardofDirectorsofSLOVNAFTa.s.sinceMay,2007CertifiedEconomistFrom1984until1991,heworkedforMineralimpex,theHungarianForeignTradeCompanyforOil&MiningProducts,inthefieldsofcrudeoilandnaturalgasimports,andcrudeoilproductexports.Between1991and1997,hewasManagingDirectorofAllcomTradingCo.,theHungarianMineralimpex-PhibroEnergyjoint-venture,dealingwiththeEuropeantradingofcrudeoilandcrudeoilproducts.HejoinedMOLPlcin1998asDirectorofLPGBusinessUnit,andworkedfromJanuary2001onwardsasSalesDirector,be-ingresponsibleforthesalesofMOL’sentireproductrange(petrol,diesel,petroleumproducts,bitumen,LPG,lubricants,andsoon).Between2002and2003hewasCommercialDirector,salesactivitieshavingbroadenedtoencompassthesupplyofcrudeoilandrawmaterialsnecessaryfortherefiningofcrudeoil.FromNovember2003heistheExecutiveVicePresidentofMOLRefining&MarketingDivisionuntilMay1,2011whenhehasbeennominatedastheExecutiveVicePresidentofMOLGroupDownstreamDivision.

3. ÁRPÁD OLVASÓ (53)OLVASÓ,Árpád(53)DeputyChairmanoftheBoardsinceApril26,2002toMay31,2011MemberoftheBoardfromAugust29,2000to31May,2011CEOofTVKPlc.untilMay31,2011QualifiedChemicalEngineer,MBAMr.OlvasóqualifiedaschemicalengineerattheChemicalUniversityVeszprémin1983andwasawardedaDiplomainManagementStudiesatBuckinghamshireCollege–SZÁMALKin1992.Hereceivedpost-graduatedegreeattheCollegeofPetroleumandEnergyStudiesin1993andanMBAdegreeatBrunelUniversity–SZÁMALKin1995.WorkedforDunaiKõolajipariVállalatasplantengineer,operator,shiftmanagerandasdeputyplantmanagerbetween1983and1992tomoveontothepositionsofplantmanagerandlaterprojectmanageratDanubeRefineryofMOLRt.between1992and1995;heactedasfirstconsultantandprojectmanagerforOracle

BoardofDirectors

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6. VRATKO KASSOVIC (68) †MemberoftheBoardbetweenApril28,2005–April30,2011CEO,Slovnafta.s.untilMarch6,2006.QualifiedChemicalEngineerMr.KassovicgraduatedasachemicalengineerfromthetechnicaluniversityofBratislavain1967.HejoinedSlovnaftin1969andfilledseveralpositionsuntilhewasappointedasCEOinJanuary2002.Mr.KassovichasbeenthedirectorofthePetrochemicalDivisionoftheMOLGroupsinceOctober2003.OnMarch6,2006,Mr.Kassovichasretired.

7. PéTER MEDGYESSY DR. (70)MemberoftheBoardsinceApril20,2006.FormerPrimeMinisterQualifiedeconomistMr.MedgyessygraduatedfromBudapestUniversityofTechnologyandEconomics,DepartmentofTheoreticalPoliticsandEconomyin1966.Between1966-1982heworkedattheMinistryofFinance indifferentpositions.Between1982-1986DeputyMinisterofFinance.In1987MinisterofFinance.Between1988-1990DeputyPrimeMinister,responsibleofeconomicaffairsinthegovernmentatthetimeofthechangeofregime.Between1990-1994PresidentandDirectorGeneraloftheFrenchParibasBankLtd.inHunga-ry.Between1994-1996PresidentandDirectorGeneralof theHungarian InvestmentandDevelopmentBankLtd.Between1996-1998.MinisterofFinanceintheSocialDemocratic-Liberalgovernment.Between1998-2001ChairmanoftheBoardofDirectorsofInterEurópaBankandVicePresidentofAtlaszInsuranceLtd.Between2002-2004PrimeMinisteroftheHungarianRepublicintheSocialDemotratic-Liberalgovernment.OnAugust25,2004heresignsforthesakeofmaintainingthecoalition.ExtraordinaryandPlenipotentiaryAmbassadoroftheRepublicofHungarysinceOctober14,2004untilMay31,2008.

Otherprofessionalandpublicactivities:1973-1977 MemberoftheBoardoftheInternationalInstituteforStateFinance1994-1996 ChairmanoftheHungarianSocietyofEconomics1994-1996 MemberoftheCounsellors’CommitteeoftheWorldEconomicForuminDavos1995-1996 MemberoftheBoardofDirectorsoftheHungarianBankingAssociation1998-2000 MemberoftheHungarianAtlanticCouncil1998-2000 VicePresidentoftheCommercial,IndustrialandCulturalChamberofCentralEuropeanandGulfCountries2006- MemberofComitéEuropéend’OrientationfoundedbyJacquesDelors2008- ChairmanofHungarian-HongKongPartnerAssociationFebruary2009- HonorarychairmanofHungarian-HongKongPartnerAssociation

8. JÓzSEF MOLNÁR (56)MemberoftheBoardfromApril20,2001toApril30,2011GroupChiefExecutiveOfficer,MOLGroup.QualifiedEconomistFrom1978to2001,Mr.MolnárheldvariousmanagementpositionsatBorsodChemPlc.,includingPricingDepartmentHeadfrom1982to1987,andEconomicsDepartmentHead from1987to1991.Between1991and2001,asChiefFinancialOfficerandfirstdeputytotheCEO,hecontributedtothecrisismanagementandreorganisationof thecompany,and later tothecreationof itsvision,andsubsequentprivatisation.HeplayedakeyroleinthestockexchangelistingofBorsodChemshares.HewasCEOofTVKPlc.between2001and2003,andMOLGroupPlanning&ControllingDirectoruntilhisappointmentasGroupCFOinSeptember2004.BetweenApril2001andApril2011hehasbeenaBoardmemberofTVKPlc.,between2004and2008,aBoardmemberofSlovnafta.s.andsinceApril2010heisalsoamemberofINASupervisoryCommittee.HeistheGroup-CEOofMOLPlc.sinceMay1,2011.

9. zOLTÁN NAGY DR. (54)MemberoftheBoardsinceMay1,2011EconomistbydegreeHegraduatedfromBudapestUniversityofEconomicSciencesandPublicAdministration,DepartmentofFinancesin1983.AtthesameuniversityhetookhisPh.D.in1988andthenhecompletedacourseofpostgraduatestudiesatUniversityofAmsterdam.Between1983and1985heworkedasresearcheroftheIndustrialEconomyInstituteoftheMinistryofIndustryandthenhewassenior researcherat theEconomic Instituteof theNationalPlanningOfficeuntil1991.Between January1991and January1994hewasfirstlyChiefofCabinetthenPermanentSecretaryofStateoftheMinistryofFinances.ThenbetweenFebruary1994andOctober1996hewasPresidentandCEOofOTPGaranciaBiztosítóRt.FromMarch1997toSeptember1998hewastheDirectoroftheStateAuditOfficeofHungary.BetweenSeptember1998andNovember2010hewasthePresidentoftheHungarianCompetitionAuthority.CurrentlyheistheheadoftheComplianceandEthicsDepartmentoftheHungarianStateRailwaysCompany.

10. MIKLÓS KAMARÁS (67)MemberoftheBoardsinceMay1,2011QualifiedEconomistBetween1972-1990,heheldvariousseniorpositionsatÉPGÉPCo.,finishingasCEO.Between1995-1998hewasDeputyGe-neralManagerofÁPVPlc.(theHungarianPrivatisation&StateHoldingCo.).From1998,Mr.KamaráswasapartneratDeloitte&ToucheHungaryandheadofseveralauditorfirms.Between2002–2004,hewasCEOofÁPVPlc.,aBoardmemberofÁPVPlc.HewasChairmanoftheBoardofDirectorsofBudapestAirportPlc.until30thMay,2005,andChairmanoftheMÁVPlc.until18thOctober,2008.Between2002–2010,hewasthememberoftheBoardofDirectorsofMOLPlc.Between2009-2010hewastheCEOoftheHungarianStateHoldingCompany(MNVZrt.).

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1. zSOLT PETHŐ (42)ChiefExecutiveOfficerofTVKPlc.since1stJune2011SeniorVicePresidentofPetrolchemicalsDivisionsince1stJune,2011Mr.Pethőgraduatedintheyear1991atBánkiDonátTechnicalCollegeandthen,atthesameschool,heearnedaseconddegreeasengineerspecializinginmanagementin1996.HegraduatedfromtheMarketingAcademyinBudapestin1997.HestartedworkingatMOLPlc.invariousexecutivepositionsin1998.AfterhispositionasLPG(propane-butane)CommodityDirectorhealsoworkedasFuelProductsDirectorandasSalesDirectoroftheSouthregion,beforeJuly2006hewasassignedastheSalesDirectorofRefiningandMarketing.AfterwardshewasappointedasSeniorVicePresidentofMOLGroupPetrochemicalDivisionaswellasCEOofTVKPlc.asofJune1,2011.

2. ÁRPÁD OLVASÓ (53)DeputyChairmanoftheBoardsinceApril26,2002;MemberoftheBoardsinceAugust29,2000ChiefExecutiveOfficeruntilMay31.2011QualifiedChemicalEngineer,MBASeeCVinthesectionontheBoardofDirectors

3. KRISzTINA PETRéNYINé SzABÓ (35)PolymerMarketingandSalesManager,VicePresidentasfromOctober1,2009QualifiedEconomistMrs.Petrényigraduated fromtheUniversityofEconomicsMiskolcasaqualifiedeconomist in2000andobtainedaprofessionaleconomistdiplomainForeignTradeManagementatBudapestBusinessSchoolin2003.Shehasstartedhercarrierin2000atSalesDepartmentofTVK.From2002shehasactedasaseniorsalesexecutiveofpolyethyleneexportsales.ShewasappointedasanintegratedSeniorSalesExecutiveofpolymerexportsalesstarting2003.InFebruary2006shetookoverthepositionofHeadofPolymerSales.Mrs.PetrényiwasappointedDeputyCEOresponsible forPolymerMarketingandSalesatTVKPlc.onOctober1,2009.

4. GYULA HODOSSY (41)DeputyCEO,ManagementandFinancesinceJuly1,2007QualifiedEconomistMr.Hodossystartedhiscareerin1989atTVK’sCustomsandMaterialAcceptance.GraduatedfromtheBudapestCollegeofFinanceandAccountingin1995andobtainedaDiplomainManagementstudiesatEuroContactBusinessSchoolin2002.From1995continuedhisworkasananalysingeconomistattheControllingOffice.HewasappointedthegroupleaderofInventoryManagementin1997.FromJanuary2001,heactedastheeconomicmanagerattheOlefinBusinessUnit.InJuly2002hetookoverthepositionoftheheadoftheInternalAudit,andthenfromJanuary2004hewasappointedtheheadofEnergySupplyandMaintenanceManagement.SinceJuly1,2007hehasbeenactingasDeputyCEO,ChiefFinancialOfficerofTVKPlc.

5. JÁNOS BÓTA (51)DirectorofPetrochemicalTechnologyandProductDevelopmentsinceAugust1,2007ChemicalEngineerMr.BótagraduatedaschemicalengineerfromtheProcessControlFacultyoftheUniversityofVeszprémin1985.In1994hehasreceivedengineer-managerdegreeattheUniversityofMiskolc.HehasbeenworkingatTVKsince1985.FortenyearsheworkedinvariouspositionsattheProductionUnit(HDPE-1andPP-3Plants),between1989and1995hewasplantmanager.From1995hewasthesalesmanageroftheHDPEBusinessUnit,from1998workedasPPbusinessunitdirector.From2000hewasinthepositionofmarketingandsalesmanager,from2002heheldthepostoftechnologydevelopmentmanager.FromAugust1,2006foroneyearheworkedattheNetherlandsofficeofFluorCompany,asprocessengineeringmanager.SinceAugust1,2007heistheDirectorofPetrochemicalTechnologyandProjectDevelopment.

6. TAMÁS PéNzES (41)HumanResourcesManager(untilDecember31,2011)PsychologistMr. Pénzes graduated from the faculty of psychologyof theUniversity ofDebrecen as a psychologist specializing in labour andorganization psychology andmathematicalmodelling. During his academic years, he researched corporate cultures, performedstatisticalanalysesandworkedforanHRconsultingcompanyasaspecialistofrecruitmentandselection.HehasbeenmemberoftheTVKHRteamsince2002andwasappointedHRmanagerinJuly,2004.Mr.PénzesteachesatthepsychologydepartmentoftheUniversityofDebrecen.HereceivedMBAdegreeatDurhamUniversityin2008.

7. TIVADAR VÁLYI NAGY (56)Director,ProductionsinceJuly1,2007QualifiedChemicalEngineerMr. Vályi Nagy graduated as a chemical engineer at theMineral Oil and Coal Technology faculty of theUniversity of ChemicalEngineeringinVeszprémin1982.HejoinedTVKin1978andworkedasplantengineerinvariouspolymerisationplantsoftheCompanybefore1994.HeactedasprojectmanagerintheimplementationjobsoftheERPapplicationtomoveontomanagingtheeconomicsofabusinessunitstarting1995.LateronwasinchargeofplanningananalysisinthePetrochemicalDivision.MrVályiNagyhasbeenchiefcontrolleroftheCompanysince2000.HeworkedasDeputyCEO,ChiefFinancialOfficerbetweenJanuary1,2005andJune30,2007.HewasappointedTVK’sProductionDirectoronJuly1,2007.

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TopManagement


theCorvinusUniversityofBudapest,FacultyofOrganisationalTheory,andDeputyDirectoroftheManagementSciencesInstitution.From2003,heistheChairmanoftheEconomicsSciencesProfessionalCommitteeoftheNationalScientificStudentAssociation.HewasacorporatememberoftheLocalGovernmentofMartonvásárbetween2004and2006.From2005,heistheChairmanoftheSupervisoryBoardofthePEMÜPrivateLimitedCompany,ChairmanoftheSupervisoryBoardofMÁVKFVLtd.andmemberoftheSupervisoryBoardofE-StarAlternatívPlc.

GYöRGY BÍRÓ DR. (57)MemberoftheSupervisoryBoardsinceApril19,2007DirectorandHeadofDepartment,professorofCivilSciencesInstitutionoftheFacultyofLaw,attheUniversityofMiskolcLawyerHegraduatedaslawyerattheFacultyofLawattheJózsefAttilaUniversityofSciencesin1978.From1978heworkedattheDiósgyőriGépgyáraslegaladvisor.HeworksattheUniversityofMiskolc,between1982and1984hewasassistant,anduntil1993adjunct.From1999heisaprofessor,heistheheadofdepartmentoftheCivilLaw,attheUniversityofMiskolc.Since1989heworksasalawyer,since1997heisthedeputychairmanoftheBarofBorsod-Abaúj-ZemplénCounty.

LÁSzLÓ RéTI (45)DeputyChairmanoftheSupervisoryBoardsinceMay13,2011MemberoftheSupervisoryBoardsinceApril29,2010MaintenanceengineerMr.RétigraduatedattheMiskolcUniversityin2001majoringmechanicalengineer.Hestartedtoworkin1986atTVKPlc.atthechemicalfertilizerplant,andcontinuedtoworkatthemaintenanceunitoftheOlefinPlantin1995.HeparticipatedinthereconstructionworkoftheOlefinUnit,whiletookpartintheconstructionoftheOlefin-2plantbetween2002and2004,astechnologicalcontroller.HeworksattheAssetmanagementmaintenance,asmaintenanceengineer.HeisalsomemberoftheWorksCouncil,wherehehasbeenmakingdifferenttasksintheHuman,SportandMealCommitteeinthelast10years.

JUDIT TURÓCzY (43)MemberoftheSupervisoryBoardsinceApril21,2011Mrs.Turóczyisachemist;shehasbeenworkingatTVKPlc.since1987.AtpresentsheisemployedasapplicationtechnologistinthecustomerserviceofPMÉI.Since2000shehasbeentheshop-stewardoftheTradeUnionofPetrochemicalWorkers.Since2010,shehasbeenthememberoftheWorkersCouncilofTVKPlc.,sheisvice-presidentoftheMassSportCommittee.

LÁSzLÓ GYUROVSzKY (53)ChairpersonoftheSupervisoryBoardsinceJune22,2007MemberoftheSupervisoryBoardsinceApril19,2007FinancialConsultant,Crisis-ManagerEngineerHeisgraduatedasanengineerfromtheSlovakianTechnicalUniversityofBratislavain1983.Between1983and1990heworkedaselectricalengineeratDusloSala–Slovakianchemicalcompany.Between1990and1992,asa journalisthepublishedpoliticalandeconomicalarticles.Between1992and1998,asabusinessman,hedealtwith thesaleof sportandmobilecommunicationarticles.Between1998and2002asaMemberoftheParliamentoftheSlovakRepublic,tookpartinimplementingthereformsoftheSlovakianEconomyandintheworkoftheBudgetandFinanceCommitteeoftheParliament.From2002until2006hewasaministeroftheRegionalDevelopmentandConstructionoftheSlovakGovernment.HeisamemberofTVKPlc’sSupervisoryBoardsinceApril19,2007andChairmanofitsinceJune22,2007.HeistheChairmanoftheAuditCommitteesinceJune22,2007.

TAMÁS MAGYAR (43)DeputyChairoftheSupervisoryBoardfromJune22,2007toApril20,2011MemberoftheSupervisoryBoardfromMarch13,1998toApril20,2011ManagerTVKPlc.EnergySupply,ContractManagementElectricProductEngineerMr.MagyargraduatedaselectricproductengineerfromKandóKálmánTechnicalCollegefortheElectricIndustryin1989.HeworkedforTVKat theElectricityDivisionandat theElectricNetworkPlantbetween1989and1993 tomoveon to thepostofproductengineerattheTechnicalDepartmentwhereheworkedbetween1993and1994andtoservicemanagerattheHighVoltageUnitbetween1994andMay1997.HeactedasheadoftheElectricMaintenanceUnitoftheEnergySupplyDivisionbetween1997and2000.Mr.MagyarwasservicemanagerandservicetechnologistattheElectriciansServiceUnitbetween2000and2008.HewastheexpertofEnergySupplybetween2008and2009,andfromJanuary1,2010hebecametheManagerofEnergySupplyContractManagement.Mr.MagyaristhememberofTVKPlc’sSupervisoryBoardsinceMarch13,1998.HewastheDeputyChairmanofTVKPlc’sSupervisoryBoardbetweenAugust29,2000andNovember18,2003.HeistheDeputyChairmanofTVKPlc’sSupervisoryBoardsinceJune22,2007

GYULA BAKACSI DR. (53)MemberoftheSupervisoryBoardsinceApril19,2007HeadofDepartment,professor,attheCorvinusUniversityofBudapestHeadofDepartment,professoroftheSapientiaHungarianUniversityofTransylvaniaEconomist,doctoratedegree,candidateforEconomicsDr.GyulaBakacsi is theHeadofDepartment,Professor,at theCorvinusUniversityofBudapest,FacultyofEconomics,FacultyofOrganisationalTheory.HeistheHeadofDepartment,ProfessoroftheSapientiaHungarianUniversityofTransylvania,theFacultyofEconomicsandHumanSciences,BusinessSciences.Heisgraduatedin1983attheFacultyofIndustryoftheMarxKárolyUniversityofEconomicsinBudapest.Hegothisdoctoratedegreein1988,candidateforEconomicsdegreein1994.Between1983and1985heworkedattheMTA-MKKE(MarxKárolyUniversityofEconomics)asscienceassociateattheCoordinationSecretaryofFaculty„SocialistCompany”NationalPerspectiveScientificResearch.Between1985and1990,hewasassistantlecturerattheFacultyofIndustrialBusinessOrganisationatMKKE.Between1990and2004hewasadjunct, from1994docentat theFacultyofOrganisationandManagementTheoryat theUniversityofEconomics,Budapest.Between2000and2002hewasDeputyRectoroftheFacultyofUniversityPoliticsandDevelopmentattheUniversityofEconomicsandStateAdministration,Budapest.From2003heisaHeadofDepartmentoftheBusinessSciencesattheCsíkszeredaUnitoftheSapientiaHungarianUniversityofTransylvania.In2004,hewastheDeputyRectoroftheUniversity,between2004and2008,hewastheRectoroftheFacultyofEconomicsandHumanSciences.From2005,heistheHeadofDepartment,Professor,at

SupervisoryBoardMembers

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REPORTBYTHESUPERVISORYBOARD

to the Annual General Meeting of TVK Plc. dated 17th April 2012

Throughoutthebusinessyearof2011,TVKPlc’sSupervisoryBoardperformeditsactivitiesintheformofregularboardmeetings.TheSupervisoryBoardpresentstheGeneralAssemblywithitspresentbusinessreport,pertainingtothebusinessyearof2011,basedonthereportoftheBoardofDirectors(BOD),theindependentauditor’sreportanditscontinuousreviewoftheoperationofthecooperation.

AccordingtotheopinionoftheSupervisoryBoard,theBOD’s2011operationandactionsareinlinewiththelaws,withTVKPlc’sstatutesandbylaws.TheCorporateinformationsystemsandbylawsensurethetransparencyandcontinuouscontrolofCorporateoperations.DuringtheoperationoftheCorporationeachshareholderreceivedequaltreatmentasrequiredbylaw.

TheSupervisoryBoardwaskeptinformedbytheBODoftheCorporationthroughtheChiefExecutiveOfficerandaboutthestepstakentoimplementitsstrategy.

In2011externalenvironmentbroughtextremechallengesfortheCompany.BesidesthestrengtheningrecessionaryexpectationsoftheeurozoneTVK,asamemberoftheMOLGroup,thankstoitsverticalintegration,wasabletomaintainitscustomers,couldperformitscontractualobligationsasareliablepartner.IntheopinionoftheSupervisoryBoardTVKisreadytoobtainthedeterminantplayerroleintheregionalmarketbykeepingitscompetitiveness,whenrecessionisover.

IntheopinionoftheSupervisoryBoard,the2011workoftheBODwassuccessful.

The Supervisory Board recommends the General Assembly to accept TVK Plc’s 2011 annual report prepared according to theHungarianActonBookkeepingwithabalancesheettotalof196.747millionHUFandafter-taxlossof9.319millionHUF,aswellastheTVKGroup’s2011consolidatedannualreportwithabalancesheettotalof209.030millionHUFandanaftertaxlossof11.226millionHUF.TheSupervisoryBoardapprovestherecommendationoftheBODregardingtheutilisationofthe2011resultaftertax.

TheSupervisoryBoardsupportstheelectionofErnst&YoungKönyvvizsgálóKft.asauditorfor2012andtheestablishmentofitsremuneration.

TheSupervisoryBoardsupportstheapprovalofdischargefortheseniormanagement.

TheSupervisoryBoardapprovestheelectionofmemberstotheBoardofDirectors.

TheSupervisoryBoardapprovestheelectionofmemberstotheSupervisoryBoardandtheAuditCommittee.

LászlóGyurovszky ChairmanoftheSupervisoryBoard

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Monomer and Chemicals Sales

Business Analysis and Operational Support

ScM co-ordination

legal

Security and Protection

Internal Audit

SD & HSE

CEO

Polimer Marketing and Sales Management

Strategic Marketing

Sales

logistics

Project Management and Process

Development

ProductionManagement

Quality Control

Production Accounting

Production

Asset management and energy Supply

Finance

Treasury

Planning and controlling

Accounting and tax

Information Services

Corporate Services

HR

Business HR Partner

Functional HR Partner

Competence Development

HR Administration

Communication

PET Process and Project development

Product and Applications

Development

technology Development

Projekt development

olefin reconstruction and Development

Project

STRUCTUREOFORGANIZATIONOFTVKPLC.


DateofincorporationofTVKPlc.:December31,1991.RegisteredbytheBorsod-Abaúj-ZemplénCountyCourtofJusticeactingasCourtofRegistrationon23March1992,witheffectasof31December1991.(Dateofcharter:December31,1991.,initialdateofoperation:January1,1992)Legalpredecessor:TiszaiVegyiKombinátRegistrationnumber:Cg.05-10-000065

TheAnnualOrdinaryGeneralMeetingmodifiedtheeffectiveArticlesofAssociationonApril14,2011.TheArticlesareavailableforinspectionandmaybeorderedattheheadofficeoftheCompanyandisavailablefordownloadingattheCompanywebsite(www.tvk.hu).

Capitalissued:AsofDecember31,2011thecapitaloftheCompanyincluded24,290,843ordinaryshareswithafacevalueofHUF1,010,each.ThecapitaloftheCompanyuponfoundationamountedtoHUF24,533,751,430.

The Registrar of the CompanyTheBoardofDirectorsoftheCompanykeepstheShareRegisterofregisteredsharesandtheirholders.IssuesrelatedtoTVKsharesarehandledbytheTreasuryOfficeofTVK,locatedatTVK’sregisteredofficeinTiszaújváros:TVKPlc.MailingAddress:H-3581Tiszaújváros,P.O.Box20.,HungaryPhone:+36(49)522-377Fax:+36(49)521-903E-mail:[email protected]

Thesecuritiesofthecompanyaretradedinthefollowingforeignmarkets

Market type City Date of listing Category

OTCorganised London August,1996 InternationalOrderBook

OTCnotorganised NewYork August,1996 PORTAL

OTCnotorganised Frankfurt August,1996 Freiverkehr

ownership structure as per the Share register

Description of owner December 31, 2011Interest(%)

VotingRatio(%)

Quantity(ofshares)

Domesticinstitution/company 88.10 88.10 21,401,032

Foreigninstitution/company 9.20 9.20 2,231,796

Domesticindividual 1.29 1.29 314,443

Foreignindividual 0.03 0.03 7,227

Seniormanagement,employees - - -

Treasuryshares - - -

Sharesheldbyunidentifiedparties 1.38 1.38 336,345

totAl 100 100 24,290,843

TVKPlc.hasnotreasuryshares.

Shareholders with more than 5% according to the Share Register December 31, 2011

Shareholder Quantity (of shares) Interest (%) Voting ratio (%)

MOLHungarianOilandGasPublicLimitedCompany(MOLPlc.) 21,083,142 86.79 86.79

Slovnaft,a.s. 1,959,243 8.07 8.07

AccordingtotheShareRegister,MOLPlc.shareholdinginTVKPlc.is86.79%.ThestakeofSlovnaft,a.s.(subsidiaryofMOLPlc)is8.07%.ThedirectandindirectinfluenceofMOLPlc.inTVKPlc.is94.86%.

Notes:Inaccordancewiththeresolutionof2007AnnualGeneralMeeting,everyordinarysharewithaparvalueofHUF1,010(i.e.onethousandtenforint)entitlestheholderthereoftohaveoneandonehundredthvote.PleasenotethatinHungary,theShareRegisterdoesnotfullyreflecttheownershipstructure,asregistrationisnotmandatory.

Most Important Data of the tVK Share

2007 2008 2009 2010 2011

Numberofshares(onDecember31) 24,290,843 24,290,843 24,290,843 24,290,843 24,290,843

Closing Price of the TVK Share on the Budapest Stock Exchange:

Highest(HUF) 8,490 7,060 3,495 3,780 3,540

Lowest(HUF) 5,250 2,405 1,760 2,760 2,150

OnDecember31(HUF) 7,010 2,405 3,400 3,300 2,240

Other Information

Capitalisation(HUFmillion)(onDecember31) 179,752 58,420 82,589 80,160 54,412

Annualturnover(HUFmillion) 21,424 5,637 6,031 2,594 1,422

Averagedailyturnoverduringtheyear(HUFmillion) 85 23 24 10 6

Dividendpershare(HUF) 369 82 0 82 n.a.

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CorporateInformation


Elected officers and top management and treasury shares held on December 31, 2011

Name Position beginning of assignment

End /termination/ term of assignment

Shares held (qty)

boArD of DIreCtorS

GyörgyMosonyi ChairmanoftheBoard 26.04.2002 19.04.2012 0

GyulaGansperger Boardmember 20.04.2006 20.04.2016 0

Dr.PéterMedgyessy Boardmember 20.04.2006 20.04.2016 0

Dr.ZoltánNagy Boardmember 01.05.2011 30.04.2016 0

MiklósKamarás Boardmember 01.05.2011 30.04.2016 0

FerencHorváth Boardmember 01.05.2011 30.04.2016 0

ÁrpádOlvasó DeputyChairmanoftheBoard 29.08.2000 31.05.2011 0

Michel-MarcDelcommune Boardmember 03.11.2000 30.04.2011 0

JózsefMolnár Boardmember 20.04.2001 30.04.2011 0

VratkoKassovic Boardmember 28.04.2005 30.04.2011 0

SUPERVISORYBOARD

LászlóGyurovszky SBchairperson 22.06.200719.04.2007

19.04.201219.04.2012 0

TuróczyJudit SBchairperson,SBmember 21.04.2011 20.04.2016 0

JuditTuróczy SBmember 19.04.2007 19.04.2012 0

dr.GyulaBakacsi SBmember 19.04.2007 19.04.2012 0

dr.GyörgyBíró SBmember 29.04.2010 29.04.2015 0

LászlóRéti SBmember,employeerepresentative 22.06.200720.04.2001

20.04.201120.04.2011 0

SeNIOR MANAGeMeNT

ZsoltPethőSeniorVicePresidentPetrochemicals,ChiefExecutiveOfficer

01.06.2011 Indefiniteterm 0

GyulaHodossy ChiefFinancialOfficer 01.07.2007 Indefiniteterm 0

KrisztinaPetrényinéSzabó PolymerMarketingandSalesManager 01.10.2009 Indefiniteterm 0

TivadarVályiNagy PetrochemicalProductionManager 01.07.2007 Indefiniteterm 0

JánosBótaHeadofPetrochemicalTechnologyandProjectDevelopment

01.08.2007 Indefiniteterm 0

TamásPénzes HeadofHumanResources 01.07.2004 31.12.2011 0

ÁrpádOlvasó ChiefExecutiveOfficer 01.07.2003 31.05.2011 0

Glossary of terms

CHEMICALANDENVIRONMENTALEXPRESSIONS

BAT (Best Available Technique)Applicationofthebestpracticeinacertainarea.

COD (chemical oxygen demand)Ameasureofthelevelofpollutioninwastewater,orthequantityofoxygenrequiredforthechemicaloxidationofthecomponentsoforganicsubstancesinaunitofwastewater.

CopolymerPolymerconstructedoftwoormoredifferentmonomers.

EC number (European Chemical number: EINECS, ELINCS or NLP)AnEUregistrationnumberassignedtochemicalsubstancesclassifiedinthe“EuropeanInventoryofExistingCommercialChemicalSubstancesInformationSystem”(EINECS)before1981orinthe“EuropeanListofNotifiedChemicalSubstances”after1981oras“NoLongerPolymers”(NLP,aspecialregulatorycategoryoftheEU.

EMAS (Eco-Management and Audit Scheme)AsasystemofenvironmentalmanagementandcertificationintheEuropeanUnion,EMASoffersvoluntaryparticipation.

éKöVÍzIGNorthernHungarianEnvironmentalandWaterManagementAuthority.

ÉKtVfNorthernHungarianDirectorateofEnvironmentalProtection,NatureConservationandWaterManagement.

EthyleneThefirstmemberofthealkenehomologousseries,empiricalformula:C2H4.Thereisdoublebondbetweenthetwocarbonatoms.

ETS (Emission Trading Scheme)TheGreenhouseGasEmissionTradingschemeoftheEuropeanUnionisamarketbasedinstrumentforcosteffectivereductionofGreenhouseGasEmissions.

Frequency of Intense ExposuresNumberofreportedintenseexposuresper1millionhoursworked.

FTE (Full-time equivalent)Numberofemployedfull-timeequivalentemployees.

GRIG (Global Reporting Initiative Guideline)A process that affects several stakeholders and an independent institutionwith themission to develop and disseminategloballyacceptableguidelinesforsustainabilityreports.

hDpeHighDensityPolyethylene

HomopolymerPolymerconstructedofidenticalmonomers

hSeTheHealth,SafetyandEnvironmentalProtectionorganizationofTVK

IppCIntegratedPollutionPreventionandControl

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ISO 9001:2000Astandardapplicabletoqualitymanagementsystems.Thepartafterthecolonshowsthedateofpublishing.

ISO 14001:2004Thestandardapplicabletoenvironmentallyorientedmanagementsystems.

lDpeLowDensityPolyethylene

Liquified Propane Gas (LPG)Hydrocarbongascompoundmainlyconsistingofpropaneandbuthane,liquefiedunderhighpressure,whichissoldincylindersforhouseholdpurposes.ThesedaysthemotoricusageofLPGspreads.Thisfuelisthe„autogas”.

LTI (Lost Time Injury)Injuriesleadingtolostworkinghours

LTIF (Lost Time Injury Frequency)Thenumberofincidentsoflosttimeinjury(LTI)peronemillionhoursworked.

MDPE (Medium Density Polyethylene)MediumDensityPolyethylene

MonomerThebasicmaterialoftheprocessofpolymerisation

tIpTechnicalInterventionPlan

TROIF (Total Reportable Occupational Illnesses Frequency)ThenumberofReportableOccupationalIllnessesperonemillionhoursworked.

OlefinA member of the alkene homologous series with dual bond. Empirical formula CnH2n. The simplest representatives of thesecompounds, ethylene and propylene are basic petrochemicals. The most important asset in olefin production is the so-calledsteamcracker(olefinplant),whichconvertsnaphtha,chemicalgasoilandotherlighthydrocarbonstokeyproductsasethyleneandpropylenebycrackinganddehydrogenation.

pe 100BimodalHDPEpipegraderawmaterial.GasanddrinkingwaterpipesmadeofbimodalHDPEhaveausefullifeofminimum50yearswithcircumferentialstressat10MPa.

PM (Particulate Matter)Particulatematterisfinelydispersedsolidmatterproducedbyburningandothertechnologicalprocesses;themostdangerousarefractionsfinerthan10μm(PM10).

PolyethyleneApolymermadeupofethylenemonomer,whichmaycontainmonomersotherthanethyleneknownascomonomers.

PolymerAcomplexityofrepeatingunitsoforganicorinorganicmacromolecules

PolypropyleneApolymermadeupofpropylenemonomer,whichmaycontainmonomersotherthanpropyleneknownascomonomers.

ppMPPMisameasureoftheconcentrationofasubstanceinaliquid,usedwherelowlevelsofconcentrationaresignificant.Theppm(partspermillion)valueisequivalenttotheabsolutefractionalamountmultipliedbyonemillion.Forexample,10ppmequals10kilogramofasubstanceforamillionkilogram(onekiloton)ofaliquid.

PropyleneThesecondmemberofthealkenehomologousseries,empiricalformula:C3H6.Thereisasingledoublebondbetweentwocarbonatoms.

pSMProcessSafetyManagement

PyrolisisThermalcrackingofhydrocarbonsathigh(usuallyabove650°C)temperatureandlow(fewbars)pressure,whichisthebasicprocessinoperationofolefinplants.Processisconductedinthepresenceofsteaminordertominimizecoke-formation.

RAR (Road accident rate)Thenumberofroadaccidentsper1millionkmdriven.

REACH (Registration, Evaluation and Authorization of Chemicals))AnewEUdirectiveconcerningtheregistration,evaluationandauthorizationofchemicals

SCMSupplychainmanagement

Steam Cracker (Olefin Plant)Technology for production of key basic petrochemical products (olefins: ethylene, propylene, and aromatics: benzene, toluene,xylenes),onthebasisofthermaldecomposition(cracking)anddehydrogenationofpetrochemicalfeedstock(naphthaandchemicalgasoil) produced by the refineries or lighter saturated hydrocarbons (ethane, propane, butane) in the presence of steam.Mainproducts of the process (ethylene, propylene) are raw-materials of polyethylene and polypropylene production, while the by-productscanwidelybeusedinorganicchemicalindustry,plasticsandrubberproductionorasgasolineblendingcomponents.

TQM (Total Quality Management)TotalQualityManagementisamanagementmethod,philosophyandcorporatepractice,whichusesavailablehumanandmaterialresourcesatthehighestlevelofefficiencytoachievecorporategoals.

trIpoDAsoftwarebasedmethodofinvestigatingthecauseofaccidents.

TROIF (Total Reportable Occupational Illness Frequency)Totalreportableoccupationalillnessfrequencyperonemillionhoursworked.

hazardous wastesWastesshowingoneormoreofthefeatureslistedinAnnex2ofActXLIIIof2000,orcontainingsuchsubstancesorcomponentsandrepresentingahealthorenvironmentalhazardbecauseoforigin,compositionorconcentration.

VoC Organiccompoundsvolatileatroomtemperature,hydrocarbons. Co

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FINANCIALEXPRESSIONSANDABBREVIATIONS

CApeXCapitalExpenditures.

ebItOperatingprofit.

ebItDAEarningsbeforeinterest,taxes,depreciationandamortisation(thesumofoperatingprofitsanddepreciation).

ebItDA marginRatioofEBITDAdividedbynetsalesrevenues.

epSEarnings Per Share is based on the profit attributable to ordinary shareholders using the weighted average number of sharesoutstandingduringtheyearafterdeductionoftheaveragenumberoftreasurysharesheldovertheperiod.

gearingRatioofnetdebttonetdebtplusequity.

IfrSInternationalFinancialReportingStandards,formerlyInternationalAccountingStandards(IAS).

Market capitalisationNumberofshares(issuedsharecapitalexcludingTreasurystock)multipliedbytheactualstockmarketprice.

ROACE (Return on average capital employed)Operatingprofitaftertaxation/averagecapitalemployedOperatingprofitaftertaxation=operatingprofitx(100%-calculatedcorporatetaxratio).

ROE (Return on Equity)Netincomedividedbyshareholdersequity.

Shareholder’s returnReturnresultingfromthemovementsofthesharepriceandtheamountofdividendpaid.

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Contact information

Corporate AddressTiszaChemicalGroupPublicLimitedCompany(TVKPlc.)Registeredoffice:3581Tiszaújváros,TVKIndustrialSite,TVKHeadOffice,Lotnumber2119/3Building136,HungaryMailingaddress:H-3581Tiszaújváros,P.O.Box20,HungaryCentralphone:+3649/522-222Centralfax:+3649/521-322E-mail:[email protected]:www.tvk.hu

Investor RelationsTVKPlc.,Treasury,H-3581Tiszaújváros,P.O.Box20,HungaryPhone:+3649/522-377Fax:+3649/521-903E-mail:[email protected]

Share registrarTVKPlc.,Treasury,H-3581Tiszaújváros,P.O.Box20,HungaryPhone:+3649/522-377Fax:+3649/521-903E-mail:[email protected]

Stock Exchange Trading InformationBudapestStockExchangeH-1062Budapest,Andrássyút93.Phone:+361/429-6636Fax:+361/429-6654E-mail:[email protected]

GDR Information TheBankofNewYorkMellonDepositaryReceiptsDivision101BarclayStreet,22ndfloor,NewYork,NY10286,USATel:+1212-815-3503Fax:+1212-571-3050

Sustainable developmentTVKPlc,SD&EBK,H-3581Tiszaújváros,P.O.Box20,HungaryTel:49/522-317Fax:49/522-354E-mail:[email protected]

AnnouncementsThecompanypublishesitsannouncementsonthefollowingwebsites:-thewebsiteofTVKat/www.tvk.hu/,-thewebsiteoftheBudapestStockExchangeat/www.bet.hu/and-thewebsiteoftheLondonStockExchangeat/www.londonstockexchange.com/-thewebsiteofCapitalMarketDisclosures,operatedbyPSZÁFat/www.kozzetetelek.hu/.


Statement of responsibility

to be attached to the 2011 Annual Report of Tisza Chemical Group Public Limited Company

WetheundersignedrepresentativesofTiszaChemicalGroupPublicLimitedCompany(TVKPlc.,Company),theissuerofTVKordinarysharesherebydeclarethatTVKPlc.takesfullresponsibilityfortheannouncedAnnualReportoftheCompanyfortheyearendedon31December2011,whichhasbeenpreparedtothebestofourknowledgeinaccordancewithInternationalFinancialReportingStandardsasendorsedbytheEuropeanUnion,andgiveatrueandfairviewoftheassets,liabilities,financialposition,andprofitofTVKPlc.anditssubsidiariesandpresentsafairreviewoftheposition,developmentandperformanceofTVKPlc.anditssubsidiariestogetherwithadescriptionofprincipalrisksanduncertainties.

Tiszaújváros,April17,2012

ZsoltPethő GyulaHodossy ChiefExecutiveOfficer ChiefFinancialOfficer

TiszaChemicalGroupPublicLimitedCompany

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 andrecommendations.

Attention: GáborPálffyAddress: TVKNyrt.3581Tiszaújváros,Pf.20Telephone: +3649522-917•Fax:+3649521-018

From: Company:Telephone: Fax:Date: Email:

1.Myideasandrecommendationsconcerningthereport:

2..Ithinkthereportandtheinformationitcontainscovertheissuesrelatedtosustainabledevelopment:

yes,completely yes,mostly yes,ingeneralno,hardly no,nocoverageatall

3.Ithinkthecontentofthereportis:excellent acceptable average poorer than average unacceptable

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6.Ithinkthisreportwouldbemorevaluableifitincludedthefollowingtopics:

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