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Kazakhstan Kagazy (KAG)

  Print      Mail a friend       Annual reports

Friday 22 August, 2008

Kazakhstan Kagazy

1st Quarter Results

Kazakhstan Kagazy
                  

                              KAZAKHSTAN KAGAZY PLC

                     FINANCIAL RESULTS FOR THE THREE MONTHS

                              ENDED MARCH 31, 2008

Kazakhstan Kagazy Plc (the 'Group' or 'Kagazy'), Central Asia's largest producer
of paper, corrugated board and packaging, and a leading developer of commercial
warehousing and industrial infrastructure facilities in Kazakhstan, today
announced its unaudited consolidated financial results for the three months
ended March 31, 2008. These results have been extracted from interim condensed
consolidated financial statements, which have been prepared according to IAS 34
('Interim financial reporting').

HIGHLIGHTS FOR THE FIRST QUARTER 2008

    --  Consolidated revenues up 21.5% year on year to US$ 16.4 million

    --  Gross profit up by 27.2% year on year to US$ 5.8 million with gross
        profit margin of 35.5%

    --  EBITDA declined 14.0% year on year to US$ 3.1 million with EBITDA margin
        of 18.9%

    --  Profit from operations decreased 48.7% year on year to US$ 1.5 million
        with operating margin of 9.1%

    --  Net profit up more than 58 times year on year to US$ 4.3 million with
        net profit margin of 26.1%

Yuriy Bogday, Chief Executive Officer of Kazakhstan Kagazy PLC, commented:
'Kagazy delivered revenue growth in line with our expectations in the first
quarter of 2008. The Group's profitability level was, however, impacted by
higher energy costs as a result of extremely cold winter in Central Asia, which
led to our gas supply being cut for two months and substituted by more expensive
fuel sources. This impact was partially compensated by price increases which
Kagazy implemented last year. We continued to gain market share in our key paper
markets whilst facing a challenging operating environment in the country.

The domestic and international credit crisis has had a dampening effect on the
real economy and has weakened the demand for paper products in the near term.
Looking forward, we expect our revenues to grow at a lower rate for the rest of
the year than in the first quarter.

The Group has undertaken a number of cost cutting measures, including staff
reductions, during the quarter and we expect to see the full benefit of these
actions in the third quarter of 2008.

Following the end of the reporting period, we have completed the acquisition of
Astana Contract, the largest warehousing operator in Central Asia. This is an
important acquisition which has positioned us as the leader in the industrial
real estate market in Kazakhstan. We anticipate continued demand for high
quality warehouse space in the region. In line with our strategy we will
continue to look further for attractive acquisition opportunities.'

FINANCIAL SUMMARY

-0-
*T
(US$ millions)                                     Q1 2008           Q1 2007     Year on Year
                                                                                        Change
---------------------------------------- ----------------- ----------------- -----------------
Revenues                                              16.4              13.5             21.5%
Gross Profit                                           5.8               4.6             27.2%
EBITDA                                                 3.1               3.6             (14%)
EBIT/Profit from operations                            1.5               2.9           (48.7%)
Net Profit                                             4.3               0.1          5,847.5%
*T

OPERATING REVIEW

Group

Kazakhstan Kagazy's consolidated revenues increased by 21.5% year on year in the
first quarter of 2008 primarily as a result of the price increases in the paper
business implemented over the last year and the contribution from the commercial
warehousing and industrial infrastructure segment (PEAK). The logistics centre
became operational in December 2007 and was fully occupied as at the end of the
quarter.

Kagazy's gross profit increased by 27.2% year on year with gross profit margin
of 35.5% compared to 34% in the previous period, largely as a result of the
rental income received from PEAK.

The Group EBITDA declined 14% year on year with EBITDA margin of 18.9% compared
to 26.7% in the first quarter of 2007 following a 140% increase year on year in
administrative expenses to US$ 2.9 million. Additional overhead costs resulted
from the acquisition of Kazupack and the launch of operations at PEAK, as well
as increased expenses, such as insurance policies taken out to meet EBRD
requirements, and compliance costs. Selling expenses increased as a result of
additional costs related to PEAK and Kazupack, as well as the increase in
railway tariffs.

Consolidated depreciation and amortization expense increased 59% year on year
from US$ 0.9 million in the first quarter of 2007 to US$ 1.5 million in the
current period, following the 63.5% increase year on year of the Group's
depreciable asset base.

The Group operating profit declined 48.7% year on year compared to the first
quarter of 2007.

Net finance income, comprising interest income and foreign exchange gains after
the deduction of interest expense and foreign exchange losses, amounted to US$
2.9 million in the first quarter of 2008, compared to net finance costs of US$
2.8 million in the corresponding period of 2007.

The Group net profit increased by more than fifty eight times year on year in
the first quarter of 2008 and included foreign exchange gains of US$ 2.1
million, compared to US$ 0.7 million for the corresponding period of 2007.

Paper

Kazakhstan Kagazy is the largest producer of paper, corrugated board and
packaging products in Central Asia.

-0-
*T
Sales Volume                                         Q1 2008         Q1 2007   Year on Year
                                                                                      Change
-------------------------------------------- --------------- --------------- ---------------
Corrugated packaging (square meters)('000)          15,481.7        14,563.8            6.3%
Container board (ton)                                9,212.8        10,519.0         (12.4%)
Cut fine paper (ton)                                   457.2           279.2           63.7%
*T

The paper business accounted for the majority of Kazakhstan Kagazy's
consolidated revenues and performed in line with expectations in the first
quarter of 2008. The segment revenue increased 18% year on year to US$ 15.4
million in the first quarter of 2008 compared to US$ 13.1 million for the
corresponding period of 2007. Kazupack, which was acquired in August 2007 and
subsequently converted to produce corrugated packaging, contributed US$ 0.4
million of revenue in the quarter.

Kagazy increased the volume of sales of corrugated packaging by 6.3% year on
year. The Group's sales volume of container board decreased by 12.4% year on
year in the first quarter. The production of container board was impacted by the
cut in the supply of gas during a two months period in the quarter. The
management treated the gas supply situation as exceptional due to the extended
period of the cut during this winter. Kagazy increased the sales volume of cut
fine paper by 63.7% year on year compared to the first quarter of 2007.

Kagazy's paper mill and corrugating plant are currently operating at 82% and 63%
capacity, respectively.

Commercial Warehousing and Industrial Infrastructure

PEAK, one of the leading developers of commercial warehousing and industrial
infrastructure facilities in Kazakhstan, has contributed US$ 1.0 million of
revenue to Kagazy's results in the first quarter of 2008, compared to US$ 0.4
million in the first quarter of 2007.

During the quarter Kagazy acquired an additional 84 hectares of land, adjoining
its Northern plot. The purchased plot was landlocked prior to the acquisition.
As a result, the purchase price amounted to US$ 262,000 per hectare which
constituted a substantial discount to the land valuation achieved for the
Northern plot of US$ 528,000 per hectare. Following this acquisition, the total
size of Kagazy's industrial park project which is planned on its Northern plot
was increased to 568 hectares.

In April 2008, Kagazy obtained an independent valuation of its land and
warehousing facilities by CBRE Scot Holland, with total market value of US$ 361
million as at December 31, 2007. This valuation did not include the assets of
Astana Contract or Kagazy Recycling.

In April 2008, Kazakhstan Kagazy acquired a 90% stake in Astana Contract, the
largest logistics and warehousing operator in Central Asia, for a total
consideration of US$ 57.6 million. The remaining 10% stake will be bought by
Kagazy for US$ 6.4 million after two years. The acquired assets are cash
generating and are expected to make a positive contribution to Kagazy's
financial results in the second quarter of 2008. In May 2008, an independent
appraisal performed by CBRE Scot Holland valued the land and facilities of
Astana Contract JSC at US$ 175 million as at April 11, 2008.

FINANCIAL REVIEW

Net cash generated by operating activities totalled US$ 2.7 million in the first
quarter of 2008, compared to US$ 37.4 million for the corresponding period of
2007. The reduction in net cash generated by operations is largely a result of
the large (US$ 46.6 million) return of advances made in respect of construction
contracts in the first quarter of 2007.

Net cash used in investing activities totalled US$ 26.7 million in first quarter
of 2008, and included US$ 18.4 million of capital expenditure which was largely
used for the land purchases near the Northern plot, compared to US$ 20.3 million
net cash used in investing activities and US$ 0.7 million of capital expenditure
for the corresponding period of 2007.

Cash flows from financing activities amounted to US$ 11.2 million in the first
quarter of 2008, compared to US$ 15.6 million in the corresponding period of
2007. The Group's cash balances totalled US$ 79.7 million as at March 31 2008,
as compared to US$ 5.1 million at March 31 2007.

Net debt amounted to US$ 68.0 million as at March 31, 2008, compared to US$
182.8 million as at March 31, 2007.

SIGNIFICANT EVENTS FOLLOWING THE END OF THE REPORTING PERIOD

In July 2008, Kagazy confirmed that its subsidiary, Kagazy Recycling LLP, was
granted tax holidays until 2013 within the framework of the State support of
direct investments and domestic producers.

In April 2008, Kazakhstan Kagazy appointed Alessandro Manghi as Chairman of the
Board of Directors of Kazakhstan Kagazy Plc, and Yuriy Bogday has been appointed
as Chief Executive Officer of Kazakhstan Kagazy Plc. Baglan Zhunussov and Maksat
Arip, who are the Group's principal shareholders, have stepped down from their
respective roles as Chairman and Chief Executive of the Plc Board, in order to
focus their time on the strategy and business development of the Group and will
continue to perform the same duties as they have to date. Alessandro Manghi has
served as the Group's Corporate Finance and Investor Relations Director since
2005, whilst Yuriy Bogday has served in a number of executive positions with
Kagazy, including as Development Director for the Group's operations, for five
years.

For further information, please visit www.kazakhstankagazy.com or contact:

-0-
*T
Kazakhstan Kagazy         Kazakhstan Kagazy       Shared Value Limited
Yuriy Bogday              Alessandro Manghi       Larisa Kogut-Millings
Chief Executive Officer   Chairman                Investor Relations
Tel: +7 727 244 8787      Tel: +7 727 244 8787    Tel. +44 20 7321 5010
y.bogday@kagazy.kz        a.manghi@kagazy.kz      kagazy@sharedvalue.net
*T

Kazakhstan Kagazy Plc runs Central Asia's largest producer of paper, corrugated
board and packaging products. It also operates one of the leading developers of
commercial warehousing and industrial infrastructure facilities in Kazakhstan
through PEAK LLP, which owns approximately 711 hectares of prime land,
strategically located in newly created industrial zones in Almaty. The Group's
assets totalled approximately US$ 625.0 million as at March 31, 2008 and
consolidated revenues amounted to approximately US$ 16.4 million for the first
quarter of 2008. Kazakhstan Kagazy Plc's securities are listed under the symbol
'KAG' on the London Stock Exchange.

This interim statement contains certain forward-looking statements with respect
to the financial condition, results, operations and businesses of Kazakhstan
Kagazy plc. These statements and forecasts involve risk and uncertainty because
they relate to events and depend upon circumstances that will occur in the
future. There are a number of factors that could cause actual results or
developments to differ materially from those expressed or implied by these
forward-looking statements and forecasts. Nothing in this interim statement
should be construed as a profit forecast.

KAZAKHSTAN KAGAZY PLC

CONSOLIDATED BALANCE SHEETS

AS AT 31 MARCH 2008 AND 31 DECEMBER 2007

(Amounts in thousands of U.S. dollars)

-0-
*T
                                                   31 Mar 2008       31 Dec 2007
Assets                                              Unaudited
Non-current assets
Property, plant and equipment                        340,843           319,530
Intangible assets                                     3,909             3,922
Investment property                                   36,129            36,246
Prepayments - non-current part                        15,349            15,399
VAT recoverable                                       19,064            16,328
Other non-current assets                               454               133
                                                 ----------------  ----------------
                                                     415,748           391,558
                                                 ----------------  ----------------
Current assets
Inventories                                           73,583            71,624
Prepayments - current part                            33,763            31,472
Other current assets                                   889               598
Trade and other receivables                           21,305            20,865
Cash and cash equivalents                             79,739           115,305
                                                 ----------------  ----------------
                                                     209,279           239,864
                                                 ----------------  ----------------
Total assets                                         625,027           631,422
                                                 ================  ================

Equity and liabilities
Equity
Share capital                                         10,470            10,470
Share premium                                        244,340           244,340
Revaluation reserve                                   57,894            57,893
Other reserves                                        81,181            81,181
Translation reserve                                   7,206             8,118
Retained earnings                                     26,669            22,387
                                                 ----------------  ----------------
                                                     427,760           424,389
                                                 ----------------  ----------------
Non-current liabilities
Interest bearing loans and borrowings                137,390           146,970
Deferred tax liabilities                              24,456            28,672
                                                 ----------------  ----------------
                                                     161,846           175,642
                                                 ----------------  ----------------
Current liabilities
Interest bearing loans and borrowings                 10,299            9,689
Corporate income tax payable                            59                61
Other tax liabilities                                 3,839             1,002
Trade and other payables                              21,224            20,639
                                                 ----------------  ----------------
                                                      35,421            31,391
                                                 ----------------  ----------------
Total equity and liabilities                         625,027           631,422
                                                 ================  ================
*T

KAZAKHSTAN KAGAZY PLC

INTERIM CONSOLIDATED INCOME STATEMENTS

FOR THREE MONTHS ENDED 31 MARCH 2008 AND 31 MARCH 2007

(Amounts in thousands of U.S. dollars)

-0-
*T
                                                     31 Mar 2008           31 Mar 2007
                                                        Unaudited           Unaudited

Revenue                                                   16,414              13,504
Cost of sales                                            (10,593)            (8,929)
                                                     ----------------    ----------------
Gross profit                                              5,821               4,575

Selling expenses                                         (1,291)              (687)
Administrative expenses                                  (2,914)             (1,214)
Other operating income and expenses                       (123)                234
                                                     ----------------    ----------------
Profit from operations                                    1,493               2,908

Finance income                                            4,882                762
Finance costs                                            (2,012)             (3,565)
                                                     ----------------    ----------------
Profit before taxation                                    4,362                105

Income tax expense                                         (80)                (32)
                                                     ----------------    ----------------
Profit for the year                                       4,282                 72
                                                     ================    ================
*T

KAZAKHSTAN KAGAZY PLC

INTERIM CONSOLIDATED CASH FLOW STATEMENTS

FOR THREE MONTHS ENDED 31 MARCH 2008 AND 31 MARCH 2007

(Amounts in thousands of U.S. dollars)

-0-
*T
                                                               31 Mar 2008      31 Mar 2007
                                                                Unaudited        Unaudited

Profit before taxation                                            4,362             105
Adjustments for
Depreciation of property, plant and equipment                     1,486             932
Amortisation of intangible assets                                   -                2
Amortisation of bond discount                                      64               54
Gain on disposal of property, plant and equipment                  100               8
Foreign exchange differences                                      2,502            (742)
Finance income                                                   ( 616)              -
Finance costs                                                     1,937            3,510
                                                             ---------------  ---------------
                                                                  9,835            3,869
(Increase) / decrease in trade and other receivables              (26)            (3,917)
Increase in inventories                                          (2,194)          (1,808)
(Increase) in other current assets                                (144)             172
Decrease / (increase) in prepayment for goods and
 construction contracts                                          (2,395)          46,595
(Increase) / decrease in non-current assets                       (324)              -
Increase in other tax liabilities                                 2,832            (142)
(Decrease) / increase in trade and other payables                 2,406           (3,349)
(Decrease) / increase in non-current liabilities                 (4,131)             -
                                                             ---------------  ---------------
                                                                  5,857           41,420

Income tax paid                                                   (70)              (9)
Interest paid                                                    (2,713)          (4,056)
                                                             ---------------  ---------------
Net cash inflow from operating activities                         3,074           37,355
                                                             ---------------  ---------------

Cash flows from investing activities
Purchase of property, plant and equipment                       (18,438)          ( 744)
Proceeds from sale of property, plant and equipment and
 construction in progress                                           -               42
Expenditure on construction in progress including advance
 payments in respect of construction contracts                  ( 1,825)         (19,974)
Borrowing costs on construction in progress                     ( 3,711)           (955)
Transfers of cash from / (to) special deposit                       -              1,361
Increase in VAT recoverable in respect of construction
 contracts                                                       (2,795)             -
Interest received                                                  20                -
                                                             ---------------  ---------------
Net cash outflow from investing activities                      (26,749)         (20,270)
                                                             ---------------  ---------------

Cash flows from financing activities
Proceeds from issue of bonds                                        -              2,118
Payment for leasing                                               (615)              -
Settlement of bank loans                                        (11,657)         (58,843)
Receipt of bank loans                                             1,108           41,108
                                                             ---------------  ---------------
Net cash outflow from financing activities                      (11,164)         (15,617)
                                                             ---------------  ---------------

Net increase/(decrease) in cash and cash equivalents            (34,839)           1,468
Effects of exchange rate changes on the balance of cash held
 in foreign currencies                                            (727)             28

Cash and cash equivalents at beginning of year                   115,305            635
Cash and cash equivalents at year end                            79,739            2,131
*T