KAZAKHSTAN KAGAZY PLC

INTERIM MANAGEMENT STATEMENT FOR THE NINE MONTH PERIOD
ENDED 30 SEPTEMBER 2009

Kazakhstan Kagazy plc (the "Group" or "Kagazy"), the largest producer of paper, corrugated board and packaging and a leading operator of commercial warehousing and industrial infrastructure facilities in Kazakhstan, has today announced its unaudited interim management statement for the nine month period ended 30 September 2009.  These results have been extracted from condensed consolidated financial statements.

Key financials for the 9 month period ended 30 September 2009

·     Net loss amounted to US$ 264.3 million (2008 net profit of US$ 45.2 million(1))

·     Downwards revaluation of fixed assets by US$ 225.1 million to US$ 359.5 million(2)

·     Net loss of US$ 14.5 million before asset devaluations and foreign exchange gains (2008 net profit of US$ 47.3 million)

·     Turnover down by 21.3% to US$ 47.1 million(1)

·     Gross profit down by 27.3% to US$ 17.0 million(1)

·     Negative EBITDA of US$ 218.4 million (2008 US$ 55.5 million positive)

·     Foreign exchange losses of US$ 24.0 million

Note (1): Compared to the 9 month period ended 30 September 2008
Note (2): Devalued assets include PP&E, Investment property, Intangibles and Trade Property

Thomas Mateos, Chairman of Kazakhstan Kagazy JSC, the Group's Kazakh holding company, commented:

 "The Group continues to operate in a challenging environment. GDP in 2009 was down 23% (in USD terms) compared with 2008 and output in the FMCG sector, to which both segments of our business are exposed, was down around 25% (in USD terms) in 2009 compared with 2008.
Despite significant falls in the output of its major customers, our paper business increased sales of corrugated products by 13.3% compared to the comparable period for 2008, due to the reduction in capacity of a number of our competitors whose customers have turned to us as a result.  Sales volume of paper was weak in the first half of 2009, but grew in the third quarter of 2009 during which we produced more than 4,000 tons of paper per month, compared to the monthly average of 2,800 tons for the first half of 2009. 
Sales volumes of our paper products improved over the third quarter of 2009 compared to the first half of 2009. The monthly average sales volume of paper rose to 1,632 tons in the third quarter of 2009, compared to 1,128 tons for the first half.
The average monthly sales volume of corrugated packaging increased to 7.5 million square metres in the third quarter of 2009, compared to 6.0 million square metres for the first half of 2009.
The Group's commercial warehousing and industrial infrastructure segment suffered from a dramatic decrease in demand and a similarly significant reduction in prices. Currently our warehouses are less than 30% full whereas in 2008 both our facilities were operating at 100% capacity. Current prices are approximately 30% lower than in 2008. We are not alone in this regard; our major customers are facing similar problems.
The Group continues its construction of the warehouse and container terminal in Astana which commenced this year. The project has direct access to a railroad and two major national highways (Astana-Pavlodar and Astana-Petropavlovsk).  The Group expects to commission these facilities in 2011.
The Group owns significant holdings of land and buildings. The value of real estate has fallen significantly in 2009 and the market is very illiquid. The downward revaluation of our fixed assets has been prepared by third party independent valuers and reflects the current weak market.
We continue with our debt restructuring programme and we are having constructive discussions with our bank lenders and bondholders. The acquisition of assets at the height of the market funded by debt at expensive rates has left the Group with a need to seek to reduce and defer interest and coupon payments and to extend the maturity of its debt. There is no guarantee, however, that the restructuring will reach a successful conclusion. In these circumstances, the future of the Group would remain uncertain.
The Company remains cash flow positive at the operating level and we believe that, as the economy recovers, the Group's cash flows will improve further enabling us to meet all of our financial obligations over time."
Financial summary

*Compared with 9 month ended 30 September 2008

OPERATING REVIEW

Group

Kazakhstan Kagazy's consolidated revenues decreased by 21.3% in dollar terms over the first nine months of 2009 compared with the same period in 2008.  This reflects not only the challenging economic environment but also the 21.9% appreciation of the US dollar against the Kazakh tenge during the reporting period. The paper business accounted for 86.5% of consolidated revenues in the first nine months of 2009.

The results include a US$ 4.6 million non-cash gain arising from the decrease in the consideration paid for the acquisition of Astana Contract JSC.  In the comparable period for 2008, the Group recorded a US$ 47.5 million non-cash gain representing the negative goodwill arising from the acquisition of Astana Contract JSC for less than its valuation provided by third party independent valuers at the time of the acquisition. The negative goodwill has been effectively reversed in the period through the downward revaluation of assets.

Net finance costs in the period amounted to US$ 42.2 million compared to US$ 6.0 million for the corresponding period of 2008.  Finance costs included foreign exchange losses of US$ 30.5 million on Euro and US dollar denominated bank debt following the Kazakh tenge devaluation in February 2009.

The major components of the Group's loss in the period are non cash flow items, namely asset devaluations and foreign exchange expense. Excluding these two items and the gain arising from the reduction in consideration for Astana Contract JSC, Kagazy's net loss would be US$ 19.1 million for the nine month period. 

The Group's cash balances totalled US$ 23.4 million as at 30 September 2009 of which US$ 15.4 million comprised cash collateral for bank loans and US$ 4.8 million was held in a reserve account for servicing one of the Group's loans. The latter amount has been reclassified as other non-current assets. Accordingly the cash available to the Group at 30 September 2009 was US$ 18.6 million compared to US$ 62.7 million at 31 December 2008.  

Net debt amounted to US$ 238.2 million as at 30 September 2009, compared to US$ 206.4 million as at 31 December 2008.
***

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

This interim management statement has been prepared solely at the request of the Kazakh Stock Exchange where bonds of Kazakhstan Kagazy JSC are listed and traded. This interim statement is not audited and contains certain forward-looking statements with respect to the financial condition, results, operations and businesses of Kagazy. 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. These forward-looking statements are made only as at the date of this interim statement. Nothing in this interim statement should be construed as a profit forecast. Except as required by law, neither SP Angel, nor any member of the Group has an obligation to update the forward-looking statements or to correct any inaccuracies therein.
 KAZAKHSTAN KAGAZY PLC
INTERIM CONSOLIDATED INCOME STATEMENT
FOR NINE MONTHS ENDED 30 SEPTEMBER 2009
(Amounts in thousands of U.S. dollars)

  Note (1): The Income Statement for the 9 month period ended 30 September 2008 has been restated in accordance with the Group's 2008 audited annual financial accounts..

KAZAKHSTAN KAGAZY PLC
INTERIM CONSOLIDATED BALANCE SHEET AS AT 30 SEPTEMBER 2009