Financial Review

Revenue

Revenue growth in the period was due to the growth in volumes of our paper business (“Paper Division”) partly offset by the reduction in the aggregate of the income earned by our logistics division (“Logistics Division”) together with the loss of rental income from the Logistics Division.

Costs & expenses

Gross margin was reduced as the price of raw materials increased whilst sales prices remained relatively constant. Administrative expenses were reduced as a result of the cost cutting measures implemented during the first half of the year. Net finance expense was significantly reduced, primarily due to foreign exchange movements: In 2009, the devaluation of the KZT resulted in exchange loss of US$ 19.1m compared with an exchange gain of US$ 11.9m in 2010.

Financial restructuring

The Group continues to seek to reach agreement with its Lending Banks and Bondholders. Significant progress has been made since the publication of the 2009 Annual Report on 3 May 2010. It should be noted however, that until final agreement is reached, the future of the Group remains uncertain although we remain confident that we will reach agreement with our Lending Banks and Bondholders on terms that are consistent with our expectation of future cash flows.

Banks

Whilst negotiations have not yet been finalised, of our three major banks, one has approved our restructuring subject to contract, one has proposed terms to us which are acceptable to us but is subject to their final approval and contract and we remain in constructive discussion with the third.

Bondholders

We have reached agreement with 16 holders of the first issue of our Bonds, which is past its maturity date, and, therefore, no longer classed as a Bond and not subject to the same regulations as the second, third and fourth issues of our Bonds which are not past maturity and are in the Buffer Zone section of the Kazakhstan Stock Exchange.  Negotiations remain constructive with all of our remaining Bondholders and, subject to the resolution of a number of structural issues we remain confident that agreement will be reached.

Operational Review

Restructuring

Our programme of operational restructuring continues. Since the end of the period, we have relocated the Kazupak operations to the Kagazy Recycling site hence reducing costs and we have also closed Kagazy Trading, our paper trading business which made a small contribution to Group profitability whilst tying up a significant amount of working capital. We have also continued the cost cutting programme in our logistics business and in overheads.  Overheads have decreased by 8% despite the extra costs incurred by the group as a result of the restructuring.

Paper

The Paper Division amounted to 89% of total revenues in the first half of 2010.  Volumes of corrugated packaging and container board were up by over 25% in the first half of 2010 as compared with the first half of 2009 reflecting in part an upturn in the Kazakh Fast Moving Consumer Goods sector to which the Paper Division is significantly exposed.

Prices remained weak in the first half of 2010 but since the end of the period, we have sought to increase prices significantly in response to the increased demand for our products.

Logistics

 The Logistics Division, which comprises principally of three operating units (a class A warehouse, a Class B warehouse and a container terminal), is also showing signs of recovery.  At the end of the period our Class A warehouse was 34% full compared with 24% at the beginning of the period; our class B warehouse was 43% full compared with 36% at the beginning of the period; and the number of containers processed by our container terminal increased by 9% from 7,957 in the first half of 2009 to 8,656 in the first half of 2010.

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

Aida Yelgeldiyeva: Kazakhstan Kagazy plc

Tel: +7 727 244 8787

David Facey: SP Angel corporate Finance LLP

Tel: +44 20 7647 9650

This unaudited 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.