Auditing report on 1999 financial statements of Mangistaumunaigas OJSC (Kazakhstan)

/KASE, Oct.26, 00/ - Mangistaumunaigas OJSC (Aktau), in accordance with the listing requirements, provided the Kazakhstan Stock Exchange (KASE) with auditing report of Arthur Andersen (Almaty, Kazakhstan) made on its 1999 consolidated financial statements. Based data of an independent auditor, who finished the report on June 15, 2000, the following are the results of the issuer as of December 31, 1999 and 1998 (in th. KZT): Indicator 1998 1999 ---------------------------------------------------------------- Authorized capital 10,894,602 10,894,602 Shareholders' equity 666,649 13,299,253 Total assets 31,608,709 43,468,180 Net working capital -19,583,244 -11,098,750 Accounts receivable 5,480,070 7,128,656 Accounts payable 24,457,725 23,694,624 Sales 16,927,093 45,781,992 Cost of goods sold (services offered) 10,104,314 7,996,154 Net income (loss) (211,037) 8,090,127 ---------------------------------------------------------------- Calculated by the data of the auditor: ---------------------------------------------------------------- Return on sales (ROS), % 40.3 82.5 Return on equity (ROE), % - 60.8 Return on assets (ROA), % - 18.6 Earnings per share (EPS), KZT - 825.09 Price earnings ratio (P/E) - 0.44 Book value of a share, KZT 61.19 1,220.72 ---------------------------------------------------------------- Auditing of 1998-1999 financial statements of Mangistaumunaigas OJSC and its subsidiaries were made on the basis of the Kazakhstani and international accounting standards by Arthur Andersen. The auditing allowed the auditor to make following conclusions regarding the company's financial statements. In the opinion of Arthur Andersen, consolidated balance sheet gives a true picture of financial conditions of Mangistaumunaigas OJSC and its subsidiaries as of December 31, 1999 in accordance with the Kazakhstani accounting standards except for the re-evaluation of fixed assets for an amount of KZT4.7 bln, which was made by the company in 1999, and the absence of provisions for unexpected tax liabilities (reference to the Appendix 10). However, the auditor did not express his opinion regarding the consolidated financial statements and cash flow statements as of December 31, 1998 and 1999 due to the fact that: - he was not satisfied with the data on residual amounts on the balance sheet as of December 31, 1997 and able to compare the results of inventory control as of December 31, 1998 that could have a noticeable impact on the company's activities in the ended on December 31, 1998 and 1999; - the company is not capable of disclosing the information on the operations made with related parties in 1998, and not enough data was obtained to confirm the amounts of accounts receivables and payables as of December 31, 1998 because in 1998 applicable records were not made and there were no sufficient documentation on this (reference to the Appendix 3) that could have a noticeable impact on the results of the company in the year ended on December 31, 1999; - consolidated cash flow statement was not made for the year 1998 as it is specified by the Kazakhstani accounting standards. Also, auditor notes that in October 1999 he company received the assets of Pavlodar oil refinery by the decision of the Supreme Court (reference to the Appendix 25). Since in 1998 the reserves was created for this amounts, then as of December 31, 1999 the company had a zero residual balance of these assets. As a result of an uncertainty regarding the legal matters and future management of the refinery, as well as the possibility of reexamining the court's decision, these events were not reflected in the company's financial statements as of December 31,1999. Besides, the auditor notes that till the stabilization of the world oil prices (reference to the Appendix 2) the company had serious problems with the liquidity. However, despite the growth of oil prices, the company still had a deficit of working capital for a total of KZT11,098,750 th. as of December 31, 1999. In the opinion of the auditor, the company's ability to operate continuously depends on its capability: a) to generate sufficient cash flows to meet its liabilities on time; b) obtain additional financing; c) have successful talks on reexamining the terms or prolongation of the terms on paying back current liabilities; d) finally, achieve a constant profitability. No corrections were made in submitted financial statements due to these uncertainties. In the auditing report of Arthur Andersen, presented to the KASE, made on 1998-1999 financial statements of Mangistaumunaigas OJSC and its subsidiaries, there are no comments to the text that the auditor made the references to, and which are considered an integral part of financial statements. Common inscribed (KZ1C05020218, trade code - MMGZ) and preferred inscribed (KZ1P05020213, trade code - MMGZp) shares of Mangistaumunaigas OJSC were entered into additional list of the Exchange on October 16, 1997. By the decision of the Exchange council, dated July 14, 1998, the shares were transferred to official list of the KASE securities under category "B". Primary activities of the company - extraction and transportation of oil and gas; processing of oil, sales of oil and oil products, exploration and development of oil and gas deposit sites.