Auditing report on 1999 financial statements of "Kazakhtelecom" (Kazakhstan)

/KASE, July 20, 00 / - OJSC "Kazakhtelecom" (Astana, official list of securities, category "A"), in accordance with the listing requirements, provided KASE the auditing report of "Deloitte & Touche" (Almaty, Kazakhstan) made on 1999 financial statements of the issuer. Based on independent auditor, who finished working on the report on May 19, 2000, the following are the results of the issuer in 1999 and 1998 (in th. KZT): Indicator 1998 1999 -------------------------------------------- ----------- ----------- Authorized capital (nominal) 12,136,529 12,136,529 Shareholders' equity 36,162,141 34,549,590 Total assets 59,443,627 63,309,357 Net working capital -293,807 -945,686 Accounts receivable (net) 6,451,233 7,603,553 Accounts payable 4,196,122 3,963,837 Sales (services offered) 26,047,700 30,960,911 Cost of goods sold (services offered) 18,006,420 19,039,410 Net income (2,265,304) (1,398,993) Base and derived profit (loss) pr share, KZT (0.24) (0.16) -------------------------------------------- ----------- ----------- Calculated by the data of auditing report: -------------------------------------------- ----------- ----------- Return on sales (ROS), % 30.87 38.51 Return on equity (ROE), % - - Return on assets (ROA), % - - Book value of a share, KZT 2,979.61 2,846.74 -------------------------------------------- ----------- ----------- Auditing was conducted by "Deloitte & Touche" in accordance with International accounting standards, hence, financial statements of OJSC "Kazakhtelecom" were properly corrected to make it comply with International accounting standards (IAS). Some data of 1998 financial statements were reclassified to match those in 1999 financial statements. As the company keeps its records based on the accounting principles accepted in Kazakhstan, that differ much from those of IAS, there are some discrepancies between estimations and actual results. As of December 31, 1999 paid authorized capital of the company was KZT35,742,978 th. including adjustment on the inflation in the amount of KZT23,606,449. The auditor noted that in 1998, the company did not show profit and loss from exchange rate shifts and put the sum of KZT2,270,333 th to undistributed profit. The reports for 1998 were adjusted to compile with current statements. Inventories were shown at the least re-evaluation average cost or at the market value. Accounts receivable is shown at net sales cost after the deductions of bad debt reserves; The registration of long-term investments in companies with 20% stake of Kazakhtelecom is executed using method of share holdings less provisions on constant decrease in value. Kazakhtelecom has one investment in "GSM Kazakhstan" LLP with 49% of ownership and 49% of voting right. In 1999, the company corrected value of its investments in CJSC "Altel" on the sum of KZT150,400 th. to reflect true market value. Kazakhtelecom is a monopolist of telecommunication services market and is an subjected to Antimonopoly legislation of the government. The Antimonopoly committee issued an instruction, which states that Kazakhtelecom should liquidate its stakes in some subsidiaries and affiliated companies. Today, Kazakhtelecom is not able to satisfy this requirement without violation of shareholders' rights. Consequently, the investments could not be reclassified as a "subject to sale." Besides, the auditor noted that the Government of the Republic of Kazakhstan (Kazakhstan) took guarantor's responsibilities of KFW group credit line. In 1999, the court decision stated that the part of equipment shipped to OJSC "Mangistaumunaigas" and JSC "Kaskor" (thirds parties) is not to be paid off by Kazakhtelecom but should be repaid by the Government. As of the date of report conclusion, the Government and Kazakhtelecom did not come to an agreement on this issue. At the same time, it did not appeal to the court as well. The company's governors consider that the Government would execute the decision of the court. The financial statements of the company as of December 31, 1999 was a subject to "Deloitte & Touche" auditing. In the opinion of "Deloitte & Touche," financial statements give reliable picture of financial situation of Kazakhtelecom in all essential aspects as of December 31, 1999, and based on International accounting standards.