GEGAMA CABLES
| An
efficient aluminum and copper cable producer wishes to scale up production to
compete regionally as additional copper processing and demand for cables, conductors and switchgear are both expected to rise. Gegama offers a strategic opportunity for investors to partner with a well functioning Armenian enterprise offering captive and competitive markets locally and regionally. In increasing sales by 50% from $2-3 million to $3-6 million, this recent recipient of Lincy financing projects a $17 million working capital requirement. Company: Gegama OJSC Amount: $ 17.0 m Tenor/Terms: 10 year loan Documentation: Audited financial statements and basic documentation for financial institutions will be discussed at the conference. For example Gegama has operating cash flow and working capital projections supporting this financing requirement. The assumptions for this may be reviewed in meetings with Messrs. Kutchukian and Sinanyan. Use of Funds: The funds will be used as working capital since the company currently possesses all the necessary equipment to expand its operations. Legal Status: Gegama, the former Kamokabel (state enterprise), was established in 1960. In 1995 the enterprise was fully privatized and was reorganized into Gegama OJSC. Current Operations: Gegama is one of the leading cable companies in FSU and occupies a unique niche both in the Armenian and in other CIS markets. Currently 5% of its production is sold in Armenia and 95% in the CIS countries, mainly in Russia. It is one of very few companies in the CIS that supplies a complete range of high quality wiring products. Their customers are from various sectors -- construction, automobile industry, energy sector, etc. Sales and Marketing Plan: Gegama specializes in aluminum and copper wires and cables of different specifications. It assures its sustained market shares by delivering high quality products under strict quality control management and ISO9000 certification. Its highly skilled management and personnel as well as scalable production using equipment to produce very large volumes as well as using the latest designs and labeling techniques allows its production to remain competitive. After working capital financing is assured, using its well-established network of clients and duty free sales in Russia it expects to raise its regional market share substantially. Business Plan: Currently 95% of the company s production is exported and Gegama plans to expand and capture larger parts of the existing consumer markets. In order to remain price competitive and expand market share Gegama is planning to secure lower cost raw material (aluminum and copper) to feed its 2000 and 600 tpy capacity requirements. Operating at higher capacity is expected to lower operating costs and enable debt servicing. Its operating costs are mainly for raw materials as illustrated below: Raw Materials 81.00% Electricity & water 1.85% Direct Labor 0.45% Fuel 0.67% Depreciation 6.02% Transportation 6.57% Marketing 0.82% General & Administrative 1.95% Other expenses 0.67% Gegama projects a gross margin of 16% over the next ten years (see table below). Competition: Gegama has little competition from Armenian producers, as its only plant operates continuously and produces a wide range of wiring products. The main competition is from several producers in Russia (Moskabelmet cjsc; Podolskkabel cjsc and Elektrokabel company), since its market is mainly outside Armenia. Investment, Capital Cost and Financing Structure Proposed: A loan of US$17,000,000 is needed to expand the current activities of the Company. The collateral for the loan may be the plant and equipment, as well as other fixed assets of Gegama ojsc. Regulatory Considerations: According to the Foreign Investment Law, in the event of a change in the legislation, the investor is protected by the option to remain for a five-year period under the regulation of the laws, which existed when the investment was made. Investments made by foreigners cannot be nationalized or confiscated, unless there are extraordinary circumstances declared by the government and approved by the court. In the case of confiscation, the foreign investor is to be fully compensated for any damage incurred to their investment, or for any loss of profit resulting from actions of State bodies or State officials. Foreign citizens have no right to own the freehold of land; they may only lease it or temporarily use it by agreement. However, they have a right to own all other types of property, including the freehold of buildings, and have the same rights as Armenian citizens to establish various types of business entities. Exploitation of natural resources can only be made upon concession agreements with the government or other appropriate State bodies. Summarized Projected Profit & Loss Statement 2001 Project US$(000) 2002 Project US$ 2003 Project US$ 2004 Project US$ 2005 Project US$ 2006 Project US$ 2007 Project US$ 2008 Project US$ 2009 Project US$ 2010 Project US$ Revenue (excluding VAT) 45,986 52,654 53,707 53,976 54,245 54,517 54,789 55,063 55,338 55,615 Cost of Goods Sold 38,614 44,193 45,084 45,319 45,557 45,796 46,037 46,279 46,524 46,770 Operating and administrative expenses 6,823 6,824 6,824 6,824 6,824 6,810 6,810 6,811 6,810 6,810 Profit (Loss) after tax (441) 278 425 450 537 664 812 990 1,169 1,347 Gross margin 16% 16% 16% 16% 16% 16% 16% 16% 16% 16% Points of Contact: Mr. Ruben Sinanyan President and Executive Director Gegama OJSC 5 Kabelagortsner Street Gavar 378630, Armenia Tel: 3741-151-543/28704 Fax: 3741-151-543/287-040 E-mail: gegama@arminco.com Mr. Alan Kutchukian FCA Managing Director KPMG Armenia 8 Hanrapetutian Street Yerevan 375010, Armenia Tel: 374-1-56 67 62 E-mail: akutchukian@kpmg.co.am; general@kpmg.co.am In the United Kingdom 8 Salisbury Square London EC4Y 8BB Tel: 44-207-694-3171 Fax: 44-207-311 4242 |