NB 500 12(21)-Eng

ANALYTICS MAGAZINE №12 (21) 2015NB500RANKINGOF THE LARGESTCOMPANIES IN KAZAKHSTANCollaborative project ofNational Business and McKinsey & Company500 COMPANIESOF THE RANKING EARNED26.081 26.360TRILLION OF KZT 1,1% TRILLION OF KZTin 2013 GROWTH in 2014



CONTENTNB500 RANKING 2 National Business Magazine #12 (21) 8FINANCE | Portfolio clean-up 14 Published since 2003 22 Periodicity: monthly With global markets knocked off track, the economic and political situation throughout the world 28 is changing rapidly. The financial situation inside the country is forcing the market to shrink, with 34 Director companies cutting their costs. 42 MAXAT OSPANOV 48ENERGY | Electrical progress Editor-in-chief 54 DENIS KULKIN Revenues of the sector’s biggest companies skyrocketed, renovation of power network and generation infrastructure was beyond expectations, and some companies had profit margins of Managing editor more than 30%. OKSANA SHCHERBAKOVAMANUFACTURING | Test of strength Copy editor NELLY ROYANOVA In 2014, companies in the added-value sector, featured in the NB500 ranking, reported revenues totaling KZT 1 trillion, an increase of 17.3%. 2015 was a year of surprises. The project was made by: ASEL KEREYTRANSPORT | What is lost AZAMAT KUANBAEV ZHOMART ASSENKANOV Because of the drop in prices and trade, freight movement in Kazakhstan in 2014 also slumped. DENIS KULKIN The main casualties were railway and air cargo transport. JUKKA MAKSIMAINEN SERGEY KISELEVTELECOMMUNICATIONS & IT | Battle over 4G ALEXEY STARYGIN MAKSIM VARSHAVSKIY The communications market is going through some significant and expected changes. As Internet VALENTINA PLOTNIKOVA penetration increases, the number of landline phone subscribers is falling. VALERIA MIKHALCHENKO BAKHYTZHAN OMIRSERIKOVCONSTRUCTION | Storey after storey NELLY ROYANOVA OKSANA SHCHERBAKOVA Over the past 15 years, Kazakhstan’s construction industry has made significant improvements JULIA SHCHERBININA and has now finally returned to the level of 1990, when 7.8 mln sq.m of residential property was commissioned shortly before the Soviet Union collapsed. Design and layout ILYA FILATOVTRADE | Offers will be considered Illustrations The sector’s growth in 2014 was quite impressive. The gross income of all the trading companies in EVGENIA RESHETNIKOVA the ranking totaled KZT 517 bn, or 32.8% more than in the previous year. OwnerAGRICULTURE | Fields of opportunities BMG INVEST, LLC Editorial address: The part of agricultural industry in country’s GDP is not exceeding 4.4%, while having more than 16, Elebekov str. 25% of working population involved. Numerous government supportive programs have created Almaty, Kazakhstan positive momentum in the industry, but in order to create further stable growth additional tel.: +7 (727) 225 53 62 measures are required. e-mail: [email protected] | Feeding 17 million people Translation agency TRANSLATORS GROUP Prices for imported products are going up in proportion to the decrease in the value of the tenge. 18, md Samal-1, office 4 Imports from other countries are declining, Kazakh producers have a real chance to fill the niche. Almaty, Kazakhstan tel.: +7 (727) 263 62 48 The certificate of registration of the periodical and Reprinting of National Business magazine’s materialsinformation agency #15125-Ж issued on 02.12.2015 by the and using them in any form, including electronic media is Printing houseMinistry of Investments and Development of the Republic possible only by agreement with the editorial board. PRO EXPRESS, LLCof Kazakhstan. 58A, Abylai Khan str. Almaty, KazakhstanCONTENT 1

NB 500 RANKING | FINANCE PORTFOLIO CLEAN-UPWith global markets knocked off track, the economic and political situation throughout the world is changingrapidly. The financial situation inside the country is forcing the market to shrink, with companies cutting theircosts. Something similar already happened back in 2008-2009. The banks are regrouping, but the top 3 remainunchanged: Kazkommertsbank (which has merged with BTA), Halyk Bank and Kaspi Bank. Russia’s SberbankKazakhstani subsidiary joined the top 5, and Tsesnabank has become stronger. In 2014, Eurasian Financial Company– still a strong player – fell from fifth to sixth place.The financial market’s three giants Once the integration up on the previous period. Kaspi Bank holds a Despite the fact that most companies on the with BTA Bank solid third place, with revenues of KZT 197.2 bn, was complete, or 10% more than in 2013.market have scaled down their operations as Kazkommertsbankbusiness activity slow, banks made a handsome increased its share With revenues of between $700 mln andprofit in 2014. Having achieved revenue of of the country’s $800 mln, Sberbank (Kazakhstan), TsesnabankKZT 333.5 bn (increase of 15.8%) last year, total bank assets by and Eurasian Financial Company follow the topKazkommertsbank is No.1. Starting from June 1.3% to 23.8% and is 3. Tsesnabank has been expanding regionally30, 2015, once the integration with BTA Bank now Kazakhstan’s during the past few years. With a historicallywas complete, Kazkommertsbank increased its largest bank. strong presence in central and northernshare of the country’s total bank assets by 1.3% Kazakhstan, the bank currently focuses onto 23.8% and is now Kazakhstan’s largest bank. Almaty and the more densely populated south-Slightly behind is Halyk Bank of Kazakhstan: its eastern regions, as well as the west of therevenue in 2014 totaled KZT 297.8 bn, or 22.3% country.2 National Business, №12 (21) 2015 CONTENT

Industry leaders Ranking newcomers1 place 333.5 2,125 1. 301 | 26Kazkommertsbank BN KZT Qazaq Banki 10.3 15.8% bn kzt BN KZT total sector• The acquisition of BTA Bank’s shares was completed. earnings• Assets increased by 64.2% to KZT 4,247 bn, deposits 10.3% portfolio increased by 34.6% to KZT 2,264 bn.2 place 304.8Halyk Bank of Kazakhstan BN KZT 25.9%• Acquisition of HSBC Bank Kazakhstan completed, the bank was renamed to Altyn Bank.• Named Kazakhstan’s Bank of the Year by The Banker international financial magazine.3 place 197.2 fSoecrt2o0r1’s4key figuresKaspi Bank BN KZT 10.2% • The yield on pension assets of the Single 1.1% Accumulative Pension Fund almost tripled• Nearly 17% of call deposits have been withdrawn in reaching 6.3%. just a few days as a result of the panic triggered by an 26,360 • The National Sovereign Wealth Fund provided SMS spam attack1. bn kzt KZT 250 bn to stabilize the financial system.• 69.2% of new personal loans were issued through total earnings • The banks issued 27% more of new loans. credit cards. Purchase loans make up 14.1% of the of companies • Inflation rate reached 7.4% vs. 4.8% in 2013. loan portfolio. in the ranking Sinec2t0o1r5’s main eventscSoecmtpoarn’siefsastest-growing 10.3 339.6%Qazaq Banki 103.3% • Kazakhstan switched to a free floatingBank RBK BN KZT 42.9% exchange rate regime.Sberbank of Russia 35.8 • Kairat Kelimbetov was replaced with Daniyar Akishev as Chairman of the National Bank. BN KZT • Total non-performing loans in commercial 138.7 banks slid to a five-year minimum. BN KZT • President Nursultan Nazarbayev signed a law on the Astana International Financial Center.revenue – annual revenue growth – annual revenue fall ranking place | sectorial ranking place BN KZTCONTENT 31- Spam-newsletter contained false information about the impending bankruptcy of three banks. Except Kaspi Bank under attack also were Alliance Bank and Bank CenterCredit, whose customers withdrew 30.9% and 14.7% of deposits respectively.

NB 500 RANKING | FINANCEFigure 1. Top 10 banks by interest income in 2014, bn KZT of 2013, his primary tasks were to reduce the percentage of non-performing loans in second-Kazkommertsbank 313.6 tier banks, adopt tighter regulations and review the banks’ risk assessment policies.BTA Bank 135.5 The transition to the Basel III standards hasKaspi Bank 124.9 been an important part of the National Bank’s regulatory work during the past two years.Sberbank (Kazakhstan) 113.2 The new capital requirements for banks in line with international standards became effectiveBank Centercredit 93.3 as of 2015. In summer 2015, we saw the first results: the total amount of non-performingEurasian Bank 80.1 loans in second-tier banks has dropped to a five-year low. Thus, in June the amount of toxicDevelopment Bank of Kazakhstan 67.8 assets fell dramatically from KZT 4 trillion to KZT 2 trillion. At that time, 18 out of 35 banks 64.8ATF Bank decreased their non-performing loans. KazkomForte Bank 56.0 together with BTA, as well as ATF Bank, saw the most significant fall in the number of delinquentBank RBK 33.1 accounts. Based on information provided by banks to the National Bank in 2015 as part of itsAs of January 1, 2015, the second-tier banks traditional survey, the most frequently usedhad total assets of KZT 18,239 bn - an increase tools to reduce bad debts were identified.of 18%. Loans make up 63.4% of the portfolio These include writing off bad debts with(a 6.3% increase). With bank assets making further litigation, loan restructuring (includingup almost 50% of GDP, Kazakhstan is not preventive restructuring with a view toonly significantly below its own pre-crisis avoiding delinquency) and debt relief withinlevel of 2007, but also lags behind countries the framework of tax benefits provided bywith a similar level of economic development. the regulator. In addition, banks turned overAlthough the top 5 banks accounted for 52.4% delinquent accounts to collection agencies andof the market, medium-sized second-tier banks subsidiaries managing troubled assets.continued to increase their share. At the end ofthe year, these banks accounted for 39.9% of Figure 2. Top 10 banks by fee income in 2014, bn KZTthe market vs. 37.7% in 2013. The personal loanmarket is dominated by medium-sized banks, Kaspi Bank 78.4whose share in 2014 increased from 41.1% to41.9%. The share of loans issued by banks with Kazkommertsbank 41.3Russian participation has increased from 7.1%to 9.2%. Bank Centercredit 21.8 Last year’s net profits in the banking sectorreached KZT 280 bn. The top 5 banks accounted Sberbank (Kazakhstan) 18.8for 52.4% of total second-tier bank assets, 58.9%of the loan portfolio and 51% of the savings Home Credit Bank 15.6accounts portfolio.National Bank’s growing role BTA Bank 13.7 The government has been accumulating ATF Bank 12.6 Eurasian Bank 11.5more regulatory powers in the post-crisis period Forte Bank 4.5following the first wave of the global financial Alfa Bank 3.7crisis of 2008-2009. Governments throughoutthe world have decided it is time for tighterregulation. Once Kairat Kelimbetov becamethe new head of the National Bank in the fall4 National Business, №12 (21) 2015 CONTENT

Sectorial ranking 2015 Ranking 2014 Ranking Company Sector Revenue, mln USD Revenue, mln KZT Net profit, mln KZT Assets at the beginning of the year, mln KZT Assets at the end of the year, mln KZT Equity at the beginning of the year, mln KZT Equity at the end of the year, mln KZT ROS, % ROA, % ROE, % 1 11 13 Kazkommertsbank Banking 1,861.1 333,483 24,146 2,586,292 4,247,077 372,207 416,041 7.24 0.71 6.13 2 15 Halyk Bank of Kazakhstan* Financial holding 1,701.2 304,837 106,018 2,506,414 2,809,782 392,179 475,221 35.61 3.99 24.45 3 19 18 Kaspi Bank Banking 1,100.6 197,219 40,409 871,563 1,033,896 92,991 133,381 20.49 4.24 35.70 4 31 BTA Bank** Banking 159,842 -110,843 1,602,956 1,536,837 280,206 115,271 -69.35 -7.06 -56.06 5 28 49 Subsidiary of Sberbank of Russia Banking 892.0 138,696 22,523 1,033,454 1,280,918 117,339 139,862 16.24 1.95 17.51 6 Financial holding 774.0 138,635 68,725 105,021 11.48 1.44 18.32 7 30 Tsesnabank*** Financial holding 773.7 129,038 15,916 883,013 1,321,495 114,479 132,058 13.61 2.21 14.24 8 32 32 Eurasian Financial Company**** Banking 720.1 120,885 17,558 668,970 921,873 86,870 85,479 -0.28 -0.03 -0.39 9 43 33 Bank CenterCredit Banking 674.6 74,186 0.35 4.3610 49 44 ATF Bank Development bank 441.4 79,096 -340 1,093,482 1,106,295 251,839 77,456 4.18 0.98 4.0311 67 54 Development Bank of Kazakhstan Banking 347.8 62,317 3,307 912,409 984,226 312,968 18.28 7.24 28.7412 69 71 Subsidiary of Home Credit Bank Banking 272.0 48,748 11,391 1,014,321 1,306,686 27,945 29,383 16.90 24.72 430.0413 86 43 ForteBank Banking 264.3 47,357 8,238 116,054 111,652 -75,085 154,706 361.51 5.46 55.7414 88 150 Bank RBK Banking 200.1 35,849 171,202 475,768 909,246 16,351 56,291 56.48 -1.42 -9.9415 93 92 Temirbank Financial holding 197.7 35,427 20,246 222,773 518,563 54,879 0.67 4.5716 108 169 Nurbank Banking 190.0 34,044 -4,676 301,295 356,959 39,039 39,195 -13.20 2.10 18.34 123 Delta Bank Housing contraction 167.3 29,981 1,823 245,602 295,962 22,253 40,753 5.36 savings 5,010 190,266 285,939 32,382 16.71 Banking 143.917 123 154 Zhilstroisberbank of Kazakhstan Insurance 25,794 13,240 354,401 422,992 96,680 108,182 51.33 3.41 12.93 Banking 132.618 137 180 Citibank Kazakhstan Banking 129.2 23,762 10,806 334,806 378,559 50,574 61,380 45.48 3.03 19.3019 141 Nomad Insurance Group Agriculture support 126.1 23,149 1,371 40,585 52,233 8,309 11,159 16.88 33.85 7.1020 144 Development fund 107.4 22,588 4,142 167,967 246,969 24,499 27,784 18.34 2.0021 164 164 Subsidiary of Alfa-Bank Mortgage 100.0 19,240 722 143,995 153,099 17,730 18,098 0.24 15.8422 Subsidiary of VTB Bank Banking 92.0 17,926 3,173 206,561 256,437 94,311 101,562 3.75 1.37 2.0223 192 KazAgroFinance***** Banking 88.3 16,485 4,119 169,329 223,054 80,070 83,143 17.70 3.2424 198 Insurance 82.8 15,831 919 154,087 167,335 29,805 44,918 24.99 2.10 5.0525 213 193 Damu Entrepreneurship Development Fund Banking 14,828 1,556 92,244 193,756 21,338 22,493 5.81 0.57 2.4626 301 147 Kazakhstan Mortgage Company Banking 57.5 10,297 274 48,628 151,304 6,203 12,232 10.50 0.54 3.5527 323 Banking 52.0 9,322 197 10,765 13,024 3,334 3,531 2.67 0.14 1.4928 355 Asia Credit Bank Banking 45.6 8,178 1,984 79,606 127,439 12,110 17,595 2.11 1.65 5.7329 364 Qazaq Banki Insurance 44.5 398 92,846 90,111 10,695 11,093 24.26 1.92 13.3630 371 271 Oil Insurance Company 42.8 7,982 1,014 56,213 70,090 7,289 10,363 4.99 0.44 3.6631 376 Bank of Astana 42.3 7,661 261 55,226 54,699 12,741 13,002 13.23 0.80 5.7432 473 270 Kazinvestbank 31.1 7,579 3,826 51,933 57,957 47,643 51,470 3.44 0.47 2.03 Bank Kassa Nova 5,564 68.77 6.96 7.72 288 Eximbank Kazakhstan 432 Victoria Insurance Company*Including revenue of Altyn Bank ** Subsidiary of Kazkommertsbank ***Subsidiary of Tsesna Corporation **** Including revenues of Eurasian Bank, Eurasia Insuranse Company***** Subsidiary of KazagroNational Bank, the watchman In 2014, the the inflation rate to 4% in the medium term.of the financial market number of new There will be a special focus on pension assets loans increased and, in general, on the Single Accumulative After Daniyar Akishev was appointed significantly, Pension Fund (SAPF), which will no longerChairman of the National Bank in November posting 27% growth be controlled by the National Bank, as well2015, President Nursultan Nazarbayev set vs. 15.2% in 2013. as the Troubled Assets Fund and “othertwo important goals: to promote lending financial institutions” (no details available yet).and to keep inflation in check. Some drastic Furthermore, the President said the Nationalmeasures to stabilize the financial sector were Bank should be more open with the public andalso announced in the Presidential Address on market participants.November 30. First, no more foreign currencyinterventions, safeguarding of the reserves In 2014, the number of new loans increasedin the National Sovereign Wealth Fund, and significantly, posting 27% growth vs. 15.2%further stabilization of the banking sector in 2013. The increase in lending was fueledby closing undercapitalized banks with a lot by virtually all bank groups, including thoseof bad debts. Another goal will be to reduce bailed out by the government and those whichCONTENT 5

NB 500 RANKING | FINANCEhave raised the necessary funding on their own. Figure 3. Top 10 banks by net income from foreign exchangeIn addition, the structure of the growing loan transactions, bn KZTportfolio has changed. For example, lendingto construction and service sectors decreased. Citibank Kazakhstan 24,6However, already in 2015, the National Bank BTA Banksaid lending was slowing down. Business loans 11,2became increasingly less affordable for the Kazkommertsbank 8,8corporate sector, especially big companies. Sberbank (Kazakhstan) 6,5Moreover, although banks continued to focus 6,2on personal loans, the terms have become less Bank Centercredit 5,5attractive, with higher interest rates for both Development Bank of Kazakhstan 5,0secured and non-secured loans. 3,4 ATF Bank 2,2 The survey conducted by the National Bank Eurasian Bank 1,5revealed that the shortage of medium-and long-term funding sources, as well as the economic RBSuncertainty, remain the key factors that will Alfa Bankaffect lending to non-financial entities in thenear future. Today, payment season and major financial settlements. traditionally Secondly, the market became increasingly Today, traditionally the market’s biggest the market’s worried about the negative prospects for theborrowers include such sectors as trade, biggest borrowers tenge. However, during the past year, themanufacturing, construction, agriculture and include such National Bank has eagerly provided more tengetransport. As lending in 2015 has shifted towards sectors as trade, to ensure sufficient liquidity.value-added industries, the organizations manufacturing,within the Baiterek national managing holding construction, In 2015, personal and corporate depositare becoming more active, providing funding agriculture and accounts were a primary source of additionalto projects in the non-commodity sectors of transport. funding for the banks, as confirmed by thethe economy. Since the beginning of the year, estimates of second-tier banks. A large number ofBaiterek has put tens of billions of tenge it deposits were converted into foreign currency, asreceived from the National Sovereign Wealth national currency value adjustments were highlyFund into banks for further lending to SMEs and anticipated. Due to many tenge-denominatedlarge enterprises in the value-added industries, deposits being withdrawn, domestic marketas well as for personal loans to customers buying funding experienced acute shortage of tengecars made in Kazakhstan. liquidity. Substantial demand for national currency liquidity caused speculation onHouseholds as the banks’ lenders the stock market, which in turn resulted in The bank run of February 2014 demonstrated extremely high volatility in repo and swap rates. As a result, the concentration of market riskthat bank customers were prone to panic and increased significantly, so the National Bank hadcould act on a whim under the influence of to intervene.negative information, resulting in a high levelof unstable deposits. The National Bank’s claim Of all the existing internal risks, the liquidityof previous years that second-tier banks did not risk caused by the current situation on thehave enough liquidity was again vindicated. domestic funding market is considered by theAs a result, the National Bank had to step in to banks to be one of the hardest to manage. Theprovide the required loans in order to cover key issue here is the fact that Kazakhstan’sliquidity gaps. With little alternative to bank economy depends heavily on commodity prices,deposits, the banks with no negative publicity but this problem will take years to fix.became favorable during the redistribution ofdeposits. Moreover, the total amount of personaldeposits, even if adjusted for the devaluation oftenge, increased in 2014. It should be pointed out that throughout 2014,banks suffered from insufficient tenge liquiditydue to two factors. Firstly, the increased demandfor tenge from the corporate sector during the tax6 National Business, №12 (21) 2015 CONTENT

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NB 500 RANKING | ENERGY ELECTRICAL PROGRESS Revenues of the sector’s biggest companies skyrocketed, renovation of power network and generation infrastructure was beyond expectations, and some companies had profit margins of more than 30%. And behind every success story there was one major driver: the “Tariffs in Exchange for Investments” program that will expire in 2016. What will become a new motivation?The revenues of Samruk-Energo, the leader generation sector, we expect tariffs to grow in Kazakhstan’s energy sector over the by 2% to 11%, depending on the site. In the past two years, have demonstrated a rapid regulated natural monopolies sector, we have agrowth in revenues. Still, in 2014, growth was 5-7% increase, while in the power distribution31% - down from 44.5% in 2013. The question sector the growth is approximately 11%, whichis how this energy giant managed to increase its includes higher power plant tariffs and increasedrevenues from KZT 135.8 bn to KZT 178 bn while tariffs for KEGOC and distribution. In fact, thisthe nation is struggling to survive the crisis? is about offsetting inflation, and also makingFurthermore, only 4 out of the 27 biggest energy a small profit that will be used exclusively tocompanies posted negative revenue growth. finance investment.” During the reporting period, just as in 2015, But tariffs are raised every year, so thisall the government programs promoting growth definitely cannot be single factor explainingin the value-added industries were implemented how the company’s revenues could increase byactively, together with entrepreneurship 30%. In 2014, Samruk-Energo produced 30%support programs. From mid-2014 to mid-2015, of all electricity generated in Kazakhstan, i.e.142 manufacturing facilities and a total of 516 28.2 bn kWh, including 14.1 bn kWh producedindustrial sites were commissioned. And even by Ekibastuz CHPP-1, which used to belong tothough industrial output increased by a modest Kazakhmys and Samruk-Energo had been lucky0.6%, this is still a positive dynamics. Naturally, to acquire. In 2014, CHPP-1 had a profit marginincreased tariffs have been a factor in the of 30%, i.e. KZT 28 bn of net profit on revenuesrevenue growth of the companies. Almasadam of KZT 95 bn. This already became a goodSatkaliyev, Chairman of the Executive Board tradition for that company, as it had a 40% profitof Samruk-Energo, said in late 2013: “In the margin in 2013.8 National Business, №12 (21) 2015 CONTENT

Industry leaders Ranking newcomers1 place 178.1 847 1. 104 | 7Samruk-Energo BN KZT Kazakhmys Energy 31.3 31.1% bn kzt BN KZT total sector• The profit margin declined from 30.8% to 7.35%. earnings• 30% of Kazakhstan’s electricity output.• 5.5% growth in the number of business customers. 1.9%2 place 109.6Central-Asian Power- BN KZT 16.0%Energy Company• Return on sales increased to 38.5%.• Return on assets increased from 4.2% to 17.3%.• Gulnara Artambayeva named #4 among Kazakhstan’s most effective CEOs by National Business.3 place 93.5 fSoecrt2o0r1’s4key figuresKEGOC BN KZT • 94.6 bn kWh of electricity generated. • 91.6 bn kWh of electricity consumed. 36.0% • Zhambyl CHPP increased output by• The second stage of the national electrical grid 1.1% 58.1% reaching 0.926 bn kWh. • 13,099 MW annual peak demand. modernization was completed. 26,360 • 2030 Fuel and Energy Sector• The construction of a 500 kW Alma substation was bn kzt Development Strategy was approved. completed.• Net profit increased ten-fold in the first 6 months. total earnings Sinec2t0o1r5’s main events of companiescSoecmtpoarn’siefsastest-growing 23.6 in the ranking • A preparation to create a universal energyBaturov Zhambyl CHPP market for countries of the Eurasian BN KZT 43.7% Economic Union has begun.KEGOC 36%Samruk-Energo 93.5 • Low-enriched uranium bank to be built in 31% Kazakhstan. BN KZT • Electricity generation down 2.3% in the 178.1 first 6 months. BN KZTrevenue – annual revenue growth – annual revenue fall ranking place | sectorial ranking place BN KZT 9 CONTENT

NB 500 RANKING | ENERGYInterestingly, Samruk-Energo’s annual Russian power plants that used to buy Ekibastuzenergy output has not changed during the coal could not afford it under the new exchangeyear, remaining at the same level. Yet, energy rate. The company’s total coal production fell bytransmission increased 2.8% to 12.2 bn kWh. 3.7 mln tons to 38 mln tons.Noteworthy, the number of household customers Almasadam Satkaliyev said in Novemberincreased by 1.2% to 1.182 mln, but the number 2014: “As of November 24, we no longer supply electricity to Russia because of the devaluation.Figure 1. Power generation in Kazakhstan by region Our power plants are not making any money. Losing this market is a big blow for us. As for coal, last year and up to the middle of this yearOther 25% 43% Pavlodar Region we made deliveries to Russia in accordance with signed contracts at prices higher than on the domestic market. Today, the company is facing serious challenges in terms of pricing for a number of reasons. First, Russia is reluctant to buy our coal at higher prices. The RussianAtyrau Region 4% government has a program aimed at replacing coal from Kazakhstan. This is somethingMangistau Region 5% we should remember. Pricing is increasingly becoming a crucial matter for our coal exports to Russia. Second, devaluation of the ruble.East-Kazakhstan Region 8% Because contracts are made in rubles, we have to ensure that prices are fair and we do not lose 14% Karaganda Region money. We are working hard to resolve this issue.” Both parties were frustrated, because the Russian power plants, including Omsk CHPP-5, were technologically designed to use Ekibastuzof industrial customers dropped 15.6% to 2,763 coal, and adjusting them to Kuzbas coal wouldas of the end of 2014. The number of public sectorcustomers fell 7.2%, but the number of privatesector customers increased by 5.5% to 40,653, Figure 2. Projected capacity of Kazakhstan’s electrical grid to 2030, MWincluding non-manufacturing businesses.In 2014, Samruk-Energo produced 7.561mln Gcal of thermal energy, an increase of 11% 26,100over the previous year. The company’s majorproduction facilities, Almaty Power Networks 24,158and Aktobe CHPP, reported the highest growth. 22,422 17,567However, Samruk-Energo did not perform as 20,549 22,710well as it used to: its profit margin declined from 18,223 25,84830.8% to 7.35%. That is, following a net profitof KZT 41.8 bn and revenues of KZT 135.8 bn in2013, the company earned a net profit of onlyKZT 13 bn on revenues totaling KZT 178.1 bn in2014.The company’s performance was stronglyaffected by a number of external factors, withdevaluation of the Russian rouble being one ofthe most important. Ekibastuz CHPP-1 suppliedenergy to Russia until 24 November: thereafter,because the contracts were denominated inrubles, it was no longer possible to compete afterthe Russian currency’s value dropped. Deliveries 2015 2020 2025 2030fell by 24% to 1.86 bn kWh per year. Moreover, Generation Maximum consumption and reserves10 National Business, №12 (21) 2015 CONTENT

Sectorial ranking 2015 Ranking 2014 Ranking Company Sector Revenue, mln USD Revenue, mln KZT Net profit, mln KZT Assets at the beginning of the year, mln KZT Assets at the end of the year, mln KZT Equity at the beginning of the year, mln KZT Equity at the end of the year, mln KZT ROS, % ROA, % ROE, %1 21 25 Samruk-Energo Generation and distribution of 993.8 178,085 13,098 618,244 954,409 384,553 493,049 7.35 1.67 2.98 energy2 33 38 Central-Asian Power-Energy Company Generation and distribution of 611.7 109,611 42,258 201,607 286,095 102,784 137,356 38.55 17.33 35.19 energy3 37 51 KEGOC Electrical grid 521.9 93,520 119,726 367,322 549,928 221,181 359,777 128.02 26.11 41.22 377.74 Eurasian Energy Corporation* Energy generation 67,686 -13,978 211,993 207,819 159,423 145 -20.65 -6.66 -17.525 47 59 Kazakhstan Utility Systems6 87 72 CHPP-2 Ekibastuz Power Plant Generation and distribution of 364.7 65,350 energy 199.4 35,733 10,258 143,565 154,574 77,241 84,499 28.71 6.88 12.68 Energy generation 174.8 31,3307 104 Kazakhmys Energy Energy generation Generation and distribution of8 115 122 Astanaenergoservice energy 156.9 28,110 1,400 84,068 101,703 74,681 88,365 4.98 1.51 1.72 Thermal energy 9 119 108 Almatinskie teplovye seti Energy generation 149.8 26,843 -609 29,885 37,500 22,648 29,909 -2.27 -1.81 -2.3210 139 161 T.I. Baturov Zhambyl District Power Plant Energy distribution 131.6 23,588 -563 7,041 8,978 2,548 1,985 -2.39 -7.03 -24.8411 151 146 Pavlodarenergosbyt Energy distribution 118.2 21,18012 161 157 KaragandyZhyluSbyt Energy distribution 109.9 19,690 1,180 41,433 51,319 16,010 21,412 8.48 2.54 6.3113 Aktobeenergosnab** Energy distribution 91.0 16,31014 209 233 Zhezkazgan Energosbyt Energy generation 84.6 15,160 1,116 8,455 10,421 2,101 3,217 16.18 11.82 41.9715 210 143 AES Kazakhstan Energy generation 83.7 15,002 171 8,244 8,583 6,557 6,609 3.27 2.03 2.6016 229 190 Atyrau Teploelectrocentral Energy distribution 13,92017 250 242 Kostanay Energocenter Energy distribution 77.7 12,72018 266 251 Zhambylzharyksauda-2030 Energy distribution 71.0 11,96019 342 317 Zhetisu EnergoTrade Energy distribution 66.720 346 313 Kokshetau Energo Center Energy distribution 48.4 8,67021 361 333 Batys Energoresursy Thermal energy 47.0 8,42022 398 399 Almatyteplokommunenergo Energy distribution 44.9 8,05023 406 353 Atyrau-Zharyk Energy distribution 39.4 7,06024 457 439 Zhambyl Power Networks Energy generation 38.5 6,89525 464 391 Stepnogorsk CHPP Energy equipment 32.3 5,79026 477 327 ABB Thermal energy 31.6 5,66027 491 446 Ust-Kamenogorsk Heat Networks 30.8 5,520 29.2 5,238* Subsidiary of ERG ** Subsidiary of Eurasian Production Companybe difficult and costly. In any case, such inside Kazakhstan, and based on that Samruk-situation forces Kazakh coal companies to look Energo expectations were not very optimisticfor new customers and negotiate the possibility in 2015. The company had intended to produceof floating prices with Russian customers. 24.1 billion kWh of electricity in 2015, downBefore the tenge became a floating currency from 28.1 bn kWh in 2014, but judging by thein August 2015, one ruble cost 3 tenge or even results of the first nine months of the year, theless, down from tenge in 2013. In November industry leader is doing great. As of June 30,2015, the exchange rate returned to 1 RUB = Samruk-Energo had revenues of KZT 91.2 bn.5 KZT, which allowed to start selling electricity This suggests that the company’s revenuesto Russia again. This is very important, as it would have reached KZT 182 bn, had theis virtually impossible to find new customers second half of the year been similar to the firstCONTENT 11

NB 500 RANKING | ENERGYSince 2009, CAPEC half. But the second half of 2015 was a turning of 9% and 12% in average electricity and thermalhas been posting point: with a free-floating tenge exchange rate energy tariffs respectively.the fastest and purchasing power parity between the tengegrowing EBITDA in and the ruble, Samruk-Energo is likely to report Unlike Samruk-Energo, the company plans tothe sector. With more impressive annual results for 2015. increase energy production by 7% in 2015, whichaverage EBITDA will definitely improve its appeal to investors.growth of 1,479% Traditionally, Central Asian Power-Energyamong the top-10 Company took second place in the NB500 sector Power grid occurrencescompanies since ranking. And the company deserved it. Since In 2014, Kazakhstan’s electrical grid included2009, CAPEC’s 2009, Central-Asian Power-Energy Company hasEBITDA increased been posting the fastest growing EBITDA in the 81 power plants. The largest plants in the republicby 4,404%! sector. With average EBITDA growth of 1,479% are Ekibastuz CHPP-1, Aksu CHPP and Ekibastuz among the top-10 companies since 2009, CAPEC’s CHPP-2. As of December 31, 2014, Kazakhstan EBITDA increased by 4,404%! The energy giant had a total installed capacity of 20,844.2 MW. has been improving its efficiency 297.8% faster The total available capacity of all power plants than other companies. This is the fourth highest was 16,945.4 MW in winter and 16,937.7 MW in rate across the economy1. summer. In 2014, CAPEC not only boosted its revenues The structure of power generation by type of by 16% to KZT 109.6 bn, but also increased its fuel used is as follows: coal – 64%, natural gas and profit by 5.3 times to KZT 42.2 bn. Shareholders oil fuel – 16.1%, natural gas – 7.4%, hydropower should also be excited about the fact that the plants (without small HPPs) – 12%, renewable company’s profit margin has been growing every energy sources (including small HPPs) – 0.5%. year (38.5% in the reporting period), as have its Of this latter category, only 0.04% is accounted return on assets (17.33%) and return on equity for by wind and solar power plants. (35.2%). This is compared with 4.2% and 8% in 2008 respectively. So what made the difference? In 2014, Kazakhstan produced 93.9 bn kWh of electricity in 2014, a 2.1% increase compared Last year, enterprises included in CAPEC with 2013, including: 78.8 bn kWh (83.86%) produced 6.08 bn kWh of electricity. Output from steam-turbine power plants, 8.2 bn kWh from power plants reached 5.193 bn kWh, heat (8.77%) from hydropower plants, 6.9 bn kWh generation was 6.605 mln Gcal and power (7.36%) from gas-turbine power plants, and 10.6 transmission was 5.8 bn kWh. Some indicators mln kWh (0.01%) from wind and solar power plants. Increased electricity generation in 2014Table 1. Energy generationelectricity, mln kWh 2010 2011 2012 2013 2014 prodused by: 82,646.50 86,585.50 90,613.90 92,615.70 94,643.20 fossil-fuel power plants, million kWh hydropower plants, million kWh 74,599 78,651.10 82,899.80 84,760.2 86,140.5 8,022 7,883.30 7,637.30 7,730.80 8,262.80thermal energy, thou. Gcal 96,118.20 98,021.30 94,098.60 98,399.40 103,350.30 grew, some declined, but most importantly, compared to 2013 was the result of increased power transmission and distribution increased power generation at steam-turbine power plants by 68% after Akmola Power Distribution (1.15 bn kWh, or 1.5%), hydropower plants Company became part of CAPEC. (534.8 mln kWh, or 6.9%) and gas-turbine power plants (270.1 mln kWh, or 4.1%). Improved performance was also the result of an 8% increase in the production of thermal Kazakhstan’s power generation and energy, 3% and 9% increases in electricity and transmission companies earned total revenues of thermal energy sales respectively, and increases KZT 923 bn from their core business, just shy of a trillion tenge. 1 “Top-10 best CEO of Kazakhstan”. National Business #9-10 (19), 2015.12 National Business, №12 (21) 2015 CONTENT

Table 2. Energy generation by region and source, mln kWh, 2014.Kazakhstan Total by fossil-fuel including wind and solar OtherAkmola Region energy power plants power plantsAktobe Region output hydropower 14.5 225.4Almaty Region 86,140.5 plants 1.3 0.1Atyrau Region 94,643.2 639.0 - -West-Kazakhstan Region 640.4 8,262.8 0.4 0.6Zhambyl Region 3,110.1 3,110.1 - 0.0Karaganda Region 1,251.9 - 10.1 43.8Kostanay Region 2,819.5 4,079.1 - 41.0Kyzylorda Region 4,122.8 1,659.6 1,566.6 - 0.0Mangistau Region 1,700.6 2,712.5 - - 11.6South-Kazakhstan Region 2,756.3 12,563.9 - 0.0 0.0Pavlodar Region 12,575.5 1,674.5 - 74.4North-Kazakhstan Region 1,674.5 1,682.2 33.7 - 26.5East-Kazakhstan Region 1,756.6 5,080.0 - 0.0 16.2Astana 5,106.5 - 2.6 0.1Almaty 1,357.0 770.4 - 0.0 0.0 40,890.8 40,890.7 - 0.0 3.7 2,751.5 - 5.0 7,863.1 2,732.7 570.4 2.4 2,370.9 1,941.1 - 3,146.9 2,365.9 2,986.9 16.2 5,918.3 - 157.6 In 2014, Kazakhstan generated 2.27 bn kWh north, and Kazakhstan does not currently have 65% of powerof electricity more than it consumed. Electricity the infrastructure to bring this power to the is generated inexports during the year totaled 3.85 bn kWh, south and west (the latter currently unconnected the north, andor 7% less than in 2013. In value terms, energy to the national grid) of the country with minimal Kazakhstan doesexports stood at $114 mln, or 9% less than losses. The country needs new high-voltage not currently havein 2013. This fall was caused by a decline in power lines. This will be the main challenge that the infrastructureexports to Russia as a result of the lower RUB/ power network monopolist KEGOC will have to to bring thisKZT and RUB/USD exchange rate. Energy address in the future: it has plans to build the power to the southimports stood at 1.74 bn kWh, or 12% less than 1,700 km-long North-East-South 500 kW and and west of thein 2013. Therefore, electricity import costs fell 200 kW power lines, as well as three new 500 country withby 15% to $92.4 mln. kW substations. minimal losses. The average profit margin and return on The country’s energy companies need toassets among the 27 biggest companies were solve these and many other issues, because the8.46% and 4.94% respectively. The sector has Eurasian Economic Union will have an openbeen growing steadily over the past years. electricity market as of July 1, 2019, allowingThis growth has definitely been driven by the Kazakhstan to increase exports to Russia and“Tariffs in Exchange for Investment” program, Kyrgyzstan. After all, if the north and southcaused by the tariff ceiling. The program was of the country are connected and the capacityeffective during 2009-2015, and most power of the northern power plants is increasedplants had enough time to upgrade and increase as planned, Kazakhstan will both achieve aproduction. But the main problem still remains significant energy surplus and fully satisfy itsunresolved: 65% of power is generated in the energy needs.CONTENT 13

NB 500 RANKING | MANUFACTURING TEST OF STRENGTHIn 2014, companies in the added-value sector, featured in the NB500 ranking, reportedrevenues totaling KZT 1 trillion, an increase of 17.3%. 2015 was a year of surprises. Adrop in the RUB/KZT exchange rate reduced internal demand and declining productionseemed to have thrown the manufacturing sector back a few years. But, as expected, thegovernment came to the rescue by switching to a floating exchange rate and increasinggovernment subsidies.2014was the end of the first five and railway engineering are growing, while years of the government’s manufacturers have emerged in sectors such as Accelerated Industrial medical equipment, helicopters, solar and windInnovation Development (AIID) program. In power. During the AIID program, mechanicalfive years, Kazakhstan’s added-value sector has engineering has been especially successful, withgrown by 1.3 times, while the chemical industry 70 completed projects and investments worthand production of construction materials have more than one billion euros.increased by 1.7 times. Mechanical engineeringhas increased 2.2 times and exports have tripled. In 2014, the added-value sector grew by 1.1%.During this time, more than 800 production This moderate result was due to the slowdownprojects were completed, and 70% of foreign in the growth of mechanical engineeringinvestments landed in the added-value sector. (0.2%1) and production of fabricated metalProjects which could lead to a restructuring of products (–0.7%). All other industries withinthe entire sector in the future are beginning to the manufacturing sector showed some growth,be implemented: motor vehicle manufacturing albeit small. The most impressive growth rate, 1 Mainly due to a 22.7% decrease in production of computers, electronic and optic products.14 National Business, №12 (21) 2015 CONTENT

Industry leaders Ranking newcomers1 place 102.5 1,030 1. 146 | 13Asia Avto BN KZT Electrovoz 22.3 16.6% bn kzt Kurastyru Zauyty 2. BN KZT• The plant accounts for 10% of the manufacturing toetaarlnsiencgtsor Prommashkomplekt industry’s total revenues. 167 | 15 17.3% 3. 18.7• The company made 28,803 cars, a decline of 7.1%. Eurocopter Kazakhstan Engineering BN KZT2 place 53.0 4.LG Electronics Almaty Caspi Bitum JV 252 | 28 BN KZT 12.6Kazakhstan 18.4% BN KZT• Using the facilities of the Almaty Fan Plant, the 315 | 35 9.7 company started to manufacture air conditioners.• The parent company’s revenues reached $56 bn BN KZT thanks to a 24% increase in smartphone sales.3 place 51,9 Sfoecrt2o0r1’s4key figuresAlageum Holding BN KZT • The manufacturing industry grew by 1.1%. 1.1% Mechanical engineering contracted by 0.2%. 42.2% 26,360 • Production of paper, non-metallic mineral• The Uralsk Transformer Plant was launched. products and furniture increased by 9.4%, 6.4% In 12 months, 1,200 orders were placed. bn kzt and 4.6% respectively. Consumer goods industry increased by 4%.• The company joined the government’s program tinootftahcloeemraparannnkiiniengsgs “Leaders of Competitiveness – National Champions.” • Car market slid 3%. Sales slumped for the first 131.4% time since 2009. 115.2%Scoecmtpoarn’siefsastest-growing 12.4 92.1% iSnec2t0o1r5’s main eventsAgrotehmashSemaz BN KZT • Between January and November, tenge lost 69% of its dollar value and 42% of itsKazazot 11.3 ruble value. BN KZT • 2019 industrial innovation development program was launched. 15.3 • In 10 months, growth in the manufactur- BN KZT ing industry had slumped to 0.5%. The mechanical engineering sector has contracted by 29.1%.revenue – annual revenue growth – annual revenue fall ranking place | sectorial ranking place BN KZT 15 CONTENT

NB 500 RANKING | MANUFACTURINGSectorial ranking 2015 Ranking 2014 Ranking Company Sector Revenue, mln USD Revenue, mln KZT Net profit, mln KZT Assets at the beginning of the year, mln KZT Assets at the end of the year, mln KZT Equity at the beginning of the year, mln KZT Equity at the end of the year, mln KZT ROS, % ROA, % ROE, %1 Asia Avto* Production of motor vehicles 572.1 102,512 4,600 42,897 59,727 15,957 20,557 4.49 8.97 25.202 60 74 LG Electronics Almaty Kazakhstan Production of electronic appliances 295.6 52,970 917 74,087 89,154 23,580 33,169 2.38 1.12 3.233 62 82 Alageum Group of companies 289.9 51,9494 82 68 Kazakhstan Engineering Holding 214.8 38,4885 99 121 Module-A Company Rolled steel products 179.8 32,2206 106 80 ASPMK-519 Manufacturing 169.0 30,290 7 107 50 Casting Metalworking 168.6 30,210 -1,024 22,035 31,247 -3,425 -4,449 -4.03 -3.84 26.00 8 118 85 KSP Steel Production of seamless pipes 151.2 27,100 7,169 22,471 29,068 20,912 27,881 29.71 27.82 29.38 9 126 104 Agromashholding Mechanical engineering 141.9 25,42810 135 158 Stroykonstruktsiya Production of building materials 134.7 24,13211 138 155 Bukhtarminskaya Cement Company Production of building materials 132.2 23,68012 140 131 Alina Group of Companies Production of building materials 129.3 23,17013 146 Production of rolling stock 124.2 22,250 Electrovoz Kurastyru Zauyty14 153 137 Central Asia Cement Production of building materials 116.8 20,926 -391 21,209 19,222 13,621 12,399 -1.87 -1.94 -3.0115 167 Prommashkomplekt Production of railroad switches and rail 104.2 18,680 wheels16 188 63 Locomotive Kurastyru Zauyty Mechanical engineering 94.1 16,869 -462 52,782 45,173 21,667 21,210 -2.74 -0.94 -2.15 Cement production 87.3 15,65017 200 201 Zhambyl Cement Production Company Chemical industry 85.4 15,310 -0.72 -0.58 -2.87 Equipment manufacturing 82.0 14,69018 206 301 KazAzot Mechanical engineering 79.6 14,255 -111 17,061 21,141 -978 8,711 8.69 23.02 53.98 Pharmaceuticals 78.3 14,031 4.91 3.01 7.3019 216 179 Aikos Production of building materials 77.7 13,915 -15.95 -7.43 -43.72 Metalworking 77.0 13,804 0.42 0.61 1.3320 221 176 Kamaz-Engineering Production of rolled steel products 74.7 13,380 1,238 4,601 6,157 1,806 2,782 Cement production 71.9 12,890 689 21,286 24,581 9,099 9,78821 225 207 Chimpharm 6,186 3,966 Production of building materials 71.9 -2,219 29,615 30,097 3,734 4,86622 230 227 Karcement 57 7,747 11,036 Cement production 71.123 231 215 KazEnergoKabel 70.1 69.124 236 232 Stynergy 64.5 63.225 243 186 United Cement Group 60.726 244 59.0 224 Knauf Gips Kapchagay in partnership 56.0 12,890 with DEG 54.327 248 228 Standard Cement 54.1 12,740 12,55328 252 Eurocopter Kazakhstan Engineering Helicopter manufacturing 12,380 Production of agricultural machinery 11,56029 257 413 Agrotechmash 11,320 10,87030 274 338 Arystan Stepnogorsk Pipe Plant Pipe manufacturing 10,580 10,036 -11,461 30,217 16,764 -17,694 -28,384 -114.20 -48.79 49.7431 277 422 Semaz Tractor assembly 9,73432 289 257 Metal Profile Plant Metalworking33 294 305 Kainar-AKB Battery manufacturing34 308 247 Kagazy Investments Production of paper products35 315 Caspi Bitum JV Bitumen production 9,69036 Kazakhstan Rolling Stock Production Production of rolling stock Company** Production of non-metallic building37 327 385 Koktas-Aktobe materials 51.2 9,173 -666 5,022 8,486 43 350 -7.26 -9.86 -338.90 Production of building materials38 330 245 Shymkentcement 50.9 9,123 -1,424 9,142 13,756 3,930 2,505 -15.61 -12.44 -44.27 50.3 9,02039 333 347 Electrocable Plant Equipment manufacturing 49.7 8,910 49.3 8,826 -1,067 5,786 4,091 5,136 3,022 -12.09 -21.60 -26.1540 336 309 Asphaltobeton 1 Production of building materials 49.1 8,800 48.2 8,642 165 23,701 30,378 7,984 5,787 1.91 0.61 2.3941 338 178 EPK Stepnogorsk Metalworking 48.2 8,642 -380 8,106 8,991 -548 -583 -4.40 -4.45 67.2442 340 SaryarkaAutoProm Production of motor vehicles43 343 218 Kazvtorchermet Metalworking44 Temirtau Electrometallurgical Complex*** Metalworking16 National Business, №12 (21) 2015 CONTENT

Sectorial ranking 2015 Ranking 2014 Ranking Company Sector Revenue, mln USD Revenue, mln KZT Net profit, mln KZT Assets at the beginning of the year, mln KZT Assets at the end of the year, mln KZT Equity at the beginning of the year, mln KZT Equity at the end of the year, mln KZT ROS, % ROA, % ROE, %45 351 229 Kemont Equipment manufacturing 46.3 8,293 762 7,384 8,318 5,475 6,187 9.19 9.70 13.06 Cement production 44.8 8,02046 362 Kazahcement Production 44.6 8,000 Metalworking 41.2 7,39047 363 457 Asianergoproektmontazh Plastic products 40.7 7,300 Group of companies 39.9 7,14648 386 344 Kazakhstan Pipe Plant Pharmaceuticals 39.8 7,140 Production of electrical products 39.1 7,00049 388 392 R.E.T. Professional equipment 38.8 6,945 406 3,568 3,413 1,278 1,349 5.84 11.62 30.89 Equipment manufacturing 38.5 6,907 536 5,200 6,146 2,168 2,564 7.76 9.45 22.6550 392 352 Zhersu Metalworking 38.4 6,878 -70 11,136 9,788 3,366 2,004 -1.02 -0.67 -2.6151 393 Romat Pharmaceutical Company Drug manufacturing 38.1 6,834 2,248 4,941 6,235 3,681 3,960 32.89 40.23 58.8352 402 400 Kazcenterelectroprovod Mechanical engineering 38.0 6,810 Pipe manufacturing 37.3 6,68053 404 279 S.M. Kirov Plant Production of artificial coverings 37.3 6,680 Production of electrical equipment 37.1 6,65054 405 341 Aktobe Oil Equipment Plant Production of building materials 36.9 6,604 257 1,275 2,016 874 1,012 3.90 15.63 27.27 Rolled steel products 35.9 6,43055 407 262 Ust-Kamenogorsk Reinforcement Steel Mineral processing 34.2 6,120 Bar Plant Production of steel reinforcement bars 33.7 6,041 Production of building materials 31.8 5,70056 411 361 Nobel Almaty Pharmaceutical Factory Production of medical equipment 31.4 5,630 Concrete production 30.3 5,43557 Kazzincmash**** Production of metal products 28.9 5,180 Production of PV modules 23.8 4,26058 418 380 Kaztrubprom Pipe Metallurgy Company59 419 304 Karat60 421 Tamyr61 423 431 Kazbitumservice62 432 KazTemirKontrakt63 442 363 Altai Ken-Baiytu64 444 Evraz Caspian Steel65 461 442 SAS-TOBE Technologies66 466 Kazmedpribor67 482 Center Beton Company68 493 359 Galaksi69 Astana Solar****** Subsidiary of BIPEK Avto – Asia Auto Group of companies ** Third level company of Kazakhstan Temir Zholy *** Subsidiary of SAT & Company**** Subsidiary of Kazzinc ***** Subsidiary of Kazatompromat 9.4%, was in paper production. Followed by Figure 1. Dynamics of USD/KZT and KZT/Ruble exchange ratesthe production of non-metallic mineral products(6.4%), furniture on the third place (4.6%), 350 2014 2015 6consumer goods on the fourth place (4%), 302.27In the first 10 months of 2015, growth in the 300 5.33 3.69 258.17value-added sector slowed to 0.5%. Mechanical 250 5engineering contracted by a whopping 29.1%, 200 182.31 2.85with a record 55.2% decline in the production 4.66 4of motor vehicles, trailers and semi-trailers. 150 RUB/KZT 3From January to October, the production ofmetal products, paper and paper products, and 100 2furniture declined by 3.6%, 15.3% and 1.9%respectively. Oil refining slumped by 5.3%. 50 1Yet metallurgy grew 15.3% due to increasedproduction of non-ferrous and precious metals 0 USD/KZT 0(+26%). January February March April May June July August September October November December January February March April May June July August September October NovemberCONTENT 17

NB 500 RANKING | MANUFACTURINGLada remains “The declines in demand, limited access to Lada remains the most popular brand inthe most tenge liquidity and other problems have resulted Kazakhstan, even though in 2014 sales declinedpopular brand in a situation where 200 companies have to by 21% (45,234 cars were sold). Kia came inin Kazakhstan, operate below their capacity. Most of them second, reporting 49% growth (17,709 cars).even though are companies in the construction and food Hyundai was the third best selling brand inin 2014 sales industries,” said Asset Isekeshev, Investments Kazakhstan with a 14% increase in sales. Indeclined by 21% and Development Minister, back in November. 2014, Asia Avto made 28,806 cars (a decline of 7.1%) compared to 50,000 cars initially planned. Imports Strike Back Still, the plant made up 77.5% of Kazakhstan’s Over the years of the AIID program, passenger car production and 13% of the entire mechanical engineering sector. Asia Avto Kazakhstan has increased its motor vehicle had a total of 26,248 individual customers in production by 12 times. After 15% growth Kazakhstan, a 1% drop compared to 2013 - rate in 2013, the sector’s positive dynamics although the company’s share on the passenger stopped in 2014 recording 0.2% decrease. Still, car market increased to 17.7% compared to 17.4% Asia Avto remained the largest company in the in the previous year. Of all cars manufactured at added-value sector. Unfortunately, in 2014, the plant, Kia accounted for 41% (11,832 cars), the company’s revenues increased by merely Skoda (6,404 cars) and Chevrolet (6,402 cars) – 16.6% compared to more than double growth 22.2 % each, and Lada 4x4 (4,165 cars) – 14.5%. during the two years before that. Reasonably good rate, considering the fact that last year The plant already has the capacity to produce Kazakhstan’s car market contracted by 3% approximately 60,000 cars. “In addition to under pressure from the ruble’s low exchange factors affecting the entire economy, the rate2. Sales slumped for the first time since automotive industry is facing a number of 2009. The Ust-Kamenogorsk Car Assembly specific issues hindering its growth. The major Plant reported revenues of KZT 102.5 bn, one is competition from imports that currently which is approximately 10% of total revenues account for 80% of Kazakhstan’s market. And its earned by all the companies in the added-value share is growing. To put things in perspective, sector featured in the NB500 ranking. In 2014, in Russia, the share of imports is 28% or less. total revenues of Bipek Avto – Asia Avto group In 2014, Kazakhstan imported cars for a total exceeded KZT 237 bn. Of these, KZT 11.5 bn of $3.5 bn, and most of this was grey imports,” was invested in the development of production said Erik Sagymbaev, President of Asia Avto. and dealership network. In the future, the production rate should grow considerably to 120,000 cars per year. As is wellFigure 2. Motor vehicle production dynamics known, currently Bipek Avto – Asia Avto together with AvtoVAZ is building a car manufacturing40,000 Passenger Cargo 37,160 2,500 cluster. Once the project reaches its full capacity,35,000 2,043 2,372 2,000 Kazakhstan’s GDP will increase by more than30,000 one billion dollars. Infrastructure investments25,000 6,311 353 1,500 have already reached KZT 8 bn, and the funding20,000 745 1,000 did not come from the government. Welding,15,000 500 painting and assembly facilities will require10,000 0 investments worth $840 mln, plus $630 mln 5,000 will have to be invested in the car components production facilities3. 0 Under today’s hostile conditions, the 2003 subsidized car loan programs for individuals 2004 launched in 2015 were a great help for 2005 Kazakhstan’s car makers. The first tranche was 2006 KZT 15 bn, and the second tranche, granted in 2007 November, was KZT 11 bn. According to the 2008 Development Bank of Kazakhstan, Asia Avto 2009 accounted for 56% of the 3,266 car loans issued 2010 in September. More than 50% of customers 2011 2012 3 Data from JSC “Asia Avto” before tenge rate adjustment. 2013 2014 2 During the year exchange rate went down 32% - from 4.68 to 3.17 tenge for ruble.18 National Business, №12 (21) 2015 CONTENT

chose Kia models. However, despite the Kazakhstan Path to successgovernment’s support, sales via official dealers imported 80,000 In 2014, the revenues of Casting LLP, #2 inreturned to the level of the second half of 2012. cars and 151,000Kazakhstan imported 80,000 cars4 and 151,000 cars from Russia the NB500 sectorial ranking in 2013, totaledcars from Russia in 2014 and in the first five in 2014 and in KZT 30.2 bn. This was a 56.1% drop, andmonths of 2015 respectively. After the transition the first five 2015 is hardly going to be any better. Withoutto a free-floating exchange rate, car imports months of 2015 sufficient demand inside the country, Chineseslowed, even though prices for Kazakhstani respectively. steel manufacturers are looking for customerscars also rose by approximately 20%. According abroad and are willing to offer competitiveto the Association of Kazakhstan’s Automotive prices that are hard to beat. Casting is one of theBusiness, 53,081 cars were sold in Kazakhstan casualties: the company’s sales to Iran and theduring the first six months of 2015, which is Middle East have dropped considerably. Casting31% less than in the same period in 2014. Sales now has to explore new markets and is trying toof Japanese, Uzbek and Turkish cars slumped by keep its share on Kazakhstan’s market for steelmore than 40%. reinforcement bars. Russia is facing similar challenges. In the Representative of iron industry was replacedfirst ten months of 2015, the Russian car market by LG Electronics Almaty Kazakhstan (LGEAK),contracted by more than a third, while Lada which used to be in fifth place but has increasedsales fell by 30%, according to the Committee its revenues from KZT 44.8 bn to KZT 53of Car Manufacturers of the Association of bn. The company continues to post steadyEuropean Businesses. In November, the market growth in revenue: in the overall ranking ofshrank by 42.7%. In 2014, car sales in Russia the country’s 500 largest companies, LGEAKdeclined 10.3% compared to the previous year. has climbed from 74th to 61st place. For theSales of AvtoVAZ dropped 15% to 387,300 cars. parent company LG Electronics, 2014 was quiteRussia also has a subsidized car loans program a good year. Sales reached approximately $56that was launched on April 1, 2015. The most bn thanks to a 24% increase in smartphonepopular cars in Russia are the budget models Kia sales. Net profit amounted to approximatelyRio, Hyundai Solaris and Lada Granta, all made $474.8 mln, an increase of 125%. Compare thisin Russia. with a 9% decline in sales reported by another international South Korea’s company - Samsung.Figure 3. Volume of industrial products by area of business, % vs. previous year Metallurgy Mechanical engineering190 Kazakhstan’s manufacturing sector170 Added-value industries150130110 90 70 501990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20144 Data from National chamber of entrepreneurs. 19CONTENT

NB 500 RANKING | MANUFACTURINGFigure 4. Consumer goods production industry dynamics first half of 2015, the group’s companies were in trouble: with high prices and canceled180,000 75,180 Cotton, tons Wool, tons 80,000 investment programs, orders tumbled160,000 66 156,270 and production declined by almost half.140,000 70,000 Nevertheless, Alageum is part of the Business120,000 Road Map 2020 (BRM) initiative: in 2015,100,000 60,000 it became one of the 27 companies selected 80,000 for the government’s program “Leaders of 60,000 50,000 Competitiveness – National Champions,” so 40,000 the government support is assured. As part 20,000 40,000 of its production expansion effort, in 2014, the company launched the production of 0 30,000 three-phase power transformers in Uralsk. Investments totaled KZT 6.3 bn, of which KZT 62,899 20,000 2.5 bn was granted under the BRM program. A year later, the plant was able to fulfill an order 10,000 for 1,200 transformers. By 2017, the company expects the facility to have annual production 1,568 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 In 2014, LGEAK began to manufacture 300,000 Fabrics, thou. m2 700,000central air conditioners using facilities of the 250,000Almaty Fan Plant. Investments amounted 200,000 624,891 600,000to $3.7 mln, 80% of which was provided by 150,000 222,586the South Korean company, according to the 100,000 Leather from animal skins, thou. dm2Almaty Fan Plant. There are plans to build 50,000 500,000a second plant in the future. LGEAK’s mainplant was opened back in 1998. Since then, 0 286,731 400,000localization has increased to 60% from zero. 300,000LG produces about 300,000 TVs and 100,000washing machines every year. 200,000 Alageum Holding is the third largest 12,537 100,000company in the value-added sector. In 2014, 1,947the company had revenues of KZT 51.9 bn, 41,2800achieving an increase of 42.2%. Alas, in the 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 201490,000 Shoes, thou. pairs Carpets and carpet products, thou. m2 2,500 of 12,000 transformers with revenues worth80,000 81,057 1,898 2,000 approximately $100 mln. The holding70,000 1,500 company is currently preparing documents for60,000 2,048 102 1,648 1,000 the construction of a new factory in Shymkent50,000 500 that will produce 220 kV and 500 kV power40,000 1,664 0 transformers.30,00020,000 1990 Today, Kazakhstan imports more than 40%10,000 1992 of its mechanical engineering products, and the 1994 goal of the government’s programs is to change 0 1996 this. In the new five-year plan of the industrial 1998 innovation development, 6 out of 14 priority 2000 sectors are in mechanical engineering. In 2002 addition to Alageum, the national champions in 2004 this sector include Hyundai Trans Auto, Format 2006 Mach Company (railcar castings), Kainar- 2008 AKB (batteries), ZhigerMunayService (large 2010 drilling rigs) and Karlskrona LC AB (pumping 2012 stations). 20142 0 National Business, №12 (21) 2015 CONTENT

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N B 5 0 0 R A N K I N G | T R A N SP O R TWHAT IS LOSTBecause of the drop in prices and trade, freight movement in Kazakhstan in 2014 also slumped. The maincasualties were railway and air cargo transport, which declined by 6% and 20% respectively. 2015 was alsoa challenging year.Lost in transportation shipments of coal, oil, petroleum Europe and back, which allowed the In 2014, Kazakhstan Temir Zholy products, iron and nonferrous ores. company to increase its revenues on Passenger numbers fell by 4.2%, transit services by 13.7%. The company(KTZ), the leader of the NB500 but only because of cancellations or has plans to increase the share ofsector ranking, reported revenues schedule changes concerning foreign transit services in its revenue structureof KZT 881.2 bn, or 9.5% less than in trains passing through Kazakhstan. to 50%, up from 25% in 2014.the previous year. In KTZ’s revenue The company’s costs rose by 13.5%structure, freight shipments and to KZT 867.2 mln. Production costs Forty percent of freight inpassenger service made up 84% and increased by 10.2%. Still, KTZ was Kazakhstan is transported by rail.10.4% respectively. Freight movement able to secure contracts for additional Upon that, the current state of rollingdeclined by 6.2%, which, according to container shipments from China to stock and railway infrastructure isthe company, was caused by reduced described as at the high deterioration22 National Business, №12 (21) 2015 CONTENT

Industry leaders Ranking newcomers1 place 881.2 1,646 1. 40 | 4Kazakhstan Temir Zholy BN KZT Zhol Zhondeushi 83.5 9.5% bn kzt Company BN KZT total sector• Freight movement down by 6.2%. earnings• A rail manufacturing plant was launched in Aktau.• Fitch downgraded the company’s rating from “Stable” 10.6% to “Negative” (“BBB”). 1.1%2 place 167.5 26,360Air Astana BN KZT 20.0% bn kzt• Passenger numbers grew by 3%, freight movement fell by 20%. total earnings of companies• One of the world’s youngest fleets in the ranking (5.5 years). 251.2%• The company was allowed to operate 39.4% flights to EU countries. 38.9%3 place 145.4 fSoecrt2o0r1’s4key figuresKazavtozhol BN KZT • Freight movement totaled 3.6 bn tons. Rail 251.2% freight movement down 6.3%, air freight movement up 20.1%.• Assets increased by 3.2 times, equity – by 1.5 times.• Net losses reach KZT 79.2 mln. • Passenger numbers grew by 8.6%.• The company was named a single operator for maintaining • Fourteen percent of the rolling stock has been in and expanding Kazakhstan’s road infrastructure. service for more than 25 years.Scoecmtpoarn’siefsastest-growing 145.4 • Revenues from the toll section of Astana-Kazavtozhol BN KZT Schuchinsk highway totaled KZT 1.26 mln vs.Euro-Asia Air 10.9 KZT 1.16 mln in costs. BN KZTKedentransservice 44.6 iSnec2t0o1r5’s main events BN KZT • Freight movement in January-October fell by 7.4%. Passenger numbers grew by 2.5%. • Nurly Zhol infrastructure development program was launched. • KZT 269.3 bn allocated to finance road construction projects. • A new airline, Qazaq Air started operations. • A large ring road around Almaty is to be built in 2016.revenue – annual revenue growth – annual revenue fall ranking place | sectorial ranking place BN KZT 23 CONTENT

N B 5 0 0 R A N K I N G | T R A N SP O R TFigure 1. Structure of railway freight movement in 2014 One of the ways to upgrade and replace obsolete infrastructureSoft coal 41% 18% Other goods and rolling stock is to reorganize 3% Grain production. In addition to existing 6% Petroleum products plants manufacturing freight 6% Non-ferrous metal ores cars, diesel locomotives, electric locomotives and passenger cars, aConstruction materials 15% 11% Iron ore new rail manufacturing plant was opened in Aktobe at the end of 2014.level. According to the Transport and repaired. KZT 11.9 bn was allocated for Construction began in 2013, based onCommunications Research Institute, modernization of the freight car fleet, the existing demand for 120 meter-the wear rate of railway lines is as high which was 43% of the plan. 742 cars long R65-type rails in Kazakhstanas 70%, compared to the maximum were bought and 623 were repaired, and other CIS countries. The plant haslimit of 50% recommended to avoid although the initial upgrade plan the capacity to produce 430,000 tonsjeopardizing the sector’s performance. included 2,454 cars. The passenger car of steel products per year, includingFourteen percent of rolling stock in fleet grew by 163 cars, including 53 230,000 tons of rolled products such asKazakhstan has been in service for repaired cars. Spending on these items beams, angles and UPN channels.more than 25 years – or as much amounted to KZT 28.7 bn, compared toas 61%, not counting freight cars. the planned spend of KZT 47.4 bn. Fourteen percent ofBecause KTZ dominates the railway rolling stock hastransport market, it is the company’s Furthermore, KTZ continued been in service forresponsibility to ensure modernization construction of the Zhezkazgan- more than 25 yearsof rolling stock and infrastructure. Beineu and Arkalyk-Shubarkol railway – or as much as 61%, lines, with investments in 2014 totaling if we do not count freight cars.Table 1. Kazakhstan’s railway fleet, units 136,742 1,893 In 2015, Kazakhstan managed to Rolling stock, total 2,214 maintain freight movement at the level Locomotives of 2014 and to increase transit container Railcars 132,291 shipments thanks to a flexible fee Passenger cars 29 strategy. For example, according to KTZ, Freight cars 315 transit shipments from China to Europe Luggage cars during the first 7 months of 2015 totaled 19,649 containers, which was three According to the company, KZT 37.8 KZT 144.3 bn. In August, 2015, 1,250 times more than in the previous year.bn was spent in 2014 on modernization km of lines were commissioned for To stimulate production and increaseof the locomotive fleet: 46 locomotives temporary service. There are plans to freight movement, major domesticwere purchased, and the plan was bring 3.8 mln tons of cargo to these producers were offered discountfulfilled by 109%. Thirty three routes by 2018 and 30 mln tons by rates for moving products made inlocomotives were bought and 13 were 2023. Kazakhstan, thereby helping to attract freight traffic worth more than KZT 6 bn, or about 4 mln tons. Ready to fly In 2014, air passenger traffic increased worldwide. The International Air Transport Association (IATA) reported an increase of 5.9% which is24 National Business, №12 (21) 2015 CONTENT

Sectorial ranking 2015 Ranking 2014 Ranking Company Sector Revenue, mln USD Revenue, mln KZT Net profit, mln KZT Assets at the beginning of the year, mln KZT Assets at the end of the year, mln KZT Equity at the beginning of the year, mln KZT Equity at the end of the year, mln KZT ROS, % ROA, % ROE, %1 4 5 Kazakhstan Temir Zholy Transport 4,917.9 881,247 33,557 2,487,477 2,835,454 1,329,171 1,409,574 3.81 1.26 2.45 Transport 934.8 167,503 3,486 136,876 162,204 47,238 49,161 2.08 2.33 7.232 22 23 Air Astana Road network management 811.5 145,415 -0.05 -0.40 -2.18 Repair services 466.2 83,530 -79 4,709 15,289 1,482 2,1483 25 KazAvtoZhol Transport infrastructure 263.9 47,295 Logistics 248.7 44,5734 40 Zhol Zhondeushi Transport 223.2 39,997 Cargo transportation 178.0 31,8975 70 73 Almaty International Airport Transport 145.5 26,070 4,950 57,625 55,842 43,135 42,535 10.47 8.73 11.56 Transport 115.0 20,602 2,973 12,194 16,061 9,204 11,213 6.67 21.04 29.126 74 90 Kedentransservice Transport infrastructure 96.8 17,348 13,419 20,621 2,493 0.82 12.34 Transport 91.8 16,450 327 111,249 119,756 44,121 2,807 8.62 1.92 6.187 79 87 SCAT Airlines Transport and logistics 86.3 15,460 2,749 44,830 2.38 Cargo transportation 83.2 14,9008 102 115 Eastcomtrans Cargo transportation 81.5 14,597 Transport 69.0 12,3709 TransKom* Transport 61.0 10,922 Transport 54.010 Kazmortransflot** Transportation of grains 51.2 9,670 2,379 37,878 42,079 18,277 20,122 11.55 5.95 12.39 Transport infrastructure 45.8 9,170 616 40,290 40,886 32,516 32,702 3.55 1.52 1.8911 180 172 Astana International Airport Transport 37.1 8,200 Transport 33.2 6,64012 193 206 Argymak TransService Transport 32.9 5,949 Cargo transportation 29.7 5,89013 204 192 KM Logistic Rail transportation 28.9 5,330 5,18014 212 238 Fuel Transport Company15 219 221 Kumkol Trans Service -2,624 20,054 19,529 4,306 1,682 -17.97 -13.26 -87.63 338 21,005 24,316 14,988 15,214 3.09 1.49 2.2416 258 Bogatyr Trans 1,212 38,781 40,667 24,122 25,335 14.79 3.05 4.9017 Euro-Asia Air Airline** 129 16,725 18,299 9,902 9,850 2.18 0.74 1.3118 317 277 Tengiztransgas19 328 Astyk Trans20 354 328 Aktau International Commercial Seaport21 422 383 Bolat-Zhol22 447 396 Olzha23 Kazzinc-Trans***24 Kazzinc-Temirtrans***25 494 486 Kaskor-Transservice* Subsidiary of ERG ** Subsidiaries of KazMunayGas *** Subsidiaries of Kazzincabove the decade’s average of 5.6%. In the past five years KZT 722.3 During the past four years, AirThe industry served a record 3.3 bn bn was invested into railway Astana purchased 21 new aircraft,passengers. Of them, 3.77 mln people infrastructure, 1703 km of the including five last year, making itswere moved by Kazakhstan’s flag railway (12% of whole network) was fleet one of the world’s youngest. Thecarrier Air Astana. Consequently, Air built, as well as two new checkpoints average aircraft age is 5.5 years. AirAstana’s passenger traffic in 2014 grew – on the Chinese border (“Altynkol”) Astana’s fleet today consists of 303%. The company hopes to move 5.8 and Turkmenistan border aircraft and it plans to expand to a totalmln passengers in 2020. Air Astana, (“Bolashak”). New lines reduced the of 35 planes by 2020. One of the mainthe long-time No.2 in the NB500 sector distance between Centre and West tasks for this year is to decide to replaceranking, increased its revenues in 2014 for more than 1000 km, and 50 km the fleet of Boeing-757s, as theseby 20% to KZT 167.5 bn, with a return with North (Zhezkazgan-Beyneu, aircraft are now becoming obsolete,on assets of 2.33%. Arkalyk-Shubarkol), which allowed with a current average age of 17 years. to lower transportation costs for 25- Air Astana says the planes are reliable, Air Astana’s net profit dropped 62% 35% on those directions in 2015. but operating and maintaining them iscompared with 2013 to $19.5 mln, due becoming increasingly expensive.to its increased debt burden as a result of the best result in the company’s 13-the devaluation of the tenge1. If not for year history. One of the most exciting Scat airline, another relativelythe devaluation, the carrier’s operating developments of 2014 for Air Astana large player on the market, droppedprofit would have been $98.5 mln, was the decision by the European from fifth to seventh place in theor 36% more than in 2013, marking Aviation Safety Agency (EASA) to allow NB500 sectorial ranking. However, the Kazakhstani airline to operate the company increased its revenues1 On February 11th 2014, KZT/USD rate was decreased 19%. flights to the EU countries. 25CONTENT

N B 5 0 0 R A N K I N G | T R A N SP O R TFigure 2. Airline fleet age25201510 53,5 4 5,5 5,5 6 7 8 9 9 9 10 10,5 11 11,5 13 13 14 15,2 15,5 16 17 20,5Air Arabia Aeroflot Etihad Air Astana China Southem Turkish Airlines Czech Airlines S7 Azerbaijan Airlines Asiana Turkmenistan Airlines KLM Lufthansa Uzbekistan Airlines Rossiya Airlines British Airways Ukraine International Airlines Belavia Austrian Airlines Scat Transaero Bek AirSource: Air Astanaby 20% to KZT 40 bn. While in 2013, With an average passengers per year. Incidentally, inScat reported net losses of KZT 425 aircraft age of 5.5 2014, Astana airport reported revenuesmln, the next year was successful for years, Air Astana’s of KZT 17.3 bn, or 16% more than inthe company, earning a total profit of fleet is one of the the previous year.KZT 327 mln with a 1.92% return on world’s youngest.assets. The airline managed to achieve The leader of the NB500 sectorialthis despite attacks from the media 60%. Today, 45 airlines operate flights ranking among airports, as in theand regular news reports of incidents in Kazakhstan. Compare this with 70 previous year, was JSC “Almatyinvolving the airline’s aircraft. For airlines back in 2009. International Airport”. Its revenue inexample, one of them was the Boeing 2014 reached KZT 47.3 bn (+11%),737-300 that caught fire in the Aktau By the time of the ICAO’s next although its net profit tumbled byairport. As a result, the aircraft was audit in 2017, Kazakhstan’s regulatory 25% to KZT 4.95 bn. Compared withdamaged beyond repair. Moreover, framework, airlines and airports the sector’s average EBITDA growthin 2014, Scat had to fly home from have to become more consistent with of 318% between 2009 and 2013,Turkey the customers of Travelsystem, international standards. Kazakhstan Almaty International Airport showedthe bankrupt tour operator, offering its already has plans to modernize its an impressive 1,224% growth .services for free. airports. According to “The Nation’s Plan – 100 concrete steps to implement In 2014, trucking declined 20% to Generally, Kazakhstan has institutional reforms,” a new airport 19,100 tons of cargo moved, slidingsignificantly improved its position will be built near Almaty. Furthermore, back to the level of 2007. On the otherin the global flight safety ranking there are plans to expand the hand, passenger traffic grew to 5.4over recent years. The Civil Aviation passenger terminal of Astana airport mln people, posting a 9% increaseCommittee of Kazakhstan’s Ministry to increase its capacity from 750 to compared to 2013. It should also beof Investments and Development 1,750 passengers per hour, or to 7 mln noted that a new airline called Qazaqhas a 65% compliance rate with Air appeared in Kazakhstan in Aprilthe International Civil Aviation 2015 with a focus on domestic flights.Organization’s (ICAO) standards, The carrier’s fleet so far consists ofcompared with the global average of three Bombardier Q400 NextGen turboprop airliners. The company26 National Business, №12 (21) 2015 CONTENT

Figure 3. Air freight movement, tons35,000 31,554.930,00025,000 25,712 23,873.520,000 20,667 2007 21,996.4 21,954.215,000 18,247 19,082.410,000 16,5305,000 20060 2004 2005 2008 2009 2010 2011 2012 2013 2014plans to purchase seven more similar highways are made in Kazakhstan. Base According to IATA, in the first sixaircraft, each costing approximately for that is already existing in Kazakhstan: months of 2015, total domestic air$23 mln. 4 asphalt, 11 cement and 75 stationary transportation grew by 6.2% compared gravel plants. with the same period in 2014, while In 2014, trucking international air transportation declined 20% to 19,100 To reduce road maintenance increased 6.3%. Global passenger tons of cargo moved, costs, Kazakhstan plans to gradually traffic grew by 5.7%. sliding back to the introduce toll roads. In 2014, revenues level of 2007. from the toll section of Astana– It is expected that by 2020 Schuchinsk highway totaled KZT Kazakhstan will become a majorInvesting in roads 1.26 mln vs. costs of KZT 1.16 mln. logistics operator in the region and The third biggest company in the The country will have two more toll the main transit country between highways by 2017: Astana–Temirtau the markets of Europe and Asia. Bysector ranking is JSC “NC “Kazavtozhol”, and Almaty-Kapshagay. By 2022, the that time, transit traffic throughthe sole operator responsible for government plans to introduce road Kazakhstan is expected to double,maintenance and development of road pricing on 7,000 km of highways to reaching 30 mln tons.infrastructure. Established in 2013, recoup their operating costs.the company already earned revenuesof KZT 145.5 bn the following year. Figure 4. Revenues of automobile and urban electric transport in 2014, mln KZTStill, Kazavtozhol has yet to becomeprofitable, having reported net losses of 80,774 Passenger transport 39%KZT 79.2 mln. 44,619 Income from non-transport 21% Under the government infrastructure activities and other incomedevelopment program “Nurly Zhol”,KZT 2.4 trillion will be invested in road 83,966 Freight and luggage transport 40%construction in Kazakhstan over the next5 years. The program includes 12 projects 27involving plans to reconstruct more than7,500 sq. km of roads. So far, 774,000 sq.km of roads throughout Kazakhstan havebeen renovated. According to nationalcompany “Kazavtozhol”, more than 90%of materials used in the reconstruction ofCONTENT

N B 5 0 0 R A N K I N G | T E L ECO MMU N I C AT I O N S & I T BATTLE OVER 4GThe communications market is going through some significant and expected changes. As Internetpenetration increases, the number of landline phone subscribers is falling. The number of mobile cellular subscribers with Internet access is soaring. Still, there is one emerging but strongtrend: cellular operators are earning ever less revenue from voice calling, their major service. In 2014, market leader JSC “Kazakhtelecom” 9 bn increase in the revenues of its subsidiary JSC earned KZT 20.6 bn more than its closest rival “Altel”, whose subscriber base has been growing Kcell, although in 2013 the latter was only KZT steadily during the year. Investment in Altel 3.4 bn behind. Kazakhtelecom’s revenue reached continued in 2014, as the company has been posting KZT 208.2 bn, which was KZT 17.3 bn, or 9%, more net losses since its creation: a loss of KZT 0.7 bn on than in 2013. Net earnings were only KZT 6.7 bn and revenue of KZT 12 bn in 2012, a loss of KZT 5.4 bn on ROS was 3.23%, down from the more impressive revenue of KZT 10.6 bn in 2013, and a loss of KZT 8.7 10.25% in 2013. bn on revenue of KZT 19.8 bn in 2014. On November 4, 2015, Tele2 mobile operator (Mobile Telecom Several factors have influenced natural Service LLP) announced a creation of joint venture monopolist’s performance. The key one is the KZT CONTENT28 National Business, №12 (21) 2015

Industry leaders Ranking newcomers1 place 208.2 717 1. 311 | 10Kazakhtelecom BN KZT TNS-Intec 10.0 9.0% bn kzt BN KZT total sector• Altel launches 4G service. earnings• In 7 months, the number of 4G subscribers 9.9% reached 2 mln.2 place 187.6Kcell BN KZT 0%• Kcell’s CEO and CFO have resigned.• 62.1% return on equity.• Decline in revenue growth, which used to be 3%, has stalled.3 place 135.3 fSoecrt2o0r1’s4key figuresKaR-Tel BN KZT 5.9% • Revenues from international calling have declined 20%.• EBITDA remained at 46.2%. 1.1%• Mobile Internet traffic increased by 82.9%. • Operators’ revenues from cellular services• The number of wired network Internet users grew by 26.9%. 26,360 have declined 3.1%.cSoecmtpoarn’siefsastest-growing 13.4 bn kzt • The number of Internet users in the AlmatyAstel Region has increased 37.8 times in 7 years BN KZT total earnings with Kazakhstan’s average being 5.5 times.CBS of companies 5.6 in the ranking iSnec2t0o1r5’s main eventsMobile TelecomService (TELE2) BN KZT 66.3% • TELE2 and Altel have announced a joint 36.6% venture. 34.5 15.6% • TeliaSonera announced plans to leave BN KZT Kazakhstan. • The number of cellular subscribers with Internet access reached 10.7 mln.revenue – annual revenue growth – annual revenue fall ranking place | sectorial ranking place BN KZT 29 CONTENT

N B 5 0 0 R A N K I N G | T E L ECO MMU N I C AT I O N S & I TFigure 1. Volume of communications services provided by region in 2014, bn tenge1% Kyzylorda Region 4,565.7 57% Almaty 384,583.91% Zhambyl Region 5,826.91% West-Kazakhstan Region 6,303.2 Kazakhstan1% North-Kazakhstan Region 6,805.91% Akmola Region 8,933.6 673,363.41% Mangistau Region 9,691.21% South-Kazakhstan Region 9,919.2 22% Astana 148,320.02% Kostanay Region 10,539.12% Aktobe Region 10,571.72% Atyrau Region 11,317.72% Pavlodar Region 11,476.02% Almaty Region 12,357.32% East-Kazakhstan Region 15,168.93% Karaganda Region 16,983.1with JSC “Kazakhtelecom”, where Kazakhtelecom In the meantime, Kcell did fairly well in 2014,and Tele2 will own 51% and 49% respectively. Both its revenues remaining completely unchanged. ForTele2 and Altel brands will remain on the market, the second consecutive year, the company settledbut the total customer base will be 7 million SIM for second place in the ranking, although it usedcards, or 22% of Kazakhstan’s subscribers. The new to be the market leader back in 2012. Company’sjoint venture will have two competitive advantages: revenue did not grow, but have not decreased either.offering the lowest rates and 4G. Net profit fell by KZT 5.5 bn to KZT 58.3 bn, which is something new for the country’s largest operator,Table 1. Top 5 regions with the fastest growing number of since in previous years it has stably grew.Internet users, thous. In September, Swedish TeliaSonera, theAlmaty Region 2007 2014 Growth company’s main shareholder, said it would beginMangistau Region 3.2 120.9 37.8 times to scale down its presence in the Eurasian region,Atyrau Region 6.6 54.3 8.2 times followed by a complete withdrawal. The importantAlmaty 8.7 70.8 8.1 times thing is that Kcell will remain intact even afterKyzylorda Region 745.9 7.5 times TeliaSonera leaves. The official explanation for this 100.0 44.1 6.4 times exit from the countries to the east of Europe is a 6.9 desire to focus on the core market. “Today, our goal is to close the deal in the first Who will become the new owner is hard to tell - it quarter of 2016, after which we will proceed to the could be local investors, or Russia’s MTS or MegaFon. integration of business operations. Obviously, the Both giants increased their revenues in 2014 by 3% merger of the two operators will give subscribers and 4.5% respectively. VimpelCom, another Russia’s a number of significant benefits, including access market leader, already has presence in Kazakhstan to 4G, a joint network of base stations, as well as with its Beeline brand: its revenues in Kazakhstan are new products and services based on technological growing in tenge terms, although its dollar revenues superiority. Our goal is clear: to take a 30% share of have slid 12.1% across all markets from Africa and Kazakhstan’s mobile communication market”, said the CIS to Italy. It should be noted that VimpelCom, Pietari Kivikko, the Chairman of Tele2 Kazakhstan Russia’s largest company with revenues of $19.6 bn Executive Board. and one of the world’s 10 biggest mobile operators by number of subscribers, could acquire a controlling30 National Business, №12 (21) 2015 stake in Kcell, but this would be challenging for two reasons. Firstly, although the company’s EBITDA of $7.9 bn is quite high, its equity fell by 56.2% as of the end of 2014. Secondly, investing in the acquisition CONTENT

of Kcell in current state of the market is rather Figure 2. Top 5 regions with the highest number of Internetrisky. After all, VimpelCom doesn’t need this, as it users, thous.is posting slow but consistent growth of its Beelinebrand in Kazakhstan every year. 800 The revenues of the latter increased by 5.9% Almatyvs. 2013 to KZT 135.3 bn, with EBITDA of KZT 700 Karaganda Region62.5 bn, equivalent to 46.2% of revenue – the 600 Astanabest performance among all the countries where 500 East-Kazakhstan Regionthe Group operates. The number of subscribershas grown to 9.8 million SIM cards. Interestingly, Almaty RegionBeeline customers had an average monthly talk timeof 309 minutes, which is only 6.8% more than in the 400previous year, while mobile Internet usage showed astaggering 82.9% increase from 148 MB to 271 MB 300per month. 200 This is a general trend not only for Beeline, sothese figures demonstrate how the market is going 100to look in the future. How the telecom companieswill handle this remains an open question. 0 2007 2008 2009 2010 2011 2012 2013 2014 “We are not at the forefront of these processes,”said Alexander Komarov, Beeline’s CommercialDirector, in the summer of 20151. “Everyone islooking for a new role, be it a content business,Sectorial ranking 2015 Ranking 2014 Ranking Company Subsidiary companies Sector Revenue, mln USD Revenue, mln KZT Net profit, mln KZT Assets at the beginning of the year, mln KZT Assets at the end of the year, mln KZT Equity at the beginning of the year, mln KZT Equity at the end of the year, mln KZT ROS, % ROA, % ROE, %1 18 16 Kazakhtelecom Multipurpose communication 1,162.0 208,223 6,724 416,135 417,693 265,503 270,309 3.23 1.61 2.51 Altel services 110.7 19,833 -8,759 24,467 39,472 3,052 -4,668 -44.16 -27.40 1,084.33 Mobile communications2 20 17 Kcell Mobile communications 1,046.8 187,581 58,271 157,716 157,993 95,629 92,074 31.06 36.91 62.093 29 28 Kar-Tel (Beeline) Mobile communications 754.9 135,267 192.6 34,5204 89 100 Mobile Telecom-Service (TELE2) Telecommunications5 124 119 Logycom 143.3 25,675 249 17,033 22,216 3,639 3,888 0.97 1.27 6.626 Transtelecom* Manufacture and sale of computer equipment 120.6 21,616 3,154 43,444 75,971 13,545 16,615 14.59 5.28 20.91 100.7 18,048 1,053 28,206 30,327 13,711 15,804 5.83 3.60 7.14 Data transmission 84.7 15,183 1,586 14,257 15,810 11,391 12,978 10.45 10.55 13,385 1,186 4,767 13.027 174 114 ZERDE National Infocommunication Holding IT holding 74.7 5,608 9,377 5,318 8.86 15.83 23.52 55.6 9,9608 208 204 KazTransCom Data transmission 51.7 9,270 50.6 9,0609 235 286 Astel Data transmission 50.1 8,970 44.0 7,89010 311 TNS-Intec Control systems automation 38.9 6,97011 326 278 Alma-TV Television and Internet12 331 303 2day telecom Data transmission13 335 276 Huawei-Almaty Telecommunication networks14 367 266 Alsi IT15 403 415 Kazsatnet National Company Data transmission16 463 CBS System automation and 31.6 5,661 integration* Subsidiary of Kazakhstan Temir Zholy1 By now he’s a CEO of Beeline KazakhstanCONTENT 31

N B 5 0 0 R A N K I N G | T E L ECO MMU N I C AT I O N S & I Tmobile financial services, mobile and fixed business bn, long distance and international voice services -convergence solutions or the smart tube concept. drop in income by 2% to KZT 41.5 bn.A year ago, we studied the case of KPN, a Dutchtelecom operator. “Yes, we are basically a tube, but In January-October 2015 the situation haswe want to be the best tube available,” the Dutch changed, growth has slowed down in almost alltold us. So OK, why not? Everyone is looking for a segments, except for the Internet services, wherenew way to position themselves, trying to adjust revenues increased by 18% as compared to thethe structure of assets, priorities and the quality of corresponding period of the last year. Domestic longhuman resources.” distance and international telephony has brought 17.5% less revenue to the companies, upon that, Anyhow, the faster is smartphone’s Internet international telephony has shown a significant dropconnection (3G, 4G, 5G...), the less cellular operators - 33.6%, which is a global trend due to the growingwill earn on traditional voice calling. But this does popularity of online messengers. Local telephonenot mean that the companies will simply abandon communication also kept the negative dynamics andit: instead, they will continue to offer lower rates. decreased by 6.1% due to lower tariffs from mobileMoreover, soon we will have the Internet of Things, operators, which allowed abandoning landlinewhen, for example, your fridge will consult with services for a certain segment of the population.your wristwatch on choosing a lunch time through Cash flows from cable television services havethe network, and this will require at least one SIM demonstrated the reverse dynamics when comparedcard. And, naturally, there are mobile finance to the previous year and brought 8% less than inservices: all operators say they are ready, so now it’s January-October 2014. Consolidated revenues of theup to the authorities. mobile operators decreased by 11.3%, while the total subscriber base increased by 9.4% over this period,How industry developed and the number of mobile subscribers with Internet Overall across the country volume of access has increased by 7.8%. The number of fixed Internet subscribers has grown moderately - 1%, andcommunications services in monetary terms number of fixed telephone lines has decreased by 4%.increased by 8.5% over year to KZT 673.4 bn.Internet services showed significant increase - 27.7% In general the industry demonstrated a weakerto KZT 169 bn, data transmission services - 23.1% to dynamics for 10 months and only increased by 1.7%KZT 22.6 bn, cable television - 16.7% to KZT 20.9 bn. in monetary terms. This figure may increase, since traditionally the last two months of the year shows Mobile phone services sector recorded a decline not only business, but also a social activity that isin revenues - drop by 3.1% to KZT 286.2 bn, local likely to affect the earnings yield.telephone services - a slight drop by 0.4% to KZT 51.6Figure 3. Fixed Internet subscriber numbers, thous. 1,976.0 2,100.9 1,607.2 1,261.5 986.2 756.5 600.9381.22007 2008 2009 2010 2011 2012 2013 2014 CONTENT32 National Business, №12 (21) 2015

Almaty remains a leader among regions in the All companies are lookingindustry’s revenues generation, where in 2014 for a new way to positioncompanies earned KZT 284.6 bn, or 57% of total themselves, trying to adjustsector revenues. Astana is in the second place with the structure of assets,KZT 148.3 bn revenue and a share of 22%. priorities and the quality of human resources. The largest amount of Internet users isconcentrated in Almaty - 746 thousand, followed But given the rapid pace of Astana’s development,by Karaganda region - 164.2 thousand, and Astana - it is likely that in a few years the importance of the130 thousand users. Leaders of the growth rate from capital for companies in telecommunications sector2007 to 2014 are: Almaty region - 37.8 times growth, will be matched.Mangystau region - 8.2 times growth, Atyrauregion - 8.1 times growth and Almaty - 7.5 timesgrowth. Southern capital key figures have a crucialsignificance for the whole industry, because it ishere where companies receive most of the revenue.Table 2. Main performance indicators of communication companies in Kazakhstan, mln KZT 2014 January–October 2015 Total communications services including Total communications including communications services services communications services provided to personal users provided to personal users 2014 2014/2013, % 2014 2014/2013, % 2015 2015/2014, % 2015 2015/2014, % Total communications services 673,363.4 108.5 438,795.6 102.5 568,246.5 101.7 356,075.6 93.7 including: 41,487.5 98.0 13,205.6 80.8 28,744.5 82.5 9,979.7 89.7long distance and international telephone calls 12,967.3 101.4 3,035.4 84.3 7,287.5 66.4 2,279.1 89.1 including international calls 51,593.3 99.6 41,069.3 98.7 93.9 31,878.2 93.7 22,654.3 123.1 19.3 108.1 40,114.3 98.3 95.7local calls 169,042.9 127.7 129.7 18,473.4 118.0 16.2 117.6data transmission services 116,613.5 160,746.5 111,951.0Internet servicessoftware distribution through cable 20,939.8 116.7 18,125.5 118.7 22,423.9 92.0 19,918.2 91.4infrastructure, wireless networks and satellitemobile communications services 286,210.3 96.9 247,962.6 96.6 210,826.2 88.7 180,204.8 87.6 including cellular services 285,440.0 97.0 247,890.0 96.7 210,140.5 89.1 180,146.5 87.6 129.5 111.0 86,917.6 137.4 139.6other communications services 81,435.4 1,799.8 2,127.5Number of landline telephone numbers, thou. 4,338.2 98.9 - - 4,156.5 96.0 - - including for personal use 3,493.2 97.7 - - 3,306.4 94.8 - -Number of landline telephone numbers 4,234.6 99.6 - - 4,091.8 97.0 - -connected to digital telephone exchanges,thou. 3,427.6 98.6 - - 3,275.1 95.9 - - 28,003.0 94.4 - - 30,898.6 109.4 - - including for personal use 2,095.2 108.6 - - 2,066.7 101.0 - -Number of cellular subscribers, 108.9 - - 2,050.1 100.8 - -thou. 2,077.3 88.1 - - 10,698.2 107.8 - - 10,133.4 86.3 - - 10,051.1 102.4 - -Number of desktop Internet subscribers, thou. 9,927.8 including users with broadband Internet accessNumber of cellular subscribers with Internetaccess, thou. including users with access to broadband high-speed data transferCONTENT 33

NB 500 RANKING | CONSTRUCTION STOREY AFTER STOREY Over the past 15 years, Kazakhstan’s construction industry has made significant improvements and has now finally returned to the level of 1990, when 7.8 mln m2 of residential property was commissioned shortly before the Soviet Union collapsed. In 2014,7.5 mln m2 of residential property was built in Kazakhstan. And it appears that 8 mln m2 will be completed by the end of 2015, as 7 mln m2 were commissioned in the first 10 months alone.BI Group is the undisputed leader in the the only company from Kazakhstan featured on construction sector, finishing 2014 the list. Aidyn Rakhimbayev, head of BI Group, with a stunning result of KZT 241.6 says: “For BI Group, it has been a long-standingbn, or 44.9% more than in 2013. OGCC JSC goal to become one of the world’s 100 biggest“KazStroyService” (KSS) is in second place, with construction companies. Today, there are onlyrevenues of KZT 108 bn. multinational giants, e.g. from China, the United States and Germany. To make the list, you must BI Group was included in the list of Top 250 have at least $3.5 bn in revenue and you mustGlobal Contractors of 2013 by Engineering operate internationally. This is a big challengeNews-Record (ENR), a specialized industry for us, but we are ready to face it.”publication that has been around since 1917and is part of McGraw-Hill, as is Standard & BI Group operates in almost all sectors of thePoor’s. The company was ranked in 189th and construction industry: by today, the company164th place in 2013 and 2014 respectively. It is built more than 1,000 km of roads, more than34 National Business, №12 (21) 2015 CONTENT

Industry leaders Ranking newcomers1 place 241.6 1,478 1. 154 | 16BI Group BN KZT AtyrauInzhStroy 20.9 44.9% bn kzt 2. BN KZT• The holding’s structure has become divisional. total sector Akmaral earnings 155 | 17• Kazakhstan’s fastest growing company in 5 years. 3. 20.8 6.3% Arabtec Consolidated• Ranked among the world’s Top 250 Global Contractors Contractors Limited BN KZT by ENR. 1.1% (Astana branch) 171 | 212 place 108.1 26,360 18.4KazStroyService BN KZT bn kzt BN KZT 29.4% total earnings of companies• Net profit declined by 79.4%. in the ranking• Assigned a Ba3 rating by Moody’s. 410.5% 227.4%• 170 workers went on strike in West-Kazakhstan 215.4% Region over low pay.3 place 69.6 fSoecrt2o0r1’s4key figuresSubsidiary of China PetroleumEngineering & Construction BN KZT • Construction works provided for a totalCorporation of KZT 2.667 trillion. 111.0%• Reconstruction and modernization of • 7.5 mln m2 of real estate commissioned. the Shymkent Oil Refinery has begun. • The number of construction contractors• Revenues more than doubled. fell to 7,103.Scoecmtpoarn’siefsastest-growing 25.8 iSnec2t0o1r5’s main eventsSine Midas StroyGlobal Building Contract BN KZT • 7.4% growth in the amount of construc- tion and installation works in 10 months.Highvill Kazakhstan 15.2 • 73.4% YoY growth in the number of real BN KZT estate purchase and sale transaction in the first 10 months. 53.2 • Rapid growth of highway construction as BN KZT part of the Nurly Zhol initiative.revenue – annual revenue growth – annual revenue fall ranking place | sectorial ranking place BN KZT 35 CONTENT

NB 500 RANKING | CONSTRUCTIONSectorial ranking 2015 Ranking 2014 Ranking Company Sector Revenue, mln USD Revenue, mln KZT Net profit, mln KZT Assets at the beginning of the year, mln KZT Assets at the end of the year, mln KZT Equity at the beginning of the year, mln KZT Equity at the end of the year, mln KZT ROS, % ROA, % ROE, %1 15 21 BI Group Construction and production of 1,348.1 241,571 12,374 171,263 174,616 43,509 51,653 5.12 7.16 26.01 building materials2 34 22 KazStroyService Infrastructure development 603.3 108,097 4,578 145,607 162,007 55,637 41,549 4.23 2.98 9.423 46 95 Subsidiary of China Petroleum Engineering & Infrastructure development 388.6 69,640 Construction Corporation4 50 113 Branch of Sembol Investments & Development Construction 342.2 61,320 297.1 53,2405 59 168 Highvill Kazakhstan Construction 229.3 41,086 225.2 40,3536 76 127 Imstalcon Construction 182.7 32,745 815 54,869 55,745 15,868 13,534 1.98 1.47 5.54 179.1 32,090 1,056 11,238 14,589 1,618 1,944 2.62 8.17 59.277 78 132 Almatyinzhstroy Infrastructure development 27,684 36,082 -175 880 705 2.69 2.76 332.358 98 76 Sredazenergomontazh Trust Infrastructure development9 100 Kazdorstroy Construction of highways10 113 26 Bazis Group of Companies Residential and commercial 159.8 28,630 real estate11 121 434 Sine Midas Stroy 144.1 25,830 Infrastructure development 142.1 25,460 141.9 25,42012 125 130 Arman-Kurylys Construction 124.0 22,220 117.1 20,97613 127 197 ISKER Consortium Construction 116.4 20,854 116.3 20,84014 147 125 KazGerStroy Holding Infrastructure development 110.6 19,820 109.3 19,59115 152 236 K-Dorstroy Infrastructure development 374 6,985 7,347 1,948 2,423 1.78 5.22 17.1116 154 Atyrauinzhstroy Infrastructure development17 155 Akmaral Construction18 160 70 Karaganda BI Energy plus Infrastructure development19 162 Soyuzcomplekt JV Construction Construction20 166 96 Ekibastuz Branch of Alsim Alarko Sanayi 104.5 18,72021 171 Tesisleri ve Ticaret A.Ş Construction Construction Astana Branch of Arabtec Consolidated Construction 102.7 18,401 Contractors Limited Infrastructure development 100.1 17,93022 176 Branch of Fluor Kazakhstan Inc. 99.2 17,776 95.0 17,02023 177 188 Askeri kurylys 94.8 16,990 202 2,330 3,914 784 854 1.14 6.47 24.66 91.0 16,30024 185 241 Senimdi Kurylys 86.3 15,470 622 8,265 4,969 2,900 2,384 4.74 9.40 23.55 84.8 15,190 244 1.9025 186 269 MunayKurylysService Construction 79.4 14,22026 195 239 Naiza-Kurylys Concern Construction 75.3 13,500 74.4 13,33027 203 ElitstroyProyekt Construction 73.2 13,113 72.8 13,05028 207 458 Global Building Contract Construction 71.8 12,858 Construction 71.7 12,85029 222 212 Sheberbuild Construction 70.5 12,63030 233 Oksibild 68.0 12,19031 237 348 Branch of ENKA İnşaat ve Sanayi A.Ş. Construction 66.5 11,910 Construction 61.1 10,95032 239 111 KazStroy Construction 60.7 10,87033 240 Aktobe Munay Mash Komplekt34 246 452 Montazhspetsstroy Company Infrastructure development35 247 292 StroyAstes Construction36 251 162 Kulager Construction Corporation Construction and production of building materials37 262 Mostostroitelny Otryad 25 Infrastructure development38 268 149 TyazhPromElectroProekt Construction39 285 165 Promstroy-Energo Infrastructure development40 288 159 A-ta Stroy Construction36 National Business, №12 (21) 2015 CONTENT

Sectorial ranking 2015 Ranking 2014 Ranking Company Sector Revenue, mln USD Revenue, mln KZT Net profit, mln KZT Assets at the beginning of the year, mln KZT Assets at the end of the year, mln KZT Equity at the beginning of the year, mln KZT Equity at the end of the year, mln KZT ROS, % ROA, % ROE, %41 Kurylysmet* Construction and installation 60.5 10,840 Construction of highways 60.0 10,76042 290 ABK-Avtodor NS Construction and design 59.1 10,59043 293 Aria-Zhana Astana Infrastructure development 57.3 10,27044 305 Almaty branch of Todini Costruzioni Generali Residential and commercial S.p.A. real estate Construction45 313 388 Astana-Kurylys National Construction 54.7 9,796 298 3,496 5,220 438 529 3.05 6.84 61.72 Corporation46 316 GMT Engineering ltd 54.2 9,720 49.2 8,81347 339 VSP International Construction 48.8 8,750 46.5 8,33048 341 438 Shar Kurylys Construction49 348 Construction Office 99 Infrastructure development50 359 330 Astana branch of Alsim Alarko Sanayi Tesisleri Construction 45.1 8,090 ve Ticaret A.Ş51 Zhondeu** Construction 42.9 7,680 42.0 7,520 -984 6,179 6,338 -3,813 -3,167 -13.08 -15.72 28.1852 382 290 Almatymetrokurylys Infrastructure development 40.1 7,19053 391 379 AZMK (Almaty Bridge Construction Plant) Construction54 394 345 Akmola Kurylys Materialdary Construction and production of 39.7 7,120 building materials55 396 Ruskazdorservice 39.4 7,060 Road construction56 409 255 MAG Invest 38.3 6,860 -3,334 41,163 40,995 -1,314 -5,115 -48.60 -8.12 103.73 Residential and commercial 37.2 6,66057 420 ABK-Nerud real estate 36.5 6,540 36.3 6,500 -395 7,664 8,358 1,802 1,407 -6.08 -4.93 -24.60 Construction58 425 346 Akpan Construction59 427 337 Almatygorstroi Residential and commercial real estate60 430 Technonicol-Kazakhstan 35.9 6,440 Building and finishing materials61 435 Daulet-Dorstroi Infrastructure development 35.2 6,31362 439 167 AllianceStroiInvest Residential and commercial 34.9 6,260 real estate63 440 MAG Corporation Construction 34.8 6,23064 443 Zhambyl regional branch of KCC Engineering & Infrastructure development 34.0 6,09065 450 Construction Co. 32.8 5,878 Datoba Construction Construction 32.6 5,850 32.5 5,83066 453 293 Uniserv Infrastructure development 32.3 5,780 31.8 5,70067 454 414 Gordorstroi Infrastructure development 31.4 5,630 31.3 5,60068 458 390 Otau-Stroi Construction 31.3 5,60069 460 477 Ariadna Construction 30.6 5,49070 Cruz Repairs and installation 30.6 5,490 30.6 5,48071 469 Imstalcon-Temirtau Construction 30.1 5,390 29.3 5,24372 470 342 Kokshetau Zholdary Construction73 478 376 AGS-Plast74 479 366 Zhol Residential and commercial real estate Infrastructure development75 480 226 Imtech Bolashak Construction76 484 KazPaco Construction77 489 339 QED International Kazakhstan Construction* Subsidiary of ArcelorMittal Temirtau ** Subsidiaries of KazMunayGas Exploration and ProductionCONTENT 37

NB 500 RANKING | CONSTRUCTION700 km of railways and 14,000 apartments. BI Group was named 500 bn for the next 3 years. In addition, everyIn 2014, the holding was restructured and Kazakhstan’s year we have new projects as we win tenders,now consists of several divisions. BI Group fastest growing helping us to increase our revenues considerably.Construction and BI Group Development are the company in 2015 by We have signed contracts worth KZT 127 bn fortwo main holding companies, each consisting National Business, this year, compared with KZT 89 bn last year,”of six divisions. The first operates in road as its revenues said Talgat Kozhakhmetov, Chairman of theconstruction, industrial and infrastructure have increased Executive Board of BI Group Construction.construction, as well as in the production by 26.9 timesof construction materials and design. The compared with The holding has participated in largesecond specializes in real estate development, 2009. construction projects, including the EXPO-2017construction and management of residential trade fair, the Shalkar-Beineu and Arkalyk-and commercial property. This is a very efficient Shubarkol railway lines, a dry port in thestructure used by companies such as Procter & Khorgas-Eastern Gate free economic zone, theGamble and Hewlett-Packard. The key principle Western Europe-Western China internationalis as follows: when a division becomes large and transit corridor and a bridge across the Irtyshslow, it is broken into two parts, which promotes river, as well as the BI City project worth $2.5healthy competition among employees and bn (a complex of buildings around Khan Shatyrdecentralizes administration for greater mall in Astana2).flexibility and faster decision-making. OGCC “KazStroyService”, Kazakhstan’s largest industrial and infrastructure contractor,Figure 1. Total area of residential property developed, thous. m28,0007,0006,0005,0004,0003,0002,0001,0000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 BI was also named Kazakhstan’s fastest took second place. In 2014, the company’sgrowing company in 2015 by National Business, revenue was KZT 108 bn, or 29.4% less thanas its revenues have increased by 26.9 times in the previous year. KSS makes money mostlycompared with 20091. It is most likely that BI by building oil and gas pipelines and industrialwill retain first place in the new ranking to be facilities in Kazakhstan, India and the Middlepublished in February 2016. East. In 2014, the main customers were the Caspian Pipeline Consortium, Asian Gas Pipeline In any case, the company has a great future. (AGP), China’s Sinopec Engineering Group,“We have signed contracts worth more than KZT 2 1.5 mln sq.m. of various purpose buildings will be constructed on the1 1 “Top-10 fastest growing companies of Kazakhstan”. National Business territory of 120 ha.#1-2 (13), 2015. CONTENT 38 National Business, №12 (21) 2015

Indian Oil Corporation, Beineu-Shymkent gas Figure 2. Index of construction companies to commissioned buildingspipeline, Atyrau Oil Refinery and Zhaikmunay. 8,000 The company is described as the largest EPS 7,000contractor in the oil & gas industry for a reason, 6,000and we would have considered it to be part of 5,000the oil & gas sector if it hadn’t built a cement 4,000plants, power plants, highways and industrial 3,000parks as well. These are exactly the kinds of 2,000projects that can help the company return to 1,000growth: after all, the oil & gas industry was in 0trouble in 2014 and is a disaster in 2015, whichwill definitely affect the company’s financial 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014results. In the meantime, KSS’s net profit fell by79.4% to KZT 4.6 bn. Total area of commissioned buildings, thous. m2 Number of construction organizations In 2014, seven out of ten constructioncompanies in Kazakhstan increased theirrevenues, while the entire sector grew 4.6% andTable 1. Main performance indicators of the construction sector in 2014, During the reporting period, the value ofbn KZT completed works totaled KZT 2.667 trillion, or 4.6% more than in the previous year. Only Total 2014/ including by form of three out of sixteen regions recorded negative 2013, % ownership growth. The most impressive growth occurred in West-Kazakhstan Region (total works worth public private foreign KZT 73.6 bn with an increase of 36.4%), Aktobe Region (KZT 206.8 bn, increase of 24.9%),Number of construction 7,103 88.5 28 6,815 260 Kyzylorda Region (KZT 106.5 bn, increase offirms 2,667.2 104.6 19.8%) and Astana (KZT 399 bn, increase ofCompleted construction 17.9 2,252.1 397.1 16%).works (services) 2,270.7 105.7 3.1 1,877.2 390.5 Astana and Almaty were the top locations including: by scale of property developed, most of it construction and 257.5 104.1 2.7 253 1.8 commercial and residential, followed by major installation works 139 90.6 12.2 122 4.8 industrial regions such as Karaganda, Aktobe overhaul and Atyrau regions. routine maintenancethe total number of firms fell by 11.5% to 7,103. Figure 3. Volume of construction works by region in 2014, bn KZTFifty-five percent of all construction companiesare located in the cities of Astana and Almaty, as 450well as in East-Kazakhstan, South-Kazakhstan 400and Karaganda regions. With 968 and 957 350construction firms respectively, Almaty and 300Astana have the highest numbers in the country. 250 200 The sector’s landscape is changing. 150The amount of construction companies 100is decreasing, but the volume of works is 50increasing. For the first time during the 0years of independence the average area of 398.9commissioned buildings exceeded a thousand 269.1square meters per firm, index of construction 243.2companies to commissioned buildings equaled 224.61.058. It means that on average 1058 sq.m was 206.8built per one firm during a year. 201.8 190.3 172.2 145.1 113.7 110.8 106.5 88.7 83.2 73.6 38.5 As tana Alm aty Atyrau Region Karaganda Region Aktobe Region Almaty Region South-Kazakhs tan Region Mangistau Region Eas t-Kazakhs tan Region Pavlodar Region Zhambyl Region Kyzylorda Region Kostanay Region Akmola Region Wes t-Kazakhs tan Region North-Kazakhs tan RegionCONTENT 39

NB 500 RANKING | CONSTRUCTIONTable 2. Construction works by type in 2014, bn KZT Total amount including by forms of ownership of work done public private foreign 2,667.2 397.1Amount of construction works 17.9 2,252.1(services) provided 4.9 266.7 0.0 4.4 0.5 including: 617.3 440.3 0.0 238.6 28.1 development of construction 158.2 projects 24.4 1.6 494.4 121.3 construction of residential real 139.6 estate 126.9 11.9 366.0 62.4 construction of commercial real 122.8 estate 151.4 0.0 158.0 0.3 construction of roads and 122.1 highways 492.6 0.0 23.6 0.8 construction of railways and subways 0.0 99.4 40.2 construction of bridges and tunnels 0.2 117.1 9.6 construction of oil and gas pipelines 0.0 118.3 4.5 construction of water and sewage pipelines 0.4 139.4 11.7 construction of electricity and telecommunications 1.6 114.3 6.2 infrastructure 2.1 378.7 111.8 electrical and installation works installation of plumbing, heating and air conditioning systems other types of work Investment in the development of non- including 7.5 mln m2 of residential property, orresidential property totaled KZT 617 bn - 63,700 apartments. With the country’s growingthe highest throughout the sector. This was population and increasing number of families,followed by road and highway construction, this is not enough. The average annual numberwith total investment of KZT 440 bn. Almost of marriages over the past 5 years was 156,700,KZT 267 bn was invested in residential property up from 118,500 in 1991-2009. The averagedevelopment and KZT 158 bn in the construction natural population growth as of 2009 has beenof railways and underground systems. Taken 236,800 people per year, up from 110,900 intogether, this amounts to KZT 1.482 trillion, 1991-2009. As the number of people who needor 55% of all costs in the construction sector in their own place to live is growing, the sector2014. needs more investment, including investment by the government to satisfy demand for A total of 29,600 new buildings were built affordable housing.in Kazakhstan last year: that is 11.5 mln m2, CONTENT4 0 National Business, №12 (21) 2015

In the medium term, demand for premium part of “Nurly Zhol” program, this includeshousing will be insufficient. More specifically, the construction of a 7,000 km long hub-and-sales will fall as a result of the ongoing crisis spoke highway network connecting all ofand the sliding of GDP growth to the expected Kazakhstan’s regions via Astana, as well as the1.2% at the end of 2015. Western Europe–Western China international transit corridor. A total of KZT 2.4 trillion will For the first 10 months of 2015, the volume be invested in this plan by 2020. According toof construction services provided grew by Mereke Pshembayev, Chairman of the Road7.4%, despite the financial turmoil caused by Committee of the Ministry of Investmentsthe devaluation of the tenge and low oil prices. and Development, about half of this amountMoreover, during the same period, the number will be raised through issuing external debt.of home sale transactions increased by 4.6%Table 3. Main characteristics of commissioned buildings including by the developer’s form of ownership Total 2013/2014, % including property of public private foreigners citizens 62Number of new buildings 29,652 103.2% 1,226 28,364 27,421 114.8%Total area of new buildings, m2 11,510,607 109.8% 2,833,523 8,227,384 4,573,445 449,700Total area of new residential real 7,516,480 109.0%estate, m2 1,385,322 5,879,315 3,785,401 251,843Number of apartments 63,743 105.9% 16,092 45,981 26,460 1,670Average actual construction costs per 83.8 90.4 79.6 58.7 150.41 m2 of residential real estate (withoutspecialized and other residentialbuildings), thou. KZTover the same period last year to reach 136,900. A total of 29,600 Kazakhstan has asked the World Bank andThe main drivers of growth were Almaty and new buildings the European Bank for Reconstruction andAstana, where home sales increased 13.4% and were built in Development to assist in financing these73.4% respectively. Kazakhstan in 2014: projects. that is 11.5 mln m2,Plans for the future including 7.5 mln The national natural gas infrastructure Throughout 2015, the feeling of uncertainty m2 of residential development program will be another property, or 63,700 expensive venture, with a budget of KZTand lack of confidence in the future was apartments. 656 bn. The government will borrow fundsoverwhelming. With low oil prices and after from both the West and the East: the Asianthe double-dip devaluation of the tenge, Infrastructure Investment Bank with a capitalthe government decided to shelve several of $100 bn will become one of the sources ofprojects, but plans have generally remained funding, as well as the Asian Developmentunchanged. Government programs and some Bank, which is already actively involved in thelarge-scale projects are still under way. As a financing of major projects in Kazakhstan.CONTENT 41

NB 500 RANKING | TRADEOFFERS WILL BECONSIDEREDThe sector’s growth in 2014 was quite impressive. The gross income of all the trading companiesin the ranking totaled KZT 517 bn, or 32.8% more than in the previous year. In value terms,wholesale trade throughout Kazakhstan grew 14%, just as in the past five years. But will itbe able to keep up in 2015? In 2014, Megapolis-Kazakhstan, the Russian popular cigarette brands in Kazakhstan and is the distributor of tobacco products, became the distributor of JTI and Philip Morris, the largest leader. Its revenues increased by 36% to KZT tobacco companies. 169.1 bn, while gross income amounted to KZT 33.8 bn. This did not occur as a result of an increase in In addition, the seller is making more money the number of smokers, because quite the opposite by increasing retail prices, because the excise tax is happening in Kazakhstan. In 2014, there were on tobacco products is paid by manufacturers 2.8 million smokers in Kazakhstan, or 16% of the who, incidentally, also increased their revenues in population – down from 22% in 2013. 2014. It is very unlikely that Megapolis will agree to keep prices the same just to appease its partners The main reason for the increased revenues (tobacco companies) and see its profit margin fall. was the company’s aggressive development The best strategy in this situation is to cut costs and strategy: constant expansion of its partner network reorganize processes, while expanding the product and product range. Megapolis sells the most range and distribution.4 2 National Business, №12 (21) 2015 CONTENT

Industry leaders Ranking newcomers1 place 33.8 517 1. 295 | 22Megapolis Kazakhstan Mechta Market 10.6 BN KZT bn kzt 2.Trading Company Inkar BN KZT 8.0% total sector 3. earnings Amity International 383 | 28• Revenues increased by 36%. 4. 7.5• Partner network and geographic expansion. 33.0% Medtechnika BN KZT2 place 28.9Samsung Electronics 401 | 31Central Eurasia BN KZT 7.0• Revenues increased by 21.8%. 1.5% BN KZT• Revenues grow faster than the parent 416 | 33 company’s. 6.7 BN KZT3 place 28.2 fSoecrt2o0r1’s4key figuresArena S (Sulpak) BN KZT • Annual wholesale sales up by 14%. • Tenge was devalued by 19%. 6.0% • Annual inflation rate reaches 7.4%. • Total gross revenues of all companies in• Revenues increased by 27%. 1.1%• The number of stores increased from 72 to 81. the ranking increased by 32.8%. 26,360Scoecmtpoarn’siefsastest-growing 25.8 iSnec2t0o1r5’s main eventsSK-Pharmacia bn kztStopharm BN KZT • Transition to a free floating exchange rate forMedservice Plus total earnings tenge, which made it lose 68% of its value. 10.9 of companies in the ranking • Almaty accounts for 47% of wholesale trade. BN KZT • A number of clothes bazaars were shut down 162.7% 15.5 149.9% in Almaty. 149.2% BN KZTrevenue – annual revenue growth – annual revenue fall ranking place | sectorial ranking place BN KZT 43 CONTENT

NB 500 RANKING | TRADEFigure 1. Core indicators of retail sales, 2014-2015 6 5800 4700 3600 2500 1400 0300 -1200100 0January February March April May June July August September October November December January February March April May June July August September OctoberInflation m/m, % Markets and sole proprietorships, bn KZT Enterprises, bn KZT Samsung once again took second place in make sense, as the average monthly salary droppedthe ranking of the largest trading companies in to $404 – or even $316, if we discount the oil-richKazakhstan, reporting revenues of KZT 115.7 bn, western regions, Almaty and Astana.gross income of KZT 28.9 bn and annual growthof 21.8%. This is less than the 36.5% achieved in Arena S, owner of the well-known electronics2013, but still the figures prove that the company is retailer Sulpak, climbed from fourth to third placecontinuing to grow. The slowdown may be the result in the sector ranking. The company reportedof the 19% devaluation of tenge in February 2014, revenues of KZT 112.6 bn, or 27% more than inwhen importers had to raise prices and lose some 2013, and a gross profit of KZT 28.1 bn. Company’scustomers as a result of a decline in buying power. growth was caused by a number of factors. TheIt is worth noting that sales of smartphones and TVs major one was a decline in the buying power ofmake up about half of the company’s revenues. Kazakhstan’s population, resulting in a significant increase in the number of the discount retailer’s For the second consecutive year, Samsung potential customers, who were not interested inElectronics Central Eurasia has been growing faster savings before, meeting company’s main strategy.than its parent company, whose global revenues fell In addition, Sulpak has expanded its network fromby 9% in 2014 after growing 13.7% in 2013. Last 72 stores in 2013 to 81 stores as of today.year, Samsung Electronics saw its revenues declinein all markets in Asia, Africa, America and Europe, Home appliances and electronicsincluding China and even South Korea. The results According to GFK, in 2Q 2015 the homeof the two companies are becoming less dissimilar:Samsung is no longer growing as fast as it used to in appliances and electronics market contracted 14.8%Kazakhstan, yet unlike in other regions, Samsung is compared with the same period in 2014. Afterstill feeling comfortable in this country. the tenge was devalued in February 2014, major retailers left prices for the main product groups Because 2015 was a hard year for importers, unchanged, which helped to protect demand foras they had to raise prices - just as they did in some time. But eventually prices were adjusted, and2014 - due to the transition to inflation targeting this affected sales. While in Q2 2014, the worst partand a 68% drop in the USD/KZT exchange rate, of the year in terms of revenues due to seasonality,the growth of the companies’ revenues is likely to electronics sales totaled KZT 97.6 bn, in Q2 2015slow. But for manufacturers such as Samsung, this sales slid to the 2012 level of KZT 83.2 bn.could be a good opportunity. For example, openingmanufacturing sites in Kazakhstan should now Sales of audio and video (A/V) equipment declined 29%. In the TV category, the largest4 4 National Business, №12 (21) 2015 CONTENT

Sectorial ranking 2015 Ranking 2014 Ranking Company Sector Revenue, mln USD Revenue, mln KZT Gross revenue, mln KZT Net profit, mln KZT Assets at the beginning of the year, mln KZT Assets at the end of the year, mln KZT Equity at the beginning of the year, mln KZT Equity at the end of the year, mln KZT ROS, % ROA, % ROE, %1 94 96 Megapolis Kazakhstan Tobacco products 943.9 169,132 33,8262 111 107 Samsung Electronics Central Eurasia Electronics 646.0 115,750 28,9403 114 120 Arena S (Sulpak) Electronics retail chain 628.7 112,650 28,1604 117 Electronics retail chain 611.0 109,490 27,3705 122 Technodom Operator Distribution of pharmaceuticals 480.4 86,090 25,8306 261 SK-Pharmatsiya Supermarket chain 438.0 78,490 23,550 Magnum Cash&Carry* 749.0 134,208 20,131 11,5797 35 Bipek Avto Kazakhstan** Car dealership 40,636 65,802 13,742 24,419 8.63 10.88 30.348 Prima Distribution* Wholesale trade of household 351.8 63,040 18,910 goods 979.8 175,570 17,560 319.5 57,250 17,1809 KazMunayGas Onimderi*** Petroleum products trading 625.0 111,986 16,798 3,173 36,329 56,479 6,996 7,480 18.98 6.84 43.84 301.9 54,100 16,23010 182 214 Procter and Gamble Kazakhstan Wholesale trade of household goods11 Astana Motors**** Car dealership12 Apple City Distributors***** Wholesale trade of household13 201 goods14 245 369 Medservice Plus Kazakhstan Pharmaceutical 289.2 51,820 15,55015 264 Company Distribution of pharmaceuticals16 360 ArLine Wholesale trade of household 239.3 42,880 12,860 goods 672.5 120,500 12,050 268 Sinooil Petroleum products trading 223.4 40,040 12,010 Wholesale trade of household SAT-Central Asia Trading****** goods 613.7 109,970 11,000 613.7 109,960 11,00017 283 253 Gelios Petroleum products trading 203.2 36,420 10,920 202.2 36,240 10,87018 284 311 Petroleum Operating Petroleum products trading 199.1 35,680 10,700 235.7 42,230 10,56019 286 472 Stopharm Distribution of pharmaceuticals 191.4 34,291 10,28720 287 274 Skif Trade Supermarket chain21 291 427 Amanat Distribution of pharmaceuticals22 295 Mechta Market Electronics retail chain23 302 266 MELOMAN Group of Companies Holding 14,136 17,60624 365 291 Ramstore Kazakhstan Supermarket chain 147.9 26,510 7,95025 375 116 Best Green House Distribution of food products 141.7 25,390 7,62026 379 420 Gulser Computers (Alser) Computer equipment retail chain 168.4 30,180 7,55027 380 324 Altyn Alma Wholesale trade of household 140.3 25,140 7,540 goods28 383 Inkar Distribution of pharmaceuticals 139.7 25,030 7,510 Petroleum products trading 415.0 74,370 7,44029 384 318 Gaspromneft-Kazakhstan Food products 137.5 24,640 7,390 Distribution of pharmaceuticals 130.6 23,400 7,02030 385 364 Nestle Food Kazakhstan Sales of metal structures 126.4 22,650 6,800 Medical equipment sales 125.1 22,410 6,72031 401 Amity International Supermarket chain 122.4 21,940 6,580 Car dealership 240.4 43,070 6,46032 413 314 Mechel Service Kazakhstan33 416 Medtechnika34 424 272 Metro Cash & Carry35 429 407 Virazh36 437 409 Branch of General Electric International Inc. Electronics and equipment 140.2 25,130 6,28037 446 Marvel Kazakhstan Wholesale trade of computer 133.8 23,984 5,99638 471 Medicus Centre equipment 103.7 18,590 5,580 Distribution of pharmaceuticals39 498 KDV Kazakhstan Confectionery sales 95.1 17,040 5,11040 499 Borusan Makina Kazakhstan Special equipment sales 155.5 27,870 5,110 *** Third level company of KazMunayGas* Subsidiaries of Prima Corporation ** Subsidiary of BIPEK Avto – Asia Auto Group of companies **** Subsidiary of Astana GroupCONTENT 45

NB 500 RANKING | TRADEFigure 2. Core indicators of wholesale trade, 2000-2015 20 1818,000 1616,000 1414,000 1212,000 1010,000 8 8,000 6 6,000 4 4,000 2 2,000 0 02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Jan-Oct 2015Inflation y/y, % Wholesale sales, bln KZTcategory in the A/V product group, only budget reluctant to raise prices on flagship modelsmodels (below $500) and, as always in Kazakhstan, significantly, but after Apple officially opened inbig-screen TVs (over 60”) recorded growth. Sales Kazakhstan and iPhone prices increased, otherof relatively new UHD and curved screen TVs also players were able to be more flexible with theircontinue to grow. In the audio segment, sales of pricing strategies.Connect-compatible mini models increased four-fold. In the camcorders segment, sales of sports & In fact, Q2 2015 was a relatively quiet periodaction camcorders continue to grow both in value through to July. In August, Kazakhstan switchedterms and relative to other products within the to a free-floating exchange rate: as a result, salescategory. may plummet even though autumn and winter in Kazakhstan is the time when shoppers tend to Sales of photo cameras fell by 51%, as spend more.smartphones and tablets become increasinglypopular. Demand for major household appliances Food retailalso fell, although sales of refrigerators, microwave Magnum Cash and Carry is the undisputedovens, cookers and washing machines were close tothe previous year’s figures. Sales of small appliances leader on the food retail market. The companyfell 10%, yet sales of cooking equipment increased. reported total revenues of KZT 78.5 bn, 41% more than in the previous year, due to increased selling In Q2 2015, sales of computer equipment fell space and geographic expansion: it currently32.5% in tenge terms. This is the largest drop in operates 11 stores in four cities across Kazakhstan.Kazakhstan’s IT market. Decline in sales of displays This is really impressive, especially considering theand tablets was the fastest, although three quarters fact that the first store opened in 2007. Magnum isago both categories were growing. Yet there is a a strong believer in the “we’ve got the lowest prices”growing demand for mobile PCs in tablet form and strategy, which is driving the company’s growth inbig-screen devices (over 10.5”). Sales of all-in-one view of weakening purchasing power.desktop computers increased thanks to corporatesales and expansion into new market niches. The sector’s second biggest company is Skif Sauda, which operates a chain of 37 supermarkets Sales of telecommunications devices declined for under the Small brand in 7 cities throughoutthe first time, recording a 6.3% drop. Smartphone Kazakhstan. The company’s revenues totaledsales fell by 4.6%. Devices with a screen size of KZT 36.2 bn, which was 20% up on the previousbetween 4” and 5.6” are becoming more popular. year. Ramstore, the third biggest retailer, reportedThe share of smartphones costing more than KZT revenues of KZT 26.5 bn, which, however, is150,000 has increased. After the devaluation 4.3% less than in the previous year. The companyof tenge in February 2014, most retailers were operates 28 stores.4 6 National Business, №12 (21) 2015 CONTENT

Metro Cash&Carry has been slipping down in the Table 1. Volume of wholesale trade based on regions, 2015ranking during the past two years: ranked No.10 in2012, it dropped to 33rd place in 2014. There are two Wholesale trade, January-October, bln KZTreasons for this: first and foremost, pricing policy;and second, format. While offering convenience Total Food Non-foodand superior customer service, the company’sproduct range is not as extensive as its competitors’; Kazakhstan 12,544.6 2,274.5 10,270.2in addition, Metro focuses on imported products,which is driving down its revenues as people try Almaty 5,830.9 945.2 4,885.7to save and the tenge has less purchasing powerafter the devaluation. The company positions itself Astana 2,297.6 236.1 2,061.6as a B2B retailer selling to the HoReCa segment,offering small wholesalers generous discounts, but Karaganda Region 625.2 131.6 493.6you still need to have a proper product range to besuccessful. South-Kazakhstan Region 466.8 149.1 317.7General trend Aktobe Region 460.6 108.5 352.1 The devaluation of the tenge, which caused Pavlodar Region 457.4 71.9 385.5people’s purchasing power to plunge, has had asignificant impact on retailers, both large and East-Kazakhstan Region 441.5 112.4 329.1small. The challenges facing importers are thetoughest, since declining purchasing power will Kostanay Region 326.9 107.1 219.8definitely create excess supply of imported goodson the market. This will be a boon to domestic Atyrau Region 288.3 65.0 223.3manufacturers, if they don’t raise their prices toomuch. Distributors should now focus on local Almaty Region 273.8 91.3 182.5products. North-Kazakhstan Region 234.9 29.2 205.7 Since 2000, retail and wholesale trade inKazakhstan has been growing, and the growth Akmola Region 227.6 59.5 168.1will surely continue, but the structure may changedramatically. Producers should wake up to the West-Kazakhstan Region 207.6 44.2 163.4new reality now: offering quality local productsat affordable prices could be a simple and highly Zhambyl Region 164.6 41.0 123.6profitable business, as imported goods are becomingmore expensive. Mangystau Region 150.1 52.8 97.3 Almaty remains the country’s major market. In Kyzylorda Region 90.8 29.5 61.32015, the city accounted for 47% of Kazakhstan’swholesale trade, i.e. KZT 5.8 trillion out of KZT 12.5 Figure 3. Parts in overall volume of wholesale trade in Kazakhstan,trillion. Astana and the rest of the country account bn KZT, January-October 2015for 18% and 35% respectively. In the food wholesaletrade, Almaty, Astana and the rest of Kazakhstan 5,830.94 Almaty 47%account for 42%, 10% and 48% respectively. Evenwith non-food products, Almaty is the biggest 2,297.63 Astana 18%market, accounting for 48% of total sales. With its 4,416.08 Other 35%20% share, Astana is no slacker either. This is fifthpart of all wholesale, although just a few yearsago the city was not even close to this figure. InAstana, major buyers include the public sector andlarge companies, while in Almaty the market isdominated by small and medium-sized businesses. All in all, the sector’s results in 2015 may beslightly better than in 2014 or the same, as was thecase back in 2009 after inflation spiked to 18% in2007.CONTENT 47

N B 5 0 0 R A N K I N G | AG R I CULT U R E FIELDS OF OPPORTUNITIES The part of agricultural industry in country’s GDP is not exceeding 4.4%, while having more than 25% of workingpopulation involved. Numerous government supportive programs have created positive momentum in the industry, but in order to create further stable growth additional measures are required.Attracting investors Livestock farming 58% of all investments. Including KZT 50 bn in In 2014, gross agricultural output across all and oilseed North-Kazakhstan Region, KZT 27 bn in Akmola processing are Region and KZT 19.5 bn in Kostanay Region.farm types increased 5.9% to KZT 2.5 trillion. the two sectorsYet most large players saw their revenues that foreign Non-perennial crops (56.4%) and livestockslide: taken as a whole, all the companies in investors are farming (27.4%) account for most fixedthe industry ranking earned 17% less than particularly asset investment. Livestock farming andin 2013. The newly launched investment interested in. oilseed processing are the two sectors thatsubsidies program has caught the investors’ foreign investors are particularly interestedeye: the sector’s total investment in fixed assets in. According to Asylzhan Mamytbekov,has increased by 14.4% to KZT 166.4 bn. The Minister of Agriculture, agricultural projectscountry’s three key grain regions hosting the with foreign participation are worth more thanlargest agricultural holdings accounted for $1 bn. Eighteen major investors have launched4 8 National Business, №12 (21) 2015 CONTENT