Chernigiv Khimvolokno Reported USD 2.4 mln Net Losses In 2006

Chernigiv Khimvolokno (CHIM: BUY) reported a USD 2.4 mln net loss for 2006, according to Ukrainian accounting standards. The company also disclosed that its assets grew by 60%, to USD 96.6 mln, due to an almost two-fold increase in PP&E (to USD 48 mln) and a 52% increase in accounts receivable. Vladimir Nesterenko: CHIM is in the middle of a big transformation period and the management used big bath tactics in exposing all its negatives from last year, when the company sacrificed profitability for market share growth. To boost its share of the market, the company accelerated its modernization program which led to larger bank borrowings – interest expenses put pressure on company margins. In IFRS statements, which are being audited by a Big-4 firm, interest expenses will be capitalized and will be recognized by the auditor as we were told by the management. An unexpected increase in input prices in the second part of 2006 was another factor squeezing margins. These risks will be mitigated in 2007 as the company managed to change contracts with its major customers in 2006 for formula contracts; with input prices hedged. We expect the margins to improve this year.