ZALK Finishes 2005 With Losses.

Due to an increase in electricity tariffs by 52% in 2005 to USD 0.04 per KWh the Zaporizhzhya Aluminum Plant (ZALK: BUY) posted USD 3 mln in net losses.

                                   9m05           9m04           9m03

COGS/Sales                 88%              79%            78%

EBITDA mgn                3%                12%            13%

Source: Company Data, Concorde Capital calculations

Concorde Capital: ZALK is extremely sensitive electricity tariff hikes, thus COGS growth (caused by increased tariffs) hurt the company’s EBITDA margin. The company’s management has made several proposals to the government: to guarantee competitive electricity prices, to let ZALK make direct contracts with GenCos or to index the tariffs with world Aluminum prices. The government has already started to investigate the consequences of the unified tariffs introduced in August 2005. We believe the problem will be solved in the next few months as ZALK is the only producer of primary aluminum in Ukraine. The company’s negotiations with the government have been showing progress since 2H05, when ZALK managed to change its status from a Class 2 to Class 1 electricity consumer which implied lower tariffs.