Keramika AD, Mladenovac

Investment
Opportunity
Investment
Highlights
Investment opportunity
Keramika AD, Mladenovac
Prospective investors are being presented with an opportunity to acquire a
majority stake in “Keramika”, Mladenovac (“Company”).
This information brief (“Teaser”) has been prepared by BDO BC Excel on behalf
of the Privatization Agency of the Republic of Serbia (“PA” or “Agency”). The
information contained herein is confidential, and is not to be used for any other
purposes then considering an investment in the business described herein.
BDO BC Excel has prepared this document for the purpose of offering initial
information on this investment opportunity to potential investors. This Document
provides general information on the Company and its business activities,
management structure and capabilities, market and competitors and financial
standing. Potential investors that express interest will be able to obtain more
information through acquiring the tender documentation package, which will
include a detailed Information memorandum.
No warranty or representation by BDO BC Excel or Agency is made as to the
accuracy or completeness of the information contained herein. Prospective
investors must rely solely on their own investigation, financial projections and
conclusions.
� The Company has a dominant market share in the country.
� Sales for 2006 were EUR 9.85 million of which about 34% was
exported regionally and to Western Europe Countries.
� The Company has preferential treatment for its products on the
markets of South Eastern Europe and Russia, with only a one percent
duty applied.
� Strategic location in Europe that provides easy access to countries in
the region and the international highway “corridor 10” connecting
Salzburg to Thessalonica.
� The Company poses strong goodwill with domestic customers.
� The Company also has the capacity to export to neighboring markets
and enjoys a strong and recognizable brand name regionally.
� Production levels and quality standards could be brought up to global
levels with relatively minor investment.
� The sale process has the support of the Company’s management and
labor force

Background
and History
Location
Organisation
Investment opportunity
Keramika was established in 1950 for the purposes of manufacturing ceramic
sewage pipes. In the early 1970’s, production was expanded to include the
manufacture of sanitary ware. It is currently the only such production facility in
Serbia and Montenegro for both ceramic pipes and sanitary ware, and only one of
two in the Balkans manufacturing ceramic pipes for use as chimney liners.
Since its foundation, Keramika has expanded into other product areas. Currently
it has two main product lines, although sanitary ware is still the most important,
accounting for about three quarters of revenue:
� Sanitary Ceramics
� Ceramic Pipes including ceramic sewage pipes and ceramic pipes for lining
chimneys
Keramika also owns a clay mine, which not only provides the main raw materials
for the plant but also generates additional revenue from the sales of clays to third
parties. The factory is located on one single site, with the clay mine located
approximately 12 kilometers away. Keramika has ISO 9001 certification.
Keramika also has a small unit that manufactures decorative ceramics.
Keramika is
located in the
town of
Mladenovac, 40
km to the South
of Belgrade.
The plant is
well served in
terms of
communications
links, with
access to major
motorway, rail
and river
transportation
links. The
Company
transports raw
materials and
finished
products mainly
by road.
Keramika is currently organized as one single company. Around 53% of the
capital is held by the Privatization Register; 10% is state owned, with the shares
owned by the Pension and Disability Insurance fund. The remaining 37% is
private capital in the hands of some 1,700 current and former employees.
Keramika currently employs some 885 workers.

Sanitary
Ceramics
Overview
Production Facilities
Equipment
Investment opportunity
Keramika operates the only sanitary ware factory in Serbia. It is one of the three
factories in the Balkans. The others are located in Macedonia and Croatia. The
plant has installed capacity to produce 600,000 pieces per year. Last year it
operated at over 70% capacity. A significant proportion of production is exported.
Main export countries include Macedonia, Bosnia Herzegovina and Croatia. It
also does business with Italy, Belgium and Holland. Keramika is ISO 9001
certificated. The plant operates continuously on a three shift basis. Its furnaces
are gas fired. Total sales in 2006 were 460,000 pieces representing income of
some € 6.4 million.
In order to continue its operations successfully, management has identified some
investment requirements over the short to medium term, essentially in areas
relating to maintenance and automation. The basic infrastructure and equipment is
in good working order. Despite regional competition from Croatia and Macedonia,
Keramika is the dominant market leader in Serbia. This situation is unlikely to
change over the medium term.
Keramika produces sanitary ceramics such as toilet bowls, bathroom sinks and
decorative ceramics. The Company produces some 2,000 pieces per day.
Keramika produces its own range of models, many of which are classical. These
models are developed by craftsmen without the aid of computerization.
Management is aware of the need for investment in this area and has developed
plans for the modernization of the product range and the use of CAD in model
production.
Moulds are built in plaster (stucco) in the mould workshop. Each mould can be
used for 60 operations. This figure is lower than in similar factories due to the
high level of electrolytes in the slip. Management is fully aware of this issue and
has developed an investment plan to improve efficiency. Lack of financial
resources has prevented the implementation of this plan. The mould workshop has
the capacity to produce 90 new moulds per day. The molding line has the capacity
to produce 2,600 pieces per day.
Two natural-gas heated KERABEDARF kilns which date from 1975 are used for
glazing sanitary products. Each is 100 meters long with capacity for 47 trams
containing 18 pieces or 200 kg each. The glazing process takes 24 hours. Each
kiln has a total annual production capacity is 3,430 MT or 308,000 large pieces.
The kilns are in good condition. Total capacity of the plant is 6,860 MT or
616,000 large pieces annually.
Keramika has a range of other equipment for the preparation of slip, molding and
glazing. This equipment was built between 1975 and 1986. It is in relatively good
condition and adequately maintained.

Production Process
Market
Investment opportunity
Phase Equipment Features
Preparation of slip 6 ball mills 6 tons capacity each
5 mixers 3.5 meter diameter each
3 mixers 5 meter diameter each
7 additional mixers 16 tons each
Two tanks of maturation 150 tons each
Molding line 5 mixers 7 tons each
1 mixer 6 tons each
1 mixer 25 tons each
5 mixers 12 tons each
Glazing 1 mixer 6 tons
The production process for sanitary ceramics is a classical manpower intensive
one similar to the one used by EU companies in the early 1990s. Each plaster
mould can be used to produce up to 100 pieces, depending on the quality of the
plaster and the control of absorption in the slip. Once the mould is full of casting
slip, the mass rests for 90 minutes in order to get 8 mm. of solid wall. Afterwards
the mould is emptied opening the lower part. The excess of split goes to a tank and
is reused.
Once the piece is removed from its mould, it is put in an automatic line that is
moving permanently in the upper floor, under roofing. This part of the premises is
kept at 34ºC. Warm air created by the kiln is used for heating. The piece is
circulating in this dryer for three days. Then it is enameled manually in three
colors and glazed in a kiln at 1270ºC. Enameling is the bottleneck of this process
since it is done manually and Keramika works in two shifts six days per week.
It is possible to develop plastic moulds, which are able to produce thousands of
units, but their cost per mould is much higher, thus significant cost reductions
cannot be achieved. The environmental problem caused by plastic moulds is worse
than that created by plaster ones since plastic is more difficult to recycle. Pieces
are transported in the dryer in trays suspended from a motorized chain. The
product is then transported in trams and stocked in pallets. The product is
extracted from the mould manually. Potential defects created by remnants sticking
to the moulds are eliminated with a wet sponge.
Keramika is the only domestic and also the market leader for sanitary ceramics in
Serbia. The main competitor is FYR Macedonia. Their share of the market has
increased with the relaxation of controls by the State and the reduction of tariffs
on imports. The bulk of Keramika output is targeted at the “standard” market,
whereas imports from EU countries such as Italy and Spain are almost exclusively
targeted at the “luxury” end of the market. Keramika has a significant market
share. Management are of the view that the market will increase significantly in
the short term due to increasing consumer confidence which is translating into
increasing investment in real estate. Keramika has also been targeting exports as a
means to growth, increasing the value of exports in the last two years.

Ceramic
Pipes
Overview
Production Facilities
Investment opportunity
Keramika started the production of ceramic pipes (for use in sewage systems) and
chimney liners in the mid 1950s. It is the second principal business line,
accounting for about one quarter of revenues. Keramika is the only large
manufacturer in Serbia and only one of two in the Balkans. The plant has capacity
to produce in the order of 20,000 tones per year. Around 40% of production is
exported. Main export countries include Macedonia, Bosnia Herzegovina and
Croatia. The plant operates continuously on a three shift basis. Its furnaces are
gas fired.
Sales were 11.85 thousand tones in 2006. This represented income of some € 2.4
million. The main investment needs in the short to medium term relate to
maintenance and automation. The rest of the facilities are in a good state of repair.
Despite regional competition, Keramika is the dominant market leader in Serbia
with significant market share.
The company produces ceramic pipes for lining chimneys and use for sewage
collection. There is no mould per piece in this technical process. The mould is
constructed from steel and is installed in the press. It takes 40 minutes to change
the mould in the press. According to the product workshop, the company is able to
produce a range of moulds.
A 120 meter long KERABEDARF kiln is working at 1,100ºC of temperature. A
winch located just outside of the kiln is capable of winching 70 trams. Each tram
can hold up to 1,200 kg. The entire process takes 52 hours, therefore there is a
tram available every 45 minutes. Total annual production capacity is 14,000 MT.
The equipment is ageing, but still functions adequately. The molding press
includes 3 vertical presses for pipes and 1 horizontal press for connections. Each
vertical press is able to produce 150 pieces per hour. The horizontal press is able
to produce 275 connection units per hour or 1,125 tiles per hour.
In the mass preparation department the equipment is as follows:
- 2 mills for crushing.
- 1 ball mill.
- 1 edge runner mill.
- 1 mixer.
Keramika is one of two manufacturers of ceramic pipes in Serbia. Its main
competitor is Shamot, the other domestic producer. Imports are insignificant at
less that 5% of the market. The Company has increased its market share during the
past few years, despite the “dumping” of products into the market by its domestic
competitor.
KM Ceramic Pipe Sales (MT and € Million) 2004 – 2006
Sales of Ceramic Pipes 2004 2005 2006
Units (MT) 11,641 12,228 11,855
Value (€ Million) 2.2 2.5 2.4
The largest export market for Keramika is Bosnia Herzegovina. Other important
markets include Slovenia, Kosovo, Montenegro and FYR Macedonia.
Keramika has significant reserves of china clays and also of clays suitable for

Market
Clay Mine
Investment opportunity
brick-making. These have been assayed as being of a very high quality and with
reserves in excess of fifty years. Although originally acquired to supply raw
material to the factory, in recent times the Company has been seeking to capitalize
on this opportunity.
Both china and brick clays are sold locally and regionally to ceramic and brick
manufacturers. In 2006, Keramika generated some € 0.22 million of additional
income from the sale of some 12,154 tones of clays. The mine occupies an area of
16 hectares and produces around 30,000 MT per year. It is a permanent
concession. The quarry operates for six months each year working 12 hours per
day digging 1,000 cubic meters per day. The yield from the quarry is 20%. In
other words, five tons of earth are moved to provide one ton of clay.
Management has identified some investment requirements in order to scale up the
exploitation of the quarry. No other major investments are thought to be
necessary at this point in time.
The Kosharno mine contributed approximately 2.68% of total income during
2006. The mine produces four different types of kaolin-based clay product, which
is both used by KM in the manufacture of sanitary ceramics and ceramic pipes and
also sold to third parties. All third party sales are domestic.

Financial
Performance
Balance Sheet
Investment opportunity
U 000 RSD
ASSETS
Non current assets
31-Dec-06 31-Dec-05
Intangible assets, net 4,640.0 5,301.0
Property, plant and equipment 770,136.0 899,531.0
Long term financial investments 17,225.0 6,389.0
Investments in capital of other legal entities 6,397.0 2,030.0
Other long term financial investments 10,828.0 4,359.0
Non current assets 792,001.0 911,221.0
Inventories 392,627.0 323,828.0
Non current assets held for sale and assets from
discontinued operations 2,437.0
Trade receivables 78,707.0 77,974.0
Short term financial placements 15,814.0 14,334.0
Cash equivalents and cash 13,230.0 12,023.0
Prepayment and accrued income 9,445.0 5,762.0
Current assets 512,260.0 433,921.0
Total assets 1,304,271.0 1,345,142.0
EQUITY AND LIABILITIES
Share capital-common shares 238,548.0 238,540.0
Share capital-preferred shares 403,133.0 403,133.0
Other capital 5,537.0 5,537.0
Reserves 65.0 65.0
revalorization reserves 220,361.0 332,848.0
retained earnings 1,516.0 1,000.0
Loss -85,880.0 -86,880.0
Equity 783,280.0 894,251.0
Long term liabilities 181,006.0 191,553.0
long term provisions 28,989.0 45,188.0
long term provisions and liabilities 209,995.0 236,741.0
Liabilities from operations 161,985.0 135,168.0
short term financial liabilities 30,857.0 31,979.0
Other current liabilities 117,726.0 46,804.0
deferred tax liabilities 428.0 199.0
Current liabilities 310,996.0 214,150.0
Total equity and liabilities 1,304,271.0 1,345,142.0

Financial
Performance
Sales Process
Contact Information
Income statement
Investment opportunity
01.01.2006 01.01.2005
31.12.2005
U 000 RSD 31.12.2006 .
Operating income 778,388.0 819,208.00
Sales 76,720.0 79,132.0
Increase/(decrease) in value of work in progress and finished goods -7,665.0 -4,966.0
Other operating income 12,812.0 15,752.0
Operating expenses
860,255.0 909,126.0
Cost of goods sold 22,607.0 24,449.0
costs of raw materials 385,076.0 360,925.0
Staff costs 358,770.0 386,510.0
Depreciation 37,124.0 34,755.0
Other operating expenses 86,479.0 89,186.0
890,056.0 895,825.0
Operating profit 13,301.0
operating loss 29,801.0
Financial income 31,835.0 11,871.0
Financial expenses -10,473.0 -18,598.0
Other income 14,269.0 1,542.0
Other expenses -4,573.0 -7,225.0
Profit before tax 1,257.0 891.0
Income tax - -
Profit after tax 1,257.0 891.0
Privatization Agency of the Republic of Serbia is offering for sale 62,828% of the
total capital in the Company. The remaining 37,172% is private capital in the
hands of some 1,700 current and former employees.
If you are interested in this investment opportunity or have any additional
questions, please contact one of the following persons:
Vesna Bogdanovic Milovan Popovic
TAS Manager Partner
BDO BC Excel BDO BC Excel
Knez Mihajlova 10 Knez Mihajlova 10
11000 Belgrade 11000 Belgrade
Serbia Serbia
Tel: +381 (0) 11 3281 288 Tel: +381 (0) 11 3281 288
+381 (0) 11 3281 454 +381 (0) 11 3281 454
Fax:+381 (0) 11 3281 808 Fax:+381 (0) 11 3281 808
E-mail: E-mail:
vesna.bogdanovic@bdo.co.yu milovan.popovic@bdo.co.yu