CEO STATEMENT

In 2019, Steppe Cement posted a net profit of USD 9.7 million. Steppe Cement's EBITDA increased to USD 23.9 million from USD 21.4 million in 2018 as higher prices in KZT, lower cost of production and the implementation of IFRS 16 were balanced by a devaluation of 11%.

The overall domestic cement market increased by 2% to 8.9 million tonnes, while our sales volume remained flat. Our local sales increased by 4% while exports decreased by 29% due to increased competition from new factories and the strength of the KZT against the Uzbek Som in the second half of the year.

In 2019 our cost of production per tonne in KZT increased by 10%, higher than inflation of 5% due to coal and transportation pricing.

Steppe Cement operated both lines at 88% of their current combined capacity (which is 1.1 million tonnes for line 5 and 0.85 million tonnes for line 6).

Shareholders' funds increased to USD 62.9 million from USD 61.0 million after dividend distribution to shareholders. The replacement cost of the Company's assets remains many times higher than their current book value.

Key financials

Year ended

Year ended

Inc/(Dec)%

31- Dec-19

31- Dec-18

Sales (tonnes of cement)

1,715,761

1,720,629

0

Consolidated turnover (KZT million)

30,594

28,342

8%

Consolidated turnover (USD million)

79.9

82.2

(3%)

Consolidated profit before tax (USD million)

12.5

10.8

16%

Consolidated profit after tax (USD million)

9.7

9.1

7%

Profit per share (US cents)

4.4

4.1

Shareholders' funds (USD million)

62.9

61.0

3%

Average exchange rate (KZT/USD)

383

345

(11%)

Exchange rate as at year end (KZT/USD)

381

384

1%

The Kazakh cement market increased by 2% in 2019 but we expect headwinds in 2020

The Kazakh cement market in 2019 was 8.9 million tonnes, an increase of 2% from 2018. Imports into Kazakshtan decreased by 10% to 0.7 million tonnes or 8% of the total market. Exports from local producers decreased by 17% to 1.6 million tonnes.

The market demand in 2020 is very difficult to estimate as we can see the drop in demand during the COVID-19 lock down period. We expect a potential decrease of 10% as the effect of the lockdown and lower oil prices are felt across the economy. However we are still confident to maintain the volumes over the summer.

Exports, mostly to Uzbekistan and Kyrgyzstan, were reduced as they deployed their new factories and prices became more competitive. Still the companies located in the south of Kazakhstan benefited most. In April 2020, the government closed imports from Iran to west Kazakhstan and so it will benefit the companies operating in that region. At the same time Uzbekistan stopped imports from Kazakhstan. We expect imports and exports to be significantly reduced.

Steppe Cement's average cement selling prices increased by 8% in KZT, but decreased by 2% in USD, to USD 46.6 per tonne delivered.

Line 5 produced 995,141 tonnes of cement while Line 6 produced 720,620. We continue to make small improvements in Line 6 that will deliver additional production capabilities and lower costs in 2020.

Capital investment in 2019 was directed to the improvement of cement mills, silos, packing and to reduce power consumption. In 2020 we will endeavour to conserve cash and limit the capital investment to ecological and energy saving projects.

In 2019 we completed the following projects:

  • Increasing the capacity of the new 50 kg bags packing line to 2,400 bags per hour, equivalent to 120 tonnes per hour,
  • Commissioning the fully automated loading of wagons and trucks,
  • Installing a separator in cement mill number four that will allows us to increase the sales of M500 and decrease the production cost of M400,
  • Changing the two preheater fans in Line 6 to improve energy efficiency, and
  • Automating the silos and loading in the wet line mills area.

Capital investment was maintained at USD 3 million.

In 2020, we plan the limit the capex to USD 2 million including:

  • Cooler EP fan system,
  • Pan conveyor replacement,
  • Slag drier filter and automation,
  • Cooler fan replacement, and
  • Laboratory equipment.

Cost per tonne increased on the back of coal price increases

The average cash production cost of cement was maintained at USD 23/tonne as cost increases in KZT were balanced by currency depreciation of 11% over the year.

We expect the coal price to be reduced in 2020.

Selling expenses, reflecting mostly cement delivery costs, decreased to USD 8/tonne from USD 9/tonne in 2018, due to lower export volumes (-29%) and the net reclassification of 0.4 million wagon rental expenses from selling expenses to cost of sales and finance costs based on IFRS 16.

Effects of application of IFRS 16 in the accounts

The application of IFRS 16 in our accounts affects mostly the accounting of the expenses associated with the rental of wagons that Steppe Cement does not own. Some wagons are rented for more than one year and the accounting standard requires to account for a new non- current asset called right-of-use assets evaluated at USD 6.1 million (note 11 of the financial statements). The corresponding entries in the liabilities are called lease liabilities seggregated between non-current and current at USD 4.3 million and USD 2.2 million respectively (note 21). The transportation expenses have been reduced by USD 0.4 million to USD 13.3 million while the corresponding lease finance cost has been calculated at USD 0.9 million (note 5) increasing the financial expenses.

Without IFRS 16 accounting, the finance expenses would have been USD 1.1 million and the transportation expenses USD 13.8 million. Consequently, the gross profit has been reduced by USD 0.4 million. As the tax authorities do not recognise for the effects of IFRS 16 accounting, Steppe Cement's effective income tax rate has increased to 23%.

The EBITDA has been increased due to the recognition of the depreciation of right of use assets. Without this depreciation, the EBITDA for 2019 would have been USD 21.6 million.

General and administrative expenses

General and administrative expenses decreased by 5% to USD 5.9 million from USD 6.2 million in 2018 as we reduced the number of expatriates and contained inflation in salaries.

On 31 March 2020, the labour count stood at 751 from 735 in 2018. The increase is due to the termination of the subcontractor for bag packing. We are now employing directly the required personnel.

Financial position: Continuous debt reduction

During the year, our total loans outstanding were reduced from USD 11.8 million to USD 10.3 million. The cash position increased to USD 9.0 million leaving the company almost in net cash position at the end of 2019.

Long term loans were reduced from USD 6.6 million to USD 3.9 million. Of this reduction USD 1.6 million were due to repayment of loans and the balance due to the lower value in USD of long term KZT denominated loans. The effective blended interest rate in the long term loans in USD and KZT was maintained at 6.2% per annum.

Our short term loans and current part of the long term loans were slightly increased from USD

5.2 million in 2018 to USD 6.4 million in 2019, while the cash position at the end of the year was increased from USD 5.7 million to USD 9.0 million.

In 2019, finance costs (ex-operating leases) decreased to USD 1.1 million from USD 1.6 million in 2018 due to the continuous repayment of loan principal. Finance costs increased to USD 2.0 million after accounting for operating lease interest costs of USD 0.9 million under IFRS 16.

Following the drop of oil prices and the devaluation of the Russian Rouble in March 2020, the KZT devalued from 380 to 430 KZT/USD. Our current loans in USD are balanced by similar cash deposits in foreign currency.

We maintain two short term credit lines available as stand by:

  • KZT 3 billion from Halyk Bank at 6% p.a. in USD or 13% in KZT which includes a government subsidized program of KZT0.5 billion in KZT at 6% p.a.
  • KZT 0.9 billion from Altyn Bank at 11% p.a. in KZT.

All covenants under the various credit lines have been met comfortably.

Depreciation of property, plant and equipment decreased slightly from USD 7.1 million in 2018 to USD 6.9 million in 2019.

The statutory corporate income tax rate remains at 20% in Kazakhstan.

Javier del Ser Perez

Chief Executive Officer

2019 Annual Report and Annual General Meeting

Steppe Cement will release its 2019 Annual Report on its web site at www.steppecement.comduring the week commencing 8 June 2020.

The Company's Annual General Meeting is expected to take place at its Malaysian Office at Suite 10.1, 10th Floor, West Wing, Rohas Perkasa, 8 Jalan Perak, Kuala Lumpur Malaysia on 8 July 2020 at 4 p.m. and telematically due to travelling restrictions.

Steppe Cement's AIM nominated adviser and broker is RFC Ambrian Limited.

Nominated Adviser contact: Stephen Allen or Andrew Thomson on +61 8 9480 2500.

Broker contact: Charlie Cryer at +44 20 3440 6800

STEPPE CEMENT LTD

(Incorporated in Labuan FT, Malaysia under the Labuan Companies Act, 1990)

STATEMENTS OF PROFIT OR LOSS

FOR THE YEAR ENDED 31 DECEMBER 2019

The Group

The Company

2019

2018

2019

2018

USD

USD

USD

USD

Restated

Revenue

79,929,953

82,184,670

9,915,657

8,912,843

Cost of sales

(46,244,126)

(46,737,415)

-

-

Gross profit

33,685,827

35,447,255

9,915,657

8,912,843

Selling expenses

(13,371,624)

(15,612,203)

-

-

General and

administrative

expenses

(5,921,545)

(6,226,994)

(318,980)

(300,517)

Interest income

128,735

42,649

6,023

458

Finance costs

(2,061,008)

(1,637,834)

-

-

Net foreign exchange

(84,400)

(1,786,724)

(35,941)

26,141

(loss)/gain

Other

166,115

576,570

-

(4,855)

income/(expense), net

Profit before income

12,542,100

10,802,719

9,566,759

8,634,070

tax

Income tax expense

(2,835,709)

(1,744,486)

-

-

Profit for the year

9,706,391

9,058,233

9,566,759

8,634,070

Attributable to:

Shareholders of the

9,706,391

9,058,233

9,566,759

8,634,070

Company

Earnings per share:

Basic and diluted

4.4

4.1

(cents)

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2019

The Group

The Company

2019

2018

2019

2018

USD

USD

USD

USD

Restated

Profit for the year

9,706,391

9,058,233

9,566,759

8,634,070

Other comprehensive

income/(loss):

Items that may be

reclassified subsequently to

profit or loss:

Exchange differences

572,722

(9,445,330)

-

-

arising on translation of

foreign operations

Total other comprehensive

572,722

(9,445,330)

-

-

income/(loss)

Total comprehensive

10,279,113

(387,097)

9,566,759

8,634,070

income/(loss) for the year

Attributable to:

Shareholders of the

10,279,113

(387,097)

9,566,759

8,634,070

Company

STATEMENTS OF FINANCIAL POSITION

AS OF 31 DECEMBER 2019

The Group

The Company

2019

2018

2019

2018

USD

USD

USD

USD

Restated

Assets

Non-Current Assets:

Property, plant and

55,807,917

59,642,055

-

-

equipment

Right-of-use assets

6,140,152

-

-

-

Investment in subsidiary

-

-

36,197,767

26,500,001

companies

Loan to subsidiary

-

-

30,140,000

30,170,000

company

Advances

5,992

191,242

-

-

Other assets

2,426,938

2,203,459

-

-

Total Non-Current

64,380,999

62,036,756

66,337,767

56,670,001

Assets

Current Assets

Inventories

10,811,542

13,381,295

-

-

Trade and other

5,790,278

3,500,468

8,847,922

8,883,956

receivables

Income tax recoverable

405,147

175,336

-

-

Loans and advances to

-

-

30,079

9,634,325

subsidiary companies

Advances and prepaid

3,682,896

2,312,534

15,944

6,704

expenses

Cash and cash

9,014,360

5,719,491

261,798

23,570

equivalents

Total Current Assets

29,704,223

25,089,124

9,155,743

18,548,555

Total Assets

94,085,222

87,125,880

75,493,510

75,218,556

The Group

The Company

2019

2018

2019

2018

USD

USD

USD

USD

Restated

Equity and Liabilities

Capital and Reserves

Share capital

73,760,924

73,760,924

73,760,924

73,760,924

Revaluation reserve

2,015,943

2,349,282

-

-

Translation reserve

(113,285,956)

(113,858,678)

-

-

Retained earnings

100,386,012

98,735,515

1,576,763

399,237

Total Equity

62,876,923

60,987,043

75,337,687

74,160,161

Non-Current Liabilities

Borrowings

3,892,851

6,606,910

-

-

Lease liabilities

4,306,929

-

-

-

Deferred taxes

4,651,541

2,054,758

-

-

Deferred income

1,421,368

1,490,942

-

-

Provision for site

74,435

65,354

-

-

restoration

Total Non-Current

14,347,124

10,217,964

-

-

Liabilities

Current liabilities

Trade and other payables

6,203,453

6,614,604

-

-

Accrued and other

1,405,123

2,682,569

155,853

1,058,395

liabilities

Borrowings

6,420,573

5,217,009

-

-

Lease liabilities

2,190,586

-

-

-

Deferred income

81,387

138,566

-

-

Taxes payable

560,053

1,268,125

-

-

Total Current Liabilities

16,861,175

15,920,873

155,853

1,058,395

Total Liabilities

31,208,299

26,138,837

155,853

1,058,395

Total Equity and

94,085,222

87,125,880

75,493,510

75,218,556

Liabilities

STATEMENTS OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2019

Distributable

The Group

Share

Revaluation

Translation

Retained

Total

capital

reserve

reserve

earnings

USD

USD

USD

USD

USD

As at 1 January 2019

As previously stated

73,760,924

2,349,282

(116,266,492)

96,112,997

55,956,711

Adjustments

-

-

2,407,814

2,622,518

5,030,332

As restated

73,760,924

2,349,282

(113,858,678)

98,735,515

60,987,043

Profit for the year

-

-

-

9,706,391

9,706,391

Other comprehensive income

-

-

572,722

-

572,722

Total comprehensive income for

-

-

572,722

9,706,391

10,279,113

the year

Other transactions impacting

equity:

Dividends paid

-

-

-

(8,389,233)

(8,389,233)

Transfer on revaluation reserve

-

(333,339)

-

333,339

-

relating to property, plant and

equipment through use

Balance as at 31 December 2019

73,760,924

2,015,943

(113,285,956)

100,386,012

62,876,923

Distributable

The Group

Share

Revaluation

Translation

Retained

Total

capital

reserve

reserve

earnings

USD

USD

USD

USD

USD

As at 1 January 2018

As previously stated

73,760,924

2,680,003

(106,741,124)

89,817,170

59,516,973

Adjustments

-

-

2,327,776

2,488,738

4,816,514

As restated

73,760,924

2,680,003

(104,413,348)

92,305,908

64,333,487

Profit for the year as previously

-

-

-

8,924,453

8,924,453

stated

Adjustments

-

-

-

133,780

133,780

Profit for the year as restated

-

-

-

9,058,233

9,058,233

Other

comprehensive

loss as

-

-

(9,525,368)

-

(9,525,368)

previously stated

Adjustments

-

-

80,038

-

80,038

Other comprehensive loss as

-

-

(9,445,330)

-

(9,445,330)

restated

Total comprehensive

-

-

(9,445,330)

9,058,233

(387,097)

(loss)/income for the year

Other

transactions impacting

equity:

Dividends paid

-

-

-

(2,959,347)

(2,959,347)

Transfer on revaluation

reserve

-

(330,721)

-

330,721

-

relating to property, plant and

equipment through use

Balance as at 31 December 2018

73,760,924

2,349,282

(113,858,678)

98,735,515

60,987,043

STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2019

The Group

The Company

2019

2018

2019

2018

USD

USD

USD

USD

Restated

CASH FLOWS FROM/(USED

IN) OPERATING ACTIVITIES

Profit before income tax

12,542,100

10,802,719

9,566,759

8,634,070

Adjustments for:

Depreciation of property, plant

6,880,944

7,138,659

-

-

and equipment

Depreciation of right-of-use

2,285,530

-

-

-

assets

Amortisation of quarry stripping

-

4,654

-

-

costs

Amortisation of site restoration

1,410

1,566

-

-

costs

Dividend income

-

-

(8,678,970)

(8,389,233)

Reversal of dividend accrued

-

-

-

4,855

Loss on disposal of property, plant

140,656

30,925

-

-

and equipment

Interest income

(128,375)

(42,649)

(1,242,710)

(524,068)

Finance costs

2,061,008

1,637,834

-

-

Net foreign exchange loss/(gain)

84,400

1,786,724

1,339

(50,676)

Provision for obsolete inventories

36,146

46,562

-

-

Loss allowance for doubtful

433,412

168,365

-

-

receivables

Allowance for advances paid to

142,400

139,979

-

-

third parties

Reversal of provision for obsolete

(118,792)

(346,533)

-

-

inventories

Deferred income

(246,290)

(41,192)

-

-

24,114,189

21,327,613

(353,582)

(325,052)

Movement in working capital:

Decrease/(Increase) in:

Inventories

2,704,172

(2,304,350)

-

-

Trade and other receivables

(2,687,961)

(2,434,470)

-

(125)

Loans and advances to subsidiary

-

-

(63,520)

(199,034)

companies

Advances and prepaid expenses

(1,514,504)

-

(9,240)

-

(Decrease)/Increase in:

Trade and other payables

(354,224)

(161,809)

-

-

Accrued and other liabilities

(2,002,941)

2,244,060

(903,911)

39,589

Cash Generated From/(Used In)

20,258,731

18,671,044

(1,330,253)

(484,622)

Operations

Income tax paid

(493,734)

(151,305)

-

(4,941)

Net Cash From/(Used In)

19,764,997

18,519,739

(1,330,253)

(489,563)

Operating Activities

CASH FLOWS FROM/(USED

IN) INVESTING ACTIVITIES

Purchase of property, plant and

(2,837,509)

(3,138,098)

-

-

equipment

Purchase of other assets

(14,982)

(25,621)

-

-

Proceeds from disposal of

149,482

-

-

-

property, plant and equipment

Dividends received from

-

-

8,389,233

3,430,150

subsidiary

Interest received

128,735

42,649

1,568,481

29,345

Net Cash (Used In)/From

(2,574,274)

(3,121,070)

9,957,714

3,459,495

Investing Activities

CASH FLOWS FROM/(USED

IN) FINANCING ACTIVITIES

Proceeds from bank borrowings

7,834,646

9,363,949

-

-

Repayment of bank borrowings

(9,432,630)

(16,732,905)

-

-

Repayment of lease liabilities

(1,929,741)

-

-

-

Dividends paid

(8,389,233)

(2,959,347)

(8,389,233)

(2,959,347)

Interest paid

(2,036,609)

(1,650,182)

-

-

Net Cash Used In Financing

(13,953,567)

(11,978,485)

(8,389,233)

(2,959,347)

Activities

NET INCREASE IN CASH AND

3,237,156

3,420,184

238,228

10,585

CASH EQUIVALENTS

EFFECTS OF FOREIGN

57,713

(746,029)

-

-

EXCHANGE RATE CHANGES

CASH AND CASH

5,719,491

3,045,336

23,570

12,985

EQUIVALENTS AT

BEGINNING OF YEAR

CASH AND CASH

9,014,360

5,719,491

261,798

23,570

EQUIVALENTS AT END OF

YEAR

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Steppe Cement Ltd. published this content on 10 June 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 10 June 2020 02:37:01 UTC