TIDMSTCM

RNS Number : 5054P

Steppe Cement Limited

10 June 2020

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 USD62.9 million from USD61.0 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. E xports 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 USD3 million.

In 2020, we plan the limit the capex to USD2 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 USD8/tonne from USD9/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 USD6.1 million (note 11 of the financial statements). The corresponding entries in the liabilities are called lease liabilities segregated between non-current and current at USD4.3 million and USD2.2 million respectively (note 21). The transportation expenses have been reduced by USD0.4 million to USD13.3 million while the corresponding lease finance cost has been calculated at USD0.9 million (note 5) increasing the financial expenses.

Without IFRS 16 accounting, the finance expenses would have been USD1.1 million and the transportation expenses USD13.8 million. Consequently, the gross profit has been reduced by USD0.4 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 USD21.6 million.

General and administrative expenses

General and administrative expenses decreased by 5% to USD5.9 million from USD6.2 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 USD11.8 million to USD10.3 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 USD6.6 million to USD3.9 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 USD5.2 million in 2018 to USD6.4 million in 2019, while the cash position at the end of the year was increased from USD5.7 million to USD9.0 million.

In 2019, finance costs (ex-operating leases) decreased to USD1.1 million from USD1.6 million in 2018 due to the continuous repayment of loan principal. Finance costs increased to USD2.0 million after accounting for operating lease interest costs of USD0.9 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:

- KZT3 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.

   -     KZT0.9 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 USD7.1 million in 2018 to USD6.9 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 website at www.steppecement.com during 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 YEARED 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 
 (loss)/gain                       (84,400)   (1,786,724)   (35,941)     26,141 
Other income/(expense), 
 net                                166,115       576,570          -    (4,855) 
 
Profit before 
 income tax                      12,542,100    10,802,719  9,566,759  8,634,070 
 
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 Company                      9,706,391     9,058,233  9,566,759  8,634,070 
                               ============  ============  =========  ========= 
 
Earnings per share: 
Basic and diluted 
 (cents)                           4.4           4.1 
                               ============  ============ 
 

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEARED 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 
 arising on translation 
 of foreign operations            572,722  (9,445,330)          -          - 
 
Total other comprehensive 
 income/(loss)                    572,722  (9,445,330)          -          - 
                               ----------  -----------  ---------  --------- 
 
Total comprehensive 
 income/(loss) for 
 the year                      10,279,113    (387,097)  9,566,759  8,634,070 
 
Attributable to: 
Shareholders of the 
 Company                       10,279,113    (387,097)  9,566,759  8,634,070 
                               ==========  ===========  =========  ========= 
 

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 equipment                         55,807,917        59,642,055              -             - 
Right-of-use assets                     6,140,152                 -              -             - 
Investment in subsidiary 
 companies                                      -                 -     36,197,767    26,500,001 
Loan to subsidiary 
 company                                        -                 -     30,140,000    30,170,000 
Advances                                    5,992           191,242              -             - 
Other assets                            2,426,938         2,203,459              -             - 
 
Total Non-Current 
 Assets                                64,380,999        62,036,756     66,337,767    56,670,001 
                                  ---------------  ----------------  -------------  ------------ 
 
Current Assets 
Inventories                            10,811,542        13,381,295              -             - 
Trade and other 
 receivables                            5,790,278         3,500,468      8,847,922     8,883,956 
Income tax recoverable                    405,147           175,336              -             - 
Loans and advances 
 to subsidiary companies                        -                 -         30,079     9,634,325 
Advances and prepaid 
 expenses                               3,682,896         2,312,534         15,944         6,704 
Cash and cash equivalents               9,014,360         5,719,491        261,798        23,570 
                                  ---------------  ----------------  -------------  ------------ 
 
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 
 restoration                                   74,435            65,354              -             - 
 
Total Non-Current 
 Liabilities                               14,347,124        10,217,964              -             - 
                                      ---------------  ----------------  -------------  ------------ 
 
Current liabilities 
Trade and other 
 payables                                   6,203,453         6,614,604              -             - 
Accrued and other 
 liabilities                                1,405,123         2,682,569        155,853     1,058,395 
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 
 Liabilities                               94,085,222        87,125,880     75,493,510    75,218,556 
                                      ===============  ================  =============  ============ 
 
 

STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARED 31 DECEMBER 2019

 
                                                                                 Distributable 
 The Group                         Share capital   Revaluation     Translation        Retained         Total 
                                                       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 the year                                 -             -         572,722       9,706,391    10,279,113 
 
 Other transactions impacting 
  equity : 
 Dividends paid                                -             -               -     (8,389,233)   (8,389,233) 
 Transfer on revaluation 
  reserve relating to property, 
  plant and equipment through 
  use                                          -     (333,339)               -         333,339             - 
                                  --------------  ------------  --------------  --------------  ------------ 
 
 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 capital   Revaluation   Translation      Retained        Total 
                                                     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 stated                 -               -             -                8,924,453        8,924,453 
 Adjustments                        -               -             -                133,780            133,780 
                                   --------------  ------------  ---------------  --------------  ------------ 
 Profit for the year as 
  restated                          -               -             -                9,058,233        9,058,233 
                                   --------------  ------------  ---------------  --------------  ------------ 
 
 Other comprehensive loss 
  as previously stated              -               -               (9,525,368)    -               (9,525,368) 
 Adjustments                        -               -                     80,038   -                    80,038 
                                   --------------  ------------  ---------------  --------------  ------------ 
 Other comprehensive loss 
  as restated                       -               -               (9,445,330)    -               (9,445,330) 
                                   --------------  ------------  ---------------  --------------  ------------ 
 Total comprehensive 
  (loss)/income 
  for the year                      -               -               (9,445,330)    9,058,233        (387,097) 
 
 Other transactions impacting 
  equity : 
 Dividends paid                     -               -             -                (2,959,347)     (2,959,347) 
 Transfer on revaluation 
  reserve relating to property, 
  plant and equipment through 
  use                               -               (330,721)     -                330,721         - 
                                   --------------  ------------  ---------------  --------------  ------------ 
 
 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 YEARED 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 and equipment                6,880,944     7,138,659            -                - 
Depreciation of right-of-use 
 assets                             2,285,530             -            -                - 
Amortisation of quarry 
 stripping costs                            -         4,654            -                - 
Amortisation of site 
 restoration costs                      1,410         1,566            -                - 
Dividend income                             -             -  (8,678,970)      (8,389,233) 
Reversal of dividend 
 accrued                                    -             -            -            4,855 
Loss on disposal of property, 
 plant and equipment                  140,656        30,925            -                - 
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 
 receivables                          433,412       168,365            -                - 
Allowance for advances 
 paid to third parties                142,400       139,979            -                - 
Reversal of provision 
 for obsolete inventories           (118,792)     (346,533)            -                - 
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 companies                       -             -     (63,520)    (199,034) 
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) Operations                    20,258,731    18,671,044  (1,330,253)    (484,622) 
Income tax paid                     (493,734)     (151,305)            -      (4,941) 
 
Net Cash From/(Used In) 
 Operating Activities              19,764,997    18,519,739  (1,330,253)    (489,563) 
                                 ------------  ------------  -----------  ----------- 
 
CASH FLOWS FROM/(USED 
 IN) INVESTING ACTIVITIES 
Purchase of property, 
 plant and equipment              (2,837,509)   (3,138,098)            -            - 
Purchase of other assets             (14,982)      (25,621)            -            - 
Proceeds from disposal 
 of property, plant and 
 equipment                            149,482             -            -            - 
Dividends received from 
 subsidiary                                 -             -    8,389,233    3,430,150 
Interest received                     128,735        42,649    1,568,481       29,345 
                                 ------------  ------------  -----------  ----------- 
 
Net Cash (Used In)/From 
 Investing Activities             (2,574,274)   (3,121,070)    9,957,714    3,459,495 
                                 ------------  ------------  -----------  ----------- 
 
 
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 
 Activities                      (13,953,567)  (11,978,485)  (8,389,233)  (2,959,347) 
                                 ------------  ------------  -----------  ----------- 
 
NET INCREASE IN CASH 
 AND CASH EQUIVALENTS               3,237,156     3,420,184      238,228       10,585 
 
EFFECTS OF FOREIGN EXCHANGE 
 RATE CHANGES                          57,713     (746,029)            -            - 
 
CASH AND CASH EQUIVALENTS 
 AT BEGINNING OF YEAR               5,719,491     3,045,336       23,570       12,985 
                                 ------------  ------------  -----------  ----------- 
 
CASH AND CASH EQUIVALENTS 
 AT END OF YEAR                     9,014,360     5,719,491      261,798       23,570 
                                 ============  ============  ===========  =========== 
 
 

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