Annual Financial Report

Steppe Cement Limited

09 June 2023

 

9 June 2023

Steppe Cement Ltd

CEO STATEMENT

Overall, the cement market in Kazakhstan remained stable in 2022 compared with the historical high achieved during 2021 and on a per capital level, the consumption for the 2022 year of 630 kg per capita is consistent with that which should be expected  based on  actual GDP  and the anticipated GDP growth rate.

The Kazak cement market remained stable at 11.6 million tonnes, with sales volume by Steppe Cement decreasing by 1% year on year, due mostly to logistical problems in the railway system in the third and fourth quarters. The blend of this was that domesticl sales increased by 4% and exports reduced to virtually zero.

Imports into Kazakshtan decreased by 25% to 0.6 million tonnes, being equivalent to 5% of the total market, with these coming mostly from Russia. Exports from local producers decreased again by 33% to 1.1 million tonnes, with these being mostly to Uzbekistan and Kyrgystan as new capacity has been commisioned in Uzbekistan. Exports remain concentrated to the Tashkent and Bishkek areas.

The market demand in 2023 has shown a decrease in the first quarter due to weather conditions, logistics and persistant high inflation and we expect the market to improve in the coming quarters. High interest rates will slow down the mortgage market but the economy remains strong driven by commodities.

During 2021 and 2022 the government implemented incentives which helped the construction industry, particularly the ability to withdraw part of the individual pension funds and use them for real estate acquisitions. The development of the main cities continues, and the rate of urbanization is estimated to grow from the current 59% to 69% in the next 25 years. The banks are actively promoting long term mortgages and the program has been very successful.

The political unrest at the beginning of 2022 as well as the conflict in Ukraine have brought higher inflation and more populist policies. After a phase of salary increases to compensate for inflation, the government seems to be committed to lowering inflation.

In 2022, Steppe Cement posted a net profit of USD17.9 million while EBITDA remained stable at USD31 million. Higher pricing compensated for the increase in costs and slightly lower volumes. Steppe Cement's average cement selling prices increased by 12% in KZT and 4% in USD, to USD52 per tonne delivered.

Steppe Cement operated both lines at 86% of their current combined capacity (which is 1.1 million tonnes for line 5 and 0.85 million tonnes for line 6).

Shareholders' funds remained stable at USD65.1 million after the dividend distribution USD12.6 million to shareholders (5 UK pence per share).

Key financials	Year ended 31- Dec-22	Year ended 31- Dec-21	Inc/(Dec)%
Sales (tonnes of cement)	1,670,174	1,688,544	(1%)
Consolidated turnover (KZT million)	40,023	36,020	11%
Consolidated turnover (USD million)	86.7	84.6	3%
Consolidated profit before tax (USD million)	21.7	21.4	1%
Consolidated profit after tax (USD million)	17.9	17.1	5%
Profit per share (US cents)	8.2	7.8	5%
Shareholders' funds (USD million)	65.1	65.6	(1%)
Average exchange rate (KZT/USD)	461	426	(8%)
Exchange rate as at year end (KZT/USD)	462	434	(6%)

Production and costs

Line 5 produced 60% 995,933 tonnes of cement while Line 6 produced 663,955 tonnes.

Line 5 performed at 90% capacity as it was limited by roller maintenance while Line 6 was limited by reliability. In 2023 we expect higher production from Line 6 and similar in Line 5.

Cost per tonne increased by 20% in KZT at slightly higher pace than inflation. The average cash production cost of clinker increased from USD20/tonne to USD23/tonne while cement cash cost increased from USD23/tonne to USD26/tonne in 2022. The cost of production increased by 20% in local currency in line with inflation of 18.8% year on year. The devaluation of the currency was limited to 8%.

Despite the increase of transportation costs, selling expenses, reflecting mostly cement delivery costs, were reduced to USD6.6/tonne as we focused in markets closer to the factory.

General and administrative expenses we reduced to USD6.4 million from USD6.7 million in 2021 due to cost control measures.

On 31 March 2023 the company had 799 employees a similar level to 2022.

In 2022, finance costs remained stable at USD 1 million. Without operating lease interest of USD0.2 million under IFRS 16, the finance cost  was USD0.8 million, mostly interest on loans.

Other income of USD2.4 million reflects the write-back of receivables previously written down and the write-back of deferred income from the government subsidied loans.

The factory receives an allocation CO₂ emissions from the government and does not trade them as they are at a level similar to historical production. There is a very limited market for alternative fuels and the increase in additives in the cement is not yet accepted beyond certain levels.

Capital investment increased significantly in 2022 but it will be limited going forward

Capital investment was accelerated to USD10 million to complete the work started in 2021 and to compensate for the slow down in investment during 2019 and 2020 due to COVID19. Apart from the traditional maintenance capex and purchase of key spares for USD3 million per year,  we managed to complete a significant number of projects in 2022:

-     New FL Smith close circuit separator for cement mill number 1 with an investment of USD3.6 million. The mill capacity was increased by 30%, slag content can be increased to 25%, power consumption has been reduced and the quality and stability has improved

-     A similar separator for cement mill number 2,. The project was started and USD1.5 million was spent in 2022. Commissioning will be done between the winter 2023 and spring 2024.

-     Replacement of one reducer for one cement mill at a cost of USD 0.9 million

-     Bucket crane revamping to support summer sales USD 0.3 million

-     Online monitoring of main stack emissions to comply with ecological requirements USD0.15 million

-     Coal dosing system to improve feeding reliability

-     High tension drive motors to maintain key spares

-     Additional gas analyzer for kiln system to maintain clinker stability

Those projects were financed by USD4.3 million in subsidized loans and USD 3.5 million from internal cash flow.

We have plans for a further USD4 million investment in 2023 and the first quarter of 2024 including:

-     Complete the new separator for cement mill 2 for USD 2 million

-     Preheater raiser duct extension by 24 meters to improve the preheater calcination in line 6

-     Software upgrades to the ABB control system at a cost of USD0.7 million to allow further automatisation of the factory and prevent obsolescence

-     Engineering of raw mill 3 separator conversion to dynamic separator to support the increase in production of line 6 by 10% when completed

-     Upgrades to bag filters to improve maintenance and future enviroment requirements

The government has announced that the subsidized credit lines will be limited as the focus shifts to the control of inflation. We will try to complete the remaining capex planned with our cash flow to avoid borrowings at commercial KZT rates as much as possible.

Financial position: New debt will be limited as interest rates in Kazakhstan have increased to 20% per annum in 2023

During the year, our total loans outstanding were stable at USD6.7 million versus USD5.6 million in 2021. The loans had good subsidized rates in KZT but the renewal will be most likely made at near commercial rates and the company has an incentive to reduce the borrowing in 2023. The company ended the year with net debt of USD2.6 million, excluding IFRS 16 leases.

Long-term loans were increased from USD3.2million to USD5.4million while short term loans were reduced from USD 2.3 to USD 1.3million. 

Despite the politically unstable environment in Kazakhstan at the beginning of the year, the unpredictable situation in the region and the surge in inflation, the KZT had only an 8% devaluation against the USD and an average exchange rate of 461 vs 426 in 2021.

We maintain short term credit lines available as stand by:

-     KZT 1 billion short term in a government subsidized program in KZT at 6% per annum, but it will difficult to renew

-     KZT 2  billion from Halyk Bank at 6% p.a. in USD or 20% in KZT.

Depreciation of property, plant and equipment decreased to USD6.1 million in 2022 due to devaluation

Steppe Cement's effective income tax rate was 20% consistent with last year.

Javier del Ser Perez
Chief Executive Officer

Annual Report 2022 and Annual General Meeting 

Steppe Cement will release its Annual Report 2022 on its web site at www.steppecement.com during the week commencing 20th June 2023. 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 Wednesday, 12th July 2023 at 4 p.m.

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

Nominated Adviser contact: Stephen Allen or Andrew Thomson on [phone].

Broker contact: Charlie Cryer at [phone]

STEPPE CEMENT LTD

(Incorported in Labuan FT, Malaysia under Labuan Companies Act, 1990)

STATEMENTS OF PROFIT OR LOSS

FOR THE YEAR ENDED 31 DECEMBER 2022

		The Group					The Company
	Note		2022		2021		2022		2021
			USD		USD		USD		USD
Revenue	4		86,732,039		84,578,739		14,641,442		1,469,264
Cost of sales			(49,107,243)		(44,834,182)		-		-
Gross profit			37,624,796		39,744,557		14,641,442		1,469,264
Selling expenses			(10,997,920)		(12,264,221)		-		-
General and    administrative    expenses			(6,393,080)		(6,761,722)		(369,812)		(324,207)
Interest income			573,913		401,619		-		-
Finance costs	5		(1,048,888)		(1,090,949)		-		-
Net foreign exchange    loss	6		(435,204)		(227,951)		(330,675)		(825)
Other income, net			2,367,459		1,616,216		-		112,940
Profit before income tax	7		21,691,076		21,417,549		13,940,955		1,257,172
Income tax expense	8		(3,807,706)		(4,352,182)		-		-
Profit for the year			17,883,370		17,065,367		13,940,955		1,257,172
Attributable to
shareholders of the    Company			17,883,370		17,065,367		13,940,955		1,257,172
Earnings per share:
Basic and diluted (cents)	9		8.2		7.8

STEPPE CEMENT LTD

(Incorported in Labuan FT, Malaysia under Labuan Companies Act, 1990)

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2022

			The Group				The Company
			2022		2021		2022		2021
			USD		USD		USD		USD
Profit for the year			17,883,370		17,065,367		13,940,955		1,257,172
Other comprehensive    (loss)/income:
Items that may not be    reclassified subsequently to    profit or loss:
Revaluation gain on property,    plant and equipment, net of    tax			-		-		-		-
Gain on recovery of impaired    assets			-		15,373		-		-
Increase in provision for
site restoration			-		(23,611)		-		-
Items that may be reclassified    subsequently to profit or    loss:
Exchange differences    arising from translation of    foreign operations			(5,829,119)		(1,923,738)		-		-
Total other comprehensive    loss			(5,829,119)		(1,931,976)		-		-
Total comprehensive    income for the year			12,054,251		15,133,391		13,940,955		1,257,172
Attributable to the
shareholders of the    Company			12,054,251		15,133,391		13,940,955		1,257,172

.

STEPPE CEMENT LTD

(Incorported in Labuan FT, Malaysia under Labuan Companies Act, 1990)

STATEMENTS OF FINANCIAL POSITION

AS OF 31 DECEMBER 2022

		The Group					The Company
	Note		2022		2021		2022		2021
			USD		USD		USD		USD
Assets
Non-Current Assets
Property, plant and    equipment	10		49,361,749		48,437,801		-		-
Right-of-use assets	11		5,525		1,700,510		-		-
Investment in subsidiary    companies	12		-		-		36,199,599		36,199,599
Loans to subsidiary    company	27		-		-		30,050,000		30,080,000
Other assets	13		1,530,916		155,132		-		-
Total Non-Current    Assets			50,898,190		50,293,443		66,249,599		66,279,599
Current Assets
Inventories	14		20,646,156		16,023,541		-		-
Trade and other receivables	15		2,045,004		1,751,720		2,372,114		1,724,364
Other assets	13		1,081,719		2,258,501		-		-
Income tax recoverable			602,734		911,395		-		-
Loans and advances to    subsidiary companies	27		-		-		60,352		49,536
Advances and prepaid    expenses	16		8,577,714		5,233,894		7,305		4,971
Cash and cash    equivalents	17		4,143,953		10,136,022		1,239,827		614,225
Total Current Assets			37,097,280		36,315,073		3,679,598		2,393,096
Total Assets			87,995,470		86,608,516		69,929,197		68,672,695

STEPPE CEMENT LTD

(Incorported in Labuan FT, Malaysia under Labuan Companies Act, 1990)

STATEMENTS OF FINANCIAL POSITION

AS OF 31 DECEMBER 2022 (CONTINUED)

			The Group				The Company
	Note		2022		2021		2022		2021
			USD		USD		USD		USD
Equity and Liabilities
Capital and Reserves
Share capital	18		73,760,924		73,760,924		73,760,924		73,760,924
Revaluation reserve	19		1,795,426		2,068,114		-		-
Translation reserve	19		(126,267,201)		(120,438,082)		-		-
Retained earnings/    (Accumulated losses)	19		115,791,111		110,190,323		(4,220,191)		(5,605,876)
Net Equity			65,080,260		65,581,279		69,540,733		68,155,048
Non-Current Liabilities
Borrowings	20		3,913,689		1,941,383		-		-
Lease liabilities	21		-		8,571		-		-
Deferred taxes	22		3,266,775		4,318,652		-		-
Deferred income	23		2,572,552		1,588,098		-		-
Provision for site    restoration			178,420		180,314		-		-
Total Non-Current    Liabilities			9,931,436		8,037,018		-		-
Current Liabilities
Trade and other payables	24		7,348,587		5,061,705		-		-
Accrued and other    liabilities	25		2,250,689		1,552,778		143,808		227,897
Amount owing to a    subsidiary company	27		-		-		244,656		289,750
Borrowings	20		2,814,525		3,614,801		-		-
Lease liabilities	21		58,960		2,017,879		-		-
Deferred income	23		140,259		103,720		-		-
Taxes payable	26		370,754		639,336		-		-
Total Current Liabilities			12,983,774		12,990,219		388,464		517,647
Total Liabilities			22,915,210		21,027,237		388,464		517,647
Total Equity and    Liabilities			87,995,470		86,608,516		69,929,197		68,672,695

Company No. LL04433

STEPPE CEMENT LTD

(Incorported in Labuan FT, Malaysia under Labuan Companies Act, 1990)

STATEMENTS OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2022

			Non-distributable
							Distributable
The Group	Share capital		Revaluation reserve		Translation reserve		Retained earnings		Net*
	USD		USD		USD		USD		USD
As of 1 January 2022	73,760,924		2,068,114		(120,438,082)		110,190,323		65,581,279
Profit for the year	-		-		-		17,883,370		17,883,370
Other comprehensive loss	-		-		(5,829,119)		-		(5,829,119)
Total comprehensive income for the year	-		-		(5,829,119)		17,883,370		12,054,251
Other transactions impacting equity:
Dividends paid (Note 19)	-		-		-		(12,555,270)		(12,555,270)
Transfer of revaluation reserve relating to    property, plant and equipment through use	-		(272,688)		-		272,688		-
As of 31 December 2022	73,760,924		1,795,426		(126,267,201)		115,791,111		65,080,260

* Attributable to the shareholders of the Company

Company No. LL04433

STEPPE CEMENT LTD

(Incorported in Labuan FT, Malaysia under Labuan Companies Act, 1990)

STATEMENTS OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2022 (CONTINUED)

			Non-distributable
							Distributable
The Group	Share capital		Revaluation reserve		Translation reserve		Retained earnings		Net*
	USD		USD		USD		USD		USD
As of 1 January 2021	73,760,924		2,370,706		(118,514,344)		100,325,002		57,942,288
Profit for the year	-		-		-		17,065,367		17,065,367
Other comprehensive loss	-		(8,238)		(1,923,738)		-		(1,931,976)
Total comprehensive income for the year	-		(8,238)		(1,923,738)		17,065,367		15,133,391
Other transactions impacting equity:
Dividends paid (Note 19)	-		-		-		(7,494,400)		(7,494,400)
Transfer of revaluation reserve relating to       property, plant and equipment through use	-		(294,354)		-		294,354		-
As of 31 December 2021	73,760,924		2,068,114		(120,438,082)		110,190,323		65,581,279

* Attributable to the shareholders of the Company

Company No. LL04433

STEPPE CEMENT LTD

(Incorported in Labuan FT, Malaysia under Labuan Companies Act, 1990)

STATEMENTS OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2022

			(Accumulated losses)/ Distributable
The Company	Share Capital		Retained earnings		Net
	USD		USD		USD
As of 1 January 2022	73,760,924		(5,605,876)		68,155,048
Total comprehensive income    for the year	-		13,940,955		13,940,955
Dividends paid (Note 19)	-		(12,555,270)		(12,555,270)
As of 31 December 2022	73,760,924		(4,220,191)		69,540,733
As of 1 January 2021	73,760,924		631,352		74,392,276
Total comprehensive income    for the year	-		1,257,172		1,257,172
Dividends paid (Note 19)	-		(7,494,400)		(7,494,400)
As of 31 December 2021	73,760,924		(5,605,876)		68,155,048

Company No. LL04433

STEPPE CEMENT LTD

(Incorported in Labuan FT, Malaysia under Labuan Companies Act, 1990)

STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2022

	The Group				The Company
	2022		2021		2022		2021
	USD		USD		USD		USD
CASH FLOWS FROM/    (USED IN) OPERATING    ACTIVITIES
Profit before income tax	21,691,076		21,417,549		13,940,955		1,257,172
Adjustments for:
Depreciation of property,       plant and equipment	6,135,236		7,039,116		-		-
Depreciation of right-of-use       assets	1,587,293		1,716,748		-		-
Dividend income	-		-		(13,309,140)		-
Gain on disposal of property, plant       and equipment	(27,725)		-		-		-
Interest income	(573,913)		(401,619)		(1,332,302)		(1,469,264)
Finance costs	1,048,888		1,090,949		-		-
Net unrealised foreign exchange       loss	538,663		227,951		-		-
Provision for obsolete       inventories	167,628		142,387		-		-
Credit loss allowance for       doubtful receivables	174,650		594,901		-		-
Allowance for advances paid       to third parties	157,723		11,676		-		-
Deferred income	(140,259)		(105,947)		-		-
Reversal of allowance for trade receivable no longer required	(172,464)		(769,654)		-		-
Operating cash flows before
movements in working capital	30,586,796		30,964,057		(700,487)			(212,092)
Movement in working capital:
(Increase)/Decrease in:
Inventories	(8,501,824)		(6,054,197)		-			-
Trade and other receivables	(427,760)		302,194		(865,000)			(90,000)
Loans and advances to       subsidiary companies	-		-		19,184			20,176
Advances, prepaid expenses and       other assets	(5,608,461)		(2,820,912)		(2,334)			877

Company No. LL04433

STEPPE CEMENT LTD

(Incorported in Labuan FT, Malaysia under Labuan Companies Act, 1990)

STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2022 (CONTINUED)

	The Group					The Company
	2022			2021		2022		2021
	USD			USD		USD		USD
Increase/(Decrease) in:
Trade and other payables	2,097,417		659,458			-			-
Accrued and other liabilities	786,440		54,890			(84,089)			41,149
Cash Generated From/(Used In)    Operations	18,932,608		23,105,490			(1,632,726)			(239,890)
Income tax paid	(4,599,594)		(3,985,384)			-			-
Net Cash From/(Used In) Operating    Activities	14,333,014		19,120,106			(1,632,726)			(239,890)
CASH FLOWS (USED IN)/ FROM INVESTING ACTIVITIES
Purchase of property, plant and    equipment	(7,768,695)		(6,215,744)			-			-
Contribution to site restoration
fund	(334)		(18,414)			-			-
Proceeds from disposal of     property, plant and equipment	85,599		118,234			-			-
Dividends received from    subsidiary	-		-			13,309,140			6,610,895
Interest received	573,913		401,619			1,549,552			-
Net Cash (Used In)/From    Investing Activities	(7,109,517)		(5,714,305)			14,858,692			6,610,895
CASH FLOWS FROM/    (USED IN) FINANCING    ACTIVITIES
(Repayment to)/Advance from a subsidiary company	-		-			(45,094)			289,750
Return of net investment from a    subsidiary company	-		-			-			94,920
Proceeds from borrowings*	7,299,722		5,502,753			-			-
Repayment of borrowings*	(4,472,018)		(6,345,979)			-			-
Repayment of lease liabilities*	(1,838,949)		(1,805,362)			-			-
Dividends paid	(12,555,270)		(7,494,400)			(12,555,270)			(7,494,400)
Interest paid	(1,038,335)		(1,081,123)			-			-
Net Cash Used In Financing    Activities	(12,604,850)		(11,224,111)			(12,600,364)			(7,109,730)

Company No. LL04433

STEPPE CEMENT LTD

(Incorported in Labuan FT, Malaysia under Labuan Companies Act, 1990)

STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2022 (CONTINUED)

	The Group				The Company
	2022		2021		2022		2021
	USD		USD		USD		USD
NET (DECREASE)/INCREASE    IN CASH AND CASH    EQUIVALENTS	(5,381,353)		2,181,690		625,602		(738,725)
EFFECTS OF FOREIGN    EXCHANGE RATE    CHANGES	(610,716)		(259,348)		-		-
CASH AND CASH    EQUIVALENTS AT    BEGINNING OF YEAR	10,136,022		8,213,680		614,225		1,352,950
CASH AND CASH    EQUIVALENTS AT    END OF YEAR (Note 17)	4,143,953		10,136,022		1,239,827		614,225

 

END