REG - Steppe Cement Ltd - CEO Statement 2018
CEO STATEMENT
In 2018, Steppe Cement posted a net profit of USD 8.9 million. Steppe Cement's EBITDA increased to USD 21.3 million from USD 11.6 million in 2017 mostly due to higher prices and volumes.
The overall domestic cement market decreased by 4% to 8.6 million tonnes, but our sales volume increased by 6% mostly due to an increase of 63% in exports, helped by the continued weakness of the KZT against the neighbouring currencies. The delivered price in USD increased by 18%.
In 2018 our cost of production per tonne in KZT increased by 6%, in line with inflation.
Steppe Cement operated both lines at 90% of their current combined capacity (which is 1.1 million tonnes for line 5 and 0.8 million tonnes for line 6). We aim to increase their utilization and we are planning to increase the capacity of line 6 to 0.9 million tonnes in late 2019.
Shareholders' funds decreased to USD55.9 million from USD59.5 million after dividend distribution of USD3 million to shareholders and due to the devaluation of the KZT. However, the replacement cost of the Company's assets remains many times higher than their current book value.
Key financials
Year ended
31- Dec-18Year ended
31- Dec-17Inc/(Dec)%
Sales (tonnes of cement)
1,720,629
1,630,230
6
Consolidated turnover (KZT million)
28,342
21,443
32
Consolidated turnover (USD million)
82.2
65.9
25
Consolidated profit before tax (USD million)
10.7
1.9
>400
Consolidated profit after tax (USD million)
8.9
1.2
>700
Profit per share (US cents)
4.1
0.6
>600
Shareholders' funds (USD million)
55.9
59.5
(6)
Average exchange rate (USD/KZT)
345
326
6
Exchange rate as at year end (USD/KZT)
384
332
13
The Kazakh cement market decreased by 4% in 2018 but we expect it to improve in 2019
The Kazakh cement market in 2018 was 8.6 million tonnes, a decrease of 4% from 2017. Imports into Kazakshtan decreased by 4% to 0.65 million tonnes or 8% of the total market. Exports from local producers increased by 118% to 1.9 million tonnes.
Our expectations are that overall market demand in 2019 will increase by 5% reflecting a recovering of the market from 2018. The Kazakh population has reached 18 million people and therefore consumption represents 500 kg/person per year.
Improving exports mostly to Uzbekistan and Kyrgyzstan helped local companies to increase their overall volumes by 7%. The companies that benefited most were the ones in the south. In the west, a new competitor has started near Kyzylorda and is expected to increase its production steadily during the year.
In 2019, the local cement factories should maintain these trends with similar level of exports. Imports into Kazakhstan should remain contained to regions near the Russian border and be subject to competiton from a new factory.
Steppe Cement's average cement selling prices increased by 25% in KZT and by 18% in USD, to USD 47.7 per tonne delivered.
Line 5 produced 993,850 tonnes of cement while Line 6 produced 726,767. We continue to make small improvements in Line 6 that we expect will contribute to an additional 80,000 tonnes in 2019.
Capital investment in 2018 was directed to the improvement of packing and logistics and we will continue to do so in 2019
The new packing line for 1,800 bags per hour was commisionned in the summer of 2018 and we have doubled the capacity of the big bag facility to 100 tonnes per hour. Capital investment was increased slightly to USD2.7 million from USD1.6 million in 2017.
In 2019, we will plan the following capital investments:
- Increase the capacity of the 50 kg bags packing line to 2,400 bags per hour, equivalent to 120 tonnes per hour.
- Commission the fully automated loading of wagons and trucks.
- Installation of a separator in cement mill number four.
- Change the two preheater fans in Line 6 to improve energy efficiency.
- Automatize the silos and loading in the wet line mill area.
Cost per tonne were maintained as volumes increased
The average cash production cost of cement was maintained at USD23/tonne as production and sales increased offsetting some of inflation increases. Some of the variable costs have been reassigned to fixed costs in 2018 - if we compare with the same cost base 2017 and 2018, the variable cost has increased by around USD0.7/tonne or 3%.
Selling expenses, reflecting mostly cement delivery costs, increased to USD9/tonne from USD7/tonne in 2017, due to higher export volumes (+63%) and transportation tariffs.
General and administrative expenses
General and administrative expenses increased by 19% to USD 6.2 million from USD 5.2 million in 2017. The general expenses have been adjusted both for 2017 and 2018 and include expense previously included in the production costs.
In 2017, we transferred USD1 million from cost of production to general expenses of which USD0.65 million were transfers of management salaries and USD0.35 million were provisions for obsolete inventory. Cost of production for 2017 was therefore decreased by 0.6 USD/tonne.
After taking into consideration these adjustments, the general expenses in 2018 have still increased by USD1 million. This is broken down as follows:
- USD0.28 million as transfers of maintenance and logistic from production to general expenses.
- USD0.25 million as a provision of doubtful receivables in accordance with changes in IFRS9.
- USD0.15 million as increased salaries, extra half month bonus and other compensation as company performance has improved.
- USD0.06 million in increased bank commission as we try to reduce the cash payments.
The balance represents an effective increase of 5% which is in line with the increase of volumes.
On 31 March 2019 the labour count stood at 735 the same level as last year.
Financial position: Continuous debt reduction
During the year, our total loans outstanding were reduced from USD20 million to USD11.8 million.
Long term loans were reduced from USD9.8 million to USD 6.6 million as we continued to repay principals to Halyk Bank for the long term loan for wagons and various government subsidised loans for capex. In addition, due to devaluation, the KZT denominated loans were reduced in USD.
The effective interest rate in the long term loans in USD and KZT was maintained at 6.2% per annum (p.a.).
Our short term loans and current part of the long term loans were significantly reduced from USD10.2 million in 2017 to USD5.2 million in 2018, while the cash position at the end of the year was increased from USD3 million to USD5.7 million.
We consider the risk of a sharp devaluation is now much lower but we have not borrowed significantly since December 2018. We have drawn subsidized short term loans at 6% p.a. in KZT and short term loans at 10% p.a. in KZT when the banks offered them.
We maintain three short term credit lines available as stand by:
- KZT3 billion from Halyk Bank at 6% p.a. in USD or 12% p.a. 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 10% p.a. in KZT.
- KZT3 billion from VTB Bank Kazakhstan at 11.5% p.a. signed in March 2018.
In 2017, finance costs decreased to USD1.6 million from USD2.2 million in 2017 due to the continuous repayment of loan principals.
All covenants under the various credit lines have been met comfortably.
Depreciation stayed the same in 2018 at USD7.3 million.
The statutory corporate income tax rate remains at 20% in Kazakhstan.
Javier del Ser
Chief Executive Officer
2018 Annual Report and Annual General Meeting
Steppe Cement expects to release its 2018 Annual Report on its web site at www.steppecement.com during the week commencing 15 May 2019.
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, 12 June 2019 at 2:30 p.m.
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 2018
The Group
The Company
2018
2017
2018
2017
USD
USD
USD
USD
Revenue
82,184,670
65,855,137
8,912,843
3,535,005
Cost of sales
(46,871,195)
(45,211,517)
-
-
Gross profit
35,313,475
20,643,620
8,912,843
3,535,005
Selling expenses
(15,612,203)
(11,819,521)
-
-
General and administrative
expenses
(6,226,994)
(5,245,588)
(300,517)
(270,136)
Interest income
42,649
61,449
458
39
Finance costs
(1,637,834)
(2,236,516)
-
-
Net foreign exchange (loss)/gain
(1,786,724)
(205,610)
26,141
(81,355)
Other income, net
576,570
736,727
(4,855)
-
Profit before income tax
10,668,939
1,934,561
8,634,070
3,183,553
Income tax expense
(1,744,486)
(703,091)
-
(4,941)
Profit for the year
8,924,453
1,231,470
8,634,070
3,178,612
Attributable to:
Shareholders of the Company
8,924,453
1,231,470
8,634,070
3,178,612
Earnings per share:
Basic and diluted (cents)
4.1
0.6
STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2018
The Group
The Company
2018
2017
2018
2017
USD
USD
USD
USD
Profit for the year
8,924,453
1,231,470
8,634,070
3,178,612
Other comprehensive (loss)/income:
Items that may be reclassified subsequently to profit or loss:
Exchange differences arising on translation of foreign operations
(9,525,368)
244,646
-
-
Total other (loss)/comprehensive income
(9,525,368)
244,646
-
-
Total comprehensive (loss/)income for the year
(600,915)
1,476,116
8,634,070
3,178,612
Attributable to:
Shareholders of the Company
(600,915)
1,476,116
8,634,070
3,178,612
STATEMENTS OF FINANCIAL POSITION
AS OF 31 DECEMBER 2018
The Group
The Company
2018
2017
2018
2017
USD
USD
USD
USD
Assets
Non-Current Assets:
Property, plant and equipment
54,611,723
67,358,584
-
-
Investment in subsidiary companies
-
-
26,500,001
26,500,001
Loan to subsidiary company
-
-
30,170,000
-
Advances
191,242
508,555
-
-
Other assets
2,203,459
1,247,835
-
-
Total Non-Current Assets
57,006,424
69,114,974
56,670,001
26,500,001
Current Assets
Inventories
13,381,295
13,013,642
-
-
Trade and other receivables
3,500,468
3,101,667
8,883,956
3,435,005
Income tax recoverable
175,336
127,208
-
-
Loans and advances to subsidiary companies
-
-
9,634,325
39,605,291
Advances and prepaid expenses
2,312,534
3,477,179
6,704
6,579
Cash and cash equivalents
5,719,491
3,045,336
23,570
12,985
Total Current Assets
25,089,124
22,765,032
18,548,555
43,059,860
Total Assets
82,095,548
91,880,006
75,218,556
69,559,861
The Group
The Company
2018
2017
2018
2017
USD
USD
USD
USD
Equity and Liabilities
Capital and Reserves
Share capital
73,760,924
73,760,924
73,760,924
73,760,924
Revaluation reserve
2,349,282
2,680,003
-
-
Translation reserve
(116,266,492)
(106,741,124)
-
-
Retained earnings/ (Accumulated losses)
96,112,997
89,817,170
399.237
(5,275,486)
Total Equity
55,956,711
59,516,973
74,160,161
68,485,438
Non-Current Liabilities
Borrowings
6,606,910
9,834,719
-
-
Deferred taxes
2,054,758
637,777
-
-
Deferred income
1,629,508
1,519,487
-
-
Provision for site restoration
65,354
66,861
-
-
Total Non-Current Liabilities
10,356,530
12,058,844
-
-
Current liabilities
Trade and other payables
6,614,604
7,684,371
-
-
Accrued and other liabilities
2,682,569
2,229,254
1,058,395
1,069,482
Borrowings
5,217,009
10,194,584
-
-
Taxes payable
1,268,125
195,980
-
4,941
Total Current Liabilities
15,782,307
20,304,189
1,058,395
1,074,423
Total Liabilities
26,138,837
32,363,033
1,058,395
1,074,423
Total Equity and Liabilities
82,095,548
91,880,006
75,218,556
69,559,861
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2018
Distributable
The Group
Share capital
Revaluation reserve
Translation reserve
Retained earnings
Total
USD
USD
USD
USD
USD
Balance as at 1 January 2018
73,760,924
2,680,003
(106,741,124)
89,817,170
59,516,973
Profit for the year
-
-
-
8,924,453
8,924,453
Other comprehensive loss
-
-
(9,525,368)
-
(9,525,368)
Total comprehensive (loss)/income for the year
-
-
(9,525,368)
8,924,453
(600,915)
Other transactions impacting equity:
Dividends paid
-
-
-
(2,957,347)
(2,957,347)
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
(116,266,492)
96,112,997
55,956,711
Distributable
The Group
Share capital
Revaluation reserve
Translation reserve
Retained earnings
Total
USD
USD
USD
USD
USD
Balance as at 1 January 2017
73,760,924
3,062,343
(106,985,770)
88,203,360
58,040,857
Profit for the year
-
-
-
1,231,470
1,231,470
Other comprehensive income
-
-
244,646
-
244,646
Total comprehensive income for the year
-
-
244,646
1,231,470
1,476,116
Other transactions impacting equity:
Transfer on revaluation reserve relating to property, plant and equipment through use
-
(382,340)
-
382,340
-
Balance as at 31 December 2017
73,760,924
2,680,003
(106,741,124)
89,817,170
59,516,973
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2018
The Group
The Company
2018
2017
2018
2017
USD
USD
USD
USD
CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES
Profit before income tax
10,668,939
1,934,561
8,634,070
3,183,553
Adjustments for:
Depreciation of property, plant and equipment
7,272,439
7,265,935
-
-
Amortisation of quarry stripping costs
4,654
30,398
-
-
Amortisation of site restoration costs
1,566
1,656
-
-
Dividend income
-
-
(8,389,233)
(3,435,005)
Reversal of dividend accrued
-
-
4,855
-
Loss on disposal of property, plant and equipment
30,925
72,728
-
-
Interest income
(42,649)
(61,449)
(524,068)
-
Finance costs
1,637,834
2,236,516
-
-
Net foreign exchange loss/(gain)
1,786,724
205,610
(50,676)
79,897
Provision for obsolete inventories
46,562
33,175
-
-
Credit loss allowance for doubtful receivables
168,365
25,532
-
-
Allowance for advances paid to third parties
139,979
43,782
-
-
Reversal of provision for obsolete inventories
(346,533)
(356,280)
-
-
Deferred income
(41,192)
(49,096)
-
-
Reversal of doubtful receivables
-
(138)
-
-
Write-off of inventories
-
46,820
-
-
21,327,613
11,429,750
(325,052)
(171,555)
Movement in working capital:
Decrease/(Increase) in:
Inventories
(2,304,350)
2.606.085
-
-
Trade and other receivables
(2,434,470)
430,552
(125)
-
Loans and advances to subsidiary companies
-
-
(199,034)
104,828
Advances and prepaid expenses
-
(2,682,456)
-
2,549
Increase/(Decrease) in:
Trade and other payables
(161,809)
(140,863)
-
-
Accrued and other liabilities
2,244,060
570,636
39,589
3,527
Cash Generated From/(Used In) Operations
18,671,044
12,213,704
(484,622)
(60,651)
Income tax paid
(151,305)
-
(4,941)
-
Cash Generated From/(Used In) Operating Activities
18,519,739
12,213,704
(489,563)
(60,651)
CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES
Purchase of property, plant and equipment
(3,138,098)
(2,104,293)
-
-
Purchase of other assets
(25,621)
(68,273)
-
-
Proceeds from disposal of property, plant and equipment
-
476,689
-
-
Dividends received from subsidiary
-
-
3,430,150
-
Interest received
42,649
61,449
29,345
-
Net Cash Used In/(From) Investing Activities
(3,121,070)
(1,634,428)
3,459,495
-
CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES
Redemption of bonds
-
(4,483,495)
-
-
Proceeds from bank borrowings
9,363,949
18,201,873
-
-
Repayment of bank borrowings
(16,732,905)
(20,045,342)
-
-
Dividends paid
(2,959,347)
-
(2,959,347)
-
Interest paid
(1,650,182)
(2,235,965)
-
-
Net Cash Used In Financing Activities
(11,978,485)
(8,562,929)
(2,959,347)
-
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
3,420,184
2,016,347
10,585
(60,651)
EEFFECTS OF FOREIGN EXCHANGE RATE CHANGES
(746,029)
5,784
-
-
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
3,045,336
1,023,205
12,985
73,636
CASH AND CASH EQUIVALENTS AT END OF YEAR
5,719,491
3,045,336
23,570
12,985
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