REG - Steppe Cement Ltd - Final Results and Accounts 2019
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
31- Dec-19Year ended
31- Dec-18Inc/(Dec)%
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 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 USD23/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 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 (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 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 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 YEAR ENDED 31 DECEMBER 2019
Distributable
The Group
Share capital
Revaluation reserve
Translation reserve
Retained earnings
Total
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 reserve
Translation reserve
Retained earnings
Total
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 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 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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