RNS Number : 6047O
Steppe Cement Limited
13 June 2022
 

13 June 2022

 

Steppe Cement Ltd

 

CEO STATEMENT

 

Kazakhstan has experienced a boom in construction and cement consumption towards the end of the pandemic mostly due to government incentives. Our factory continued to perform and we managed to initiate various internal capital projects that will allow us to increase the production volumes in the coming years.

 

The construction sector grew very fast in 2021 and the financial markets remained fairly stable. The stability was subsequently shatered in early 2022 with internal political upheaveal starting in West and Southern Kazakshtan and the subsequent events in Ukraine in February 2022. Although the cement market remains strong in 2022, the uncertainty is likely to continue during the remaining months of the year. The management will continue a conservative financial and investment policy. 

 

In 2021, Steppe Cement posted a net profit of USD17 million while the EBITDA increased to USD31.5 million  from USD24.2 million in 2020 mostly due to bigger volumes and 13% higher prices in KZT. The increase of cost of production was contained and the devaluation was limited to only 3% for the year.

 

The overall domestic cement market increased by 23% to 11.6 million tonnes. Our sales volume increased by 3%. Local sales increased by 11% while exports decreased by 57% as we focused on the domestic market.

 

The increase of the market is attributable mostly to the government decision that allowed individuals to use a portion of their pensions to buy or improve properties or for health reason as part of the estimulus of the Covid pandemic. It is estimated that around USD6 billion have been taken from the pension fund system since the beginning of the program in 2020. This represents around 20% of the USD30 billion currently in the national pension fund.

 

Steppe Cement operated both lines at 87% 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 USD65.5 million from USD57.9 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-21

Year ended
31- Dec-20

Inc/(Dec)%

Sales (tonnes of cement)

1,688,544

1,645,744

3%

Consolidated turnover (KZT million)

36,020

30,958

16%

Consolidated turnover (USD million)

84.6

74.8

13%

Consolidated profit before tax (USD million)

21.4

13.1

63%

Consolidated profit after tax (USD million)

17.0

11.1

53%

Profit per share (US cents)

7.8

5.1

53%

Shareholders' funds (USD million)

65.5

57.9

13%

Average exchange rate (KZT/USD)

426

413

(3%)

Exchange rate as at year end (KZT/USD)

432

421

(3%)

 

The Kazakh cement market increased by 23% in 2021 and we expect 2022 to be at a similar level

 

The Kazakh cement market in 2021 increased to 11.6 million tonnes or 23% from 2020. Imports into Kazakshtan increased by 34% to 0.8 million tonnes equivalent to 7% of the total market, as shipping from Iran was resumed. Exports from local producers decreased by 19% to 1.6 million tonnes mostly to Uzbekistan and Kyrgyzstan. Exports to Uzbekistan, concentrated in the Tashkent area, will continue to decline as the country commissions new facilities.

 

The market demand in 2022 continues to be strong. After a very strong first quarter we expect the market to stabilise. While we expect the construction driven by pension withdrawals to tapper off, oil prices are at near a historical high and government stimulus packages continue.

 

On the back of the market growth, Steppe Cement's average cement selling prices increased by 13% in KZT and 10% in USD, to USD50 per tonne delivered.

 

 

Production and costs

 

Line 5 produced 62% of total production, or 1,050,373 tonnes of cement while Line 6 produced 638,170. Line 5 performed at 95% capacity while Line 6 was limited by exceptional maintenance. In 2022 we will endeavor to keep the good performance of Line 5 and increase signicantly the production of clinker of Line 6. We intend to achieve production of 1.75 to 1.8 million tons. In addition to increases in clinker production, we intend to use more slag. This will bring a reduction in CO2 emissions and lower costs.

Cost per tonne increased by 6% in KZT in line with inflation. The average cash production cost of clinker increased from USD19/tonne to USD20/tonne while cement cash cost increased from USD21.5/tonne to USD23/tonne in 2020 due to inflation in electricity and transportation.

Despite the increase of transportation costs, selling expenses, reflecting mostly cement delivery costs, were reduced to USD7.3/tonne as we focused in markets closer to the factory and reduced exports significantly.

 

Foreign exchange losses are now negligeable at USD0.2 million as we don't have USD denominated loans. Those are atributable mostly to the time difference between the purchase of consumable and capex materials throughout the year.

 

Other income of USD1.6 million reflects the write-back of receivables previously written down and the write-back of deferred income from the government subsidised loans.

 

The government has started to prepare the ground for a trading market in CO2 emissions. They are following the European model of allocation to factories based on current production and eventually pushing towards reduction through investment in alternative fuels, technology or promoting cement with lower emisions. We will continue to upgrade our shareholders particularly if this policy has an impact in our operations.

 

General and administrative expenses

 

General and administrative expenses increased to USD6.7 million from USD6.2 million in 2020 in line with inflation.

 

Labor and Covid-19

 

On 31 March 2022 the labour count stood at 801 from 781 in 2021 as we have replaced certain subcontractors with our own staff. This policy will be constantly under revision as we evaluate the quality and pricing of the different subcontractors that become available in the region.

 

We didn't have any further covid deaths in 2021. All employees were offered voluntary vaccination and 75% of them took it. This compared favorably with the overall region and country statistics across all age groups. An employee of our subcontractors had a fatal accident in the factory and the subcontractor was terminated following an investigation.

 

Capital investment increased significantly in 2021 and the trend will continue in 2022

 

Capital investment was accelerated to USD6.2 million to compensate the slow down in investment during 2019 and 2020. Apart from the traditional maintenance capex and key spare purchasing in the region of USD2 million per year we managed to complete a significant number of projects and some of them will be continuing in 2022. The main investment completed during the year 2021 were:

-     Bag feeder automatisation to improve productivity

-     Coal mill gas duct size change to save power and increase production

-     Kiln 6 main gear drive replacement to improve reliability and reduce power consumption

-     New coal dosing system, to better control the feed to the preheater in line 6

-     Slag drying dedusting and automatisation to improve ecology and stability

-     XRF analyser for laboratory to increase clinker quality and stability

-     Acquisition of rail line connection to main train station to save transportation costs

-     Start of new separator for cement mill number 1


We have plans for further USD7 million investment in 2022 and the first half of 2023 including:

-     Complete the new separator for cement mill number 1 to increase slag content and cement production and to reduce electricity consumption

-     Start the new separator for cement mill number 2

-     Crane revamping as maintenance capex

-     Replacement of one reducer for cement mill as a key spare part

-     Two new cement mill motors as key spare parts

-     One new motor for preheater fan to reduce power consumption

-     Raw mill 3 separator revamp to increase production of line 6

-     Modifications to the line 6 preheater to increase production

-     Software upgrades to the control system to prevent obsolescency

-     Online monitoring of main stack emissions to improve ecology

-     Upgraded bag filters to improve ecology

 

We have obtained additional subsidised loans of USD4.5 million in KZT at 6% and we will use them in 2022 mostly for the cement mill separators.

 

 

Effects of application of IFRS 16 in the accounts

 

The application of IFRS 16 affect the accounting the rental of wagons that Steppe Cement does not own. Some wagons were rented for three years and the last year is 2022. The accounting standard requires to account for a new non-current asset called right-of-use assets evaluated in 2021 at USD1.7 million vs USD3.5 million in 2020 (the lease contracts have already been accounted for two years). The amount will be nearly eliminated in 2022 unless the rental contracts are renewed in a multi year basis and it may increase again depending on the renewal terms. The corresponding entries in the liabilities are called lease liabilities of USD2 million in 2021 vs USD3.9million in 2020.

 

The selling expenses have been reduced to USD12.3 million while the corresponding lease finance cost has been calculated at USD0.4 million increasing the financial expenses but less than in 2020 when they were increased by USD0.6 million.

 
Without IFRS 16 accounting, the finance expenses would have been USD0.7 million and the selling expenses USD13.6 million. Consequently, the profit before taxation has been  increased by USD1million.

 

The EBITDA increased due to the recognition of the depreciation of right of use assets. Without this depreciation, the EBITDA for 2021 would have been USD29.8 million.

 


Financial position: New debt has been limited to subsidied credit lines as interest rates in Kazakhstan have increased to 14% in 2022

 

During the year, our total loans outstanding were reduced from USD7 million to USD5.6 million, the majority of the loans have very favourable subsidized rates in KZT. The company ended the year with a net cash position of USD4.6 million, excluding IFRS 16 leases.

 

Long-term loans were reduced from USD2.4 million to USD1.9 million mostly due to repayment of subsidized loans.

 

Our short term loans and current part of the long term loans decreased from USD4.4 million in 2020 to USD3.6 million in 2021, while the cash position at the end of the year increased from USD8.2 million to USD10.1 million.

 

In 2021, finance costs decreased to USD1.09 million from USD1.25 million in 2020. Without operating lease interest of USD0.4 million under IFRS 16, the finance cost  was USD0.7 million of which USD0.4 million was interest on loans.

 

The KZT had a stable year against the USD, it fluctuated between 417 and 437 KZT/USD suffering only a 3% devaluation against the USD year on year. This is quite a contrast with the situation experienced in 2020 and the beginning of 2022 with significant political instability in Kazakhstan in January and in the CIS region from February. The average rate for the year was 426.

 

We maintain short term credit lines available as stand by:

-     KZT 1 billion short term in a government subsidized program in KZT at 6% p.a.

-     KZT 2 billion from Halyk Bank at 6% p.a. in USD or 14% in KZT.

-     KZT 0.9 billion from Altyn Bank at 14% p.a. in KZT.

 

Depreciation of property, plant and equipment increased slightly to USD7.1 million in 2021 due to the increased capex.

 

Steppe Cement's effective income tax rate was in line with the statutory rate of 20% in Kazakhstan.

 

 

 

Javier del Ser Perez
Chief Executive Officer



 

Annual Report and Annual General Meeting 

Steppe Cement will release its Annual Report 2021 on its web site at www.steppecement.com during the week commencing 13 June 2022.

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, 13 July 2022 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 +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 2021

 




The Group


The Company




2021


2020


2021


2020




USD


USD


USD


USD





















Revenue



84,578,739


74,774,297


1,469,264


10,796,326











Cost of sales



(44,834,182)


(42,439,633)


-


-











Gross profit



39,744,557


32,334,664


1,469,264


10,796,326





















Selling expenses



(12,264,221)


(12,966,168)


-


-

General and administrative










expenses



(6,761,722)


(6,225,928)


(324,207)


(311,871)

Interest income



401,619


199,332


-


934

Finance costs



(1,090,949)


(1,249,051)


-


-

Net foreign exchange loss



(227,951)


(808,977)


(825)


(3,981)

Other income, net



1,616,216


1,817,314


112,940


82,507











Profit before income tax



21,417,549


13,101,186


1,257,172


10,563,915











Income tax expense



(4,352,182)


(1,983,727)


-


-











Profit for the year



17,065,367


11,117,459


1,257,172


10,563,915











Attributable to:










Shareholders of the Company



17,065,367


11,117,459


1,257,172


10,563,915











Earnings per share:










Basic and diluted (cents)



7.8


5.1





STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2021

 

 




The Group


The Company





2021


2020


2021


2020





USD


USD


USD


USD
























Profit for the year



17,065,367


11,117,459


1,257,172


10,563,915













Other comprehensive (loss)/income:






















Items that will not be reclassified subsequently to profit or loss:






















Revaluation gain on property, plant and equipment, net of tax



-


760,291


-


-


Gain  on recovery of impaired assets



15,373


-


-


-


Increase in provision for site restoration



(23,611)


(74,671)


-


-


 











Items that may be reclassified subsequently to profit or loss:






















Exchange differences arising from translation of foreign operations



(1,923,738)


(5,228,388)


-


-













Total other comprehensive loss



(1,931,976)


(4,542,768)


-


-













Total comprehensive income for the year



15,133,391


6,574,691


1,257,172


10,563,915













Attributable to:











Shareholders of the Company



15,133,391


6,574,691


1,257,172


10,563,915




 

STATEMENTS OF FINANCIAL POSITION

AS OF 31 DECEMBER 2021

 

 



The Group


The Company




2021


2020


2021


2020




USD


USD


USD


USD





















Assets










Non-Current Assets:










Property, plant and equipment



48,437,801


48,856,410


-


-

Right-of-use assets



1,700,510


3,483,259


-


-

Investment in subsidiary companies



-


-


36,199,599


36,294,519

Loan to subsidiary company



-


-


30,080,000


30,110,000

Advances



-


-


-


-

Other assets



155,132


1,900,656


-


-











Total Non-Current Assets



50,293,443


54,240,325


66,279,599


66,404,519











Current Assets










Inventories



16,023,541


12,367,557


-


-

Trade and other receivables



1,751,720


1,910,839


1,724,364


6,775,995

Other assets



2,258,501


726,517


-


-

Income tax recoverable



911,395


1,435,100


-


-

Loans and advances to subsidiary companies



-


-


49,536


39,712

Advances and prepaid expenses



5,233,894


2,374,094


4,971


5,848

Cash and cash equivalents



10,136,022


8,213,680


614,225


1,352,950











Total Current Assets



36,315,073


27,027,787


2,393,096


8,174,505











Total Assets



86,608,516


81,268,112


68,672,695


74,579,024



 



The Group


The Company




2021


2020


2021


2020




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



2,068,114


2,370,706


-


-

Translation reserve



(120,438,082)


(118,514,344)


-


-

Retained earnings/(Accumulated losses)



110,190,323


100,325,002


(5,605,876)


631,352











Total Equity



65,581,279


57,942,288


68,155,048


74,392,276











Non-Current Liabilities










Borrowings



1,941,383


2,368,296


-


-

Lease liabilities



8,571


2,076,668


-


-

Deferred taxes



4,318,652


4,559,927


-


-

Deferred income



1,588,098


1,492,432


-


-

Provision for site restoration



180,314


150,878


-


-











Total Non-Current Liabilities



8,037,018


10,648,201


-


-











Current liabilities










Trade and other payables



5,061,705


4,075,078


-


-

Accrued and other liabilities



1,552,778


1,531,039


227,897


186,748

Amount owing to a subsidiary company



-


-


289,750


-

Borrowings



3,614,801


4,429,053


-


-

Lease liabilities



2,071,879


1,830,755


-


-

Deferred income



103,720


106,420


-


-

Taxes payable



639,336


705,278


-


-











Total Current Liabilities



12,990,219


12,677,623


517,647


186,748











Total Liabilities



21,027,237


23,325,824


517,647


186,748











Total Equity and Liabilities



86,608,516


81,268,112


68,672,695


74,579,024

 

 


STATEMENTS OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2021

 

 

 








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

-


-


-


(7,494,400)


(7,494,400)

Transfer on 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

 

 








Distributable



The Group

Share capital


Revaluation reserve


Translation reserve


Retained earnings


Net

 

USD


USD


USD


USD


USD











As of 1 January 2020

73,760,924


2,015,943


(113,285,956)


100,386,012


62,876,923

Profit for the year

-


-


-


11,117,459


11,117,459

Other comprehensive income/(loss)

-


685,620


(5,228,388)


-


(4,542,768)

Total comprehensive income for the year

-


685,620


(5,228,388)


11,117,459


6,574,691

 










Other transactions impacting equity:










Dividends paid

-


-


-


(11,509,326)


(11,509,326)

Transfer on revaluation reserve relating to property, plant and equipment through use

-


(330,857)


-


330,857


-











As of 31 December 2020

73,760,924


2,370,706


(118,514,344)


100,325,002


57,942,288

STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2021

 

 


The Group


The Company


2021


2020


2021


2020


USD


USD


USD


USD

















CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES








Profit before income tax

21,417,549


13,101,186


1,257,172


10,563,915

 








Adjustments for:
















Depreciation of property, plant and equipment

7,039,116


6,873,876


-


-

Depreciation of right-of-use

  assets

1,716,748


2,116,952


-


-

Dividend income

-


-


-


(9,441,251)

Loss on disposal of property, plant and equipment

-


26,546


-


-

Interest income

(401,619)


(199,332)


(1,469,264)


(1,356,009)

Finance costs

1,090,949


1,249,051


-


-

Net unrealised foreign exchange loss

227,951


702,427


-


-

Provision for obsolete inventories

142,387


100,475


-


-

Credit loss allowance for doubtful receivables

594,901


813,812


-


-

Allowance for advances paid to third parties

11,676


69,152


-


-

Reversal of provision for obsolete inventories

-


(170,345)


-


-

Deferred income

(105,947)


(108,310)


-


-

Bad debts recovered

(769,654)


-


-


-

 








Operating profit/(loss) before working capital changes

30,964,057


24,575,490


(212,092)


(233,345)









 

Movement in working capital:








 

(Increase)/Decrease in:








 

Inventories

(6,054,197)


(3,817,367)


-


-

 

Trade and other receivables

302,194


2,578,712


(90,000)


-

 

Loans and advances to subsidiary companies

-


-


20,176


(76,385)

 

Advances, prepaid expenses and other assets

(2,820,912)


487,543


877


10,096

 









 

(Decrease)/Increase in:








 

Trade and other payables

659,548


(1,538,598)


-


-

 

Accrued and other liabilities

54,890


449,819


41,149


30,925

 

 








 

Cash Generated From/(Used In) Operations

23,105,490


22,735,599


(239,890)


(268,709)

 

Income tax paid

(3,985,384)


(2,925,488)


-


-

 

 








 

Net Cash From/(Used In) Operating Activities

19,120,106


19,810,111


(239,890)


(268,709)

 

 








 

CASH FLOWS FROM/(USED IN)  INVESTING ACTIVITIES








 

Purchase of property, plant and equipment

(6,215,744)


(3,108,678)


-


-

 

Contribution to site restoration fund

(18,414)


(33,825)


-


-

 

Proceeds from disposal of property, plant and equipment

118,234


134,630


-


-

 

Dividends received from subsidiary

-


-


6,610,895


11,509,326

 

Interest received

401,619


199,332


-


1,359,861

 









 

Net Cash (Used In)/From Investing Activities

(5,714,305)


(2,808,541)


6,610,895


12,869,187

 









 

 








 

CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES








 

Advance from a subsidiary company

-


-


289,750


-

 

Return of net investment from a subsidiary company

-


-


94,920


-

 

Proceeds from bank borrowings

5,502,753


7,414,558


-


-

 

Repayment of bank borrowings

(6,345,979)


(9,657,053)


-


-

 

Repayment of lease liabilities

(1,805,362)


(2,014,790)


-


-

 

Dividends paid

(7,494,400)


(11,509,326)


(7,494,400)


(11,509,326)

 

Interest paid

(1,081,123)


(1,240,129)


-


-

 









 

Net Cash Used In Financing Activities

(11,224,111)


(17,006,740)


(7,109,730)


(11,509,326)

 

 








 

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS

2,181,690


(5,170)


(738,725)


1,091,152

 









 

EEFFECTS OF FOREIGN EXCHANGE RATE CHANGES

(259,348)


(795,510)


-


-

 









 

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

8,213,680


9,014,360


1,352,950


261,798

 









 

CASH AND CASH EQUIVALENTS AT END OF YEAR

10,136,022


8,213,680


614,225


1,352,950

 

 

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