Steppe Cement Regulatory News (STCM)

21 Apr 2008 13:55

Steppe Cement Limited21 April 2008 Steppe Cement Limited Accounts for the year ended 31 December 2007 The accounts for Steppe Cement Limited ("Steppe" or the "Company") for the yearended 31 December 2007 follow. A pdf version is available from the Company'swebsite (www.steppecement.com). Steppe Cement's AIM nominated adviser is RFC Corporate Finance Ltd. ContactStephen Allen on +61 8 9480 2500. STEPPE CEMENT LTD(Incorporated in Labuan FT, Malaysia under the Offshore Companies Act, 1990)AND ITS SUBSIDIARY COMPANIES FINANCIAL STATEMENTS CONTENTS PAGE(S) Report of the auditors 1 - 2 Income statements 3 Balance sheets 4 - 5 Statements of changes in equity 6 - 8 Cash flow statements 9 - 11 Notes to the financial statements 12 - 57 Statement by Director 58 STEPPE CEMENT LTD (Company No. LL04433) (Incorporated in Malaysia) AND ITS SUBSIDIARY COMPANIES FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (In United States Dollar) REPORT OF THE AUDITORS TO THE MEMBERS OF STEPPE CEMENT LTD (Incorporated in Labuan FT, Malaysia under the Offshore Companies Act, 1990) We have audited the accompanying balance sheets of Steppe Cement Ltd as of 31December 2007 and the related statements of income, cash flows and changes inequity for the financial year then ended. These financial statements are theresponsibility of the Company's directors. It is our responsibility to form anindependent opinion, based on our audit, on these financial statements and toreport our opinion to you, as a body, in accordance with Section 117 of theOffshore Companies Act, 1990 and for no other purpose. We do not assumeresponsibility towards any other person for the content of this report. We conducted our audit in accordance with approved standards on auditing inMalaysia. These standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made by thedirectors, as well as evaluating the overall financial statements presentation.We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements give, in all material respects, a trueand fair view of the financial position of the Group and of the Company as of 31December 2007 and of the results and the cash flows of the Group and of theCompany for the year then ended, in accordance with International FinancialReporting Standards. Without qualifying our opinion, we draw your attention to Note 12 to theFinancial Statements. As of 31 December 2007, one of the subsidiary companies ofthe Company is in the development stage and the financial statement of the saidsubsidiary company is prepared on the going concern basis. The successfulcompletion of the development program of the subsidiary company and, achievingprofitability, will depend on future events, including sufficient financing forconducting development activities, obtaining permits from regulatory authoritiesand achieving a revenue level, sufficient to cover the expenses of thesubsidiary company. DELOITTE & TOUCHEAAL 0011Chartered Accountants LOO CHEE CHOU2783/09/08 (J)Partner 16 April 2008 STEPPE CEMENT LTD(Incorporated in Labuan FT, Malaysia under the Offshore Companies Act, 1990)AND ITS SUBSIDIARY COMPANIES INCOME STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2007 The Group The Company Note 2007 2006 2007 2006 USD USD USD USD Revenue 4 100,824,297 55,624,649 100,000 - Cost of sales (31,821,857) (22,545,312) - - ---------- ---------- ---------- ---------- Gross profit 69,002,440 33,079,337 100,000 - Selling expenses (5,331,059) (3,809,701) - - General andadministrativeExpenses (9,236,831) (7,179,024) (707,799) (560,937) ---------- ---------- ---------- ---------- Operating 5 54,434,550 22,090,612 (607,799) (560,937)profit/(loss) Investment income 6 197,120 613,855 5,085 52,497Finance costs 7 (2,100,779) (1,328,062) - - ---------- ---------- ---------- ----------Other income/ 8 1,071,835 106,839 (2,651) 5,696(expense), net ---------- ---------- ---------- ----------Profit/(Loss) before 53,602,726 21,483,244 (605,365) (502,744)Income tax Income tax expense 9 (16,377,433) (7,108,297) - - ---------- ---------- ---------- ----------Profit/(Loss) for the 37,225,293 14,374,947 (605,365) (502,744)Year ========== ========== ========== ========== Attributable to:Shareholders of the 37,225,293 14,374,947 (605,365) (502,744)Company ========== ========== ========== ========== Earnings per share: Basic (cents) 10 33 13 ========== ========== The accompanying Notes form an integral part of the Financial Statements. STEPPE CEMENT LTD(Incorporated in Labuan FT, Malaysia under the Offshore Companies Act, 1990)AND ITS SUBSIDIARY COMPANIES BALANCE SHEETSAS OF 31 DECEMBER 2007 The Group The Company Note 2007 2006 2007 2006 USD USD USD USDAssets Non-CurrentAssets:Property, plant 11 123,064,383 55,937,237 - -andequipmentInvestment insubsidiary 12 - - 26,500,001 26,500,001companiesAdvances paid 16 19,958,584 10,046,319 - -Other assets 13 9,564,717 1,098,206 - - ----------- ----------- ----------- -----------Total Non-Current 152,587,684 67,081,762 26,500,001 26,500,001Assets ----------- ----------- ----------- ----------- Current AssetsInventories, net 14 9,605,742 8,537,726 - -Tradereceivables, 15 553,845 1,150,661 - -netAmount owing bysubsidiary 12 - - 656,861 357,861companiesOtherreceivables,advances and 16 13,711,356 2,198,246 1,320 1,320prepaidexpensesShort-terminvestments 17 - 16,763,327 - -Cash and bank 18 5,573,108 8,863,934 169,271 630,102balances ----------- ----------- ----------- -----------Total Current 29,444,051 37,513,894 827,452 989,283Assets ----------- ----------- ----------- ----------- Total Assets 182,031,735 104,595,656 27,327,453 27,489,284 =========== =========== =========== =========== (Forward) The Group The Company Note 2007 2006 2007 2006 USD USD USD USD Equity andLiabilities Capital andReservesShare capital 19 1,140,000 1,140,000 1,140,000 1,140,000Share premium 20 26,646,982 26,646,982 26,646,982 26,646,982Revaluation 20 4,601,668 6,491,683 - -reserveTranslation 20 5,589,530 1,530,917 - -reserve ----------- ----------- ----------- -----------Retained 20 72,490,416 33,375,108 (1,879,007) (1,273,642)earnings/(Accumulatedloss) ----------- ----------- ----------- ----------- Total Equity 110,468,596 69,184,690 25,907,975 26,513,340 ----------- ----------- ----------- ----------- Non-CurrentLiabilitiesBonds 21 22,731,206 21,577,263 - -Loans 22 24,588,764 - - -Deferred tax 23 11,671,362 10,782,413 - -liabilities, net ----------- ----------- ----------- -----------Total 58,991,332 32,359,676 - -Non-CurrentLiabilities ----------- ----------- ----------- ----------- CurrentliabilitiesTrade payables 24 5,292,633 1,292,930 - -Other payablesand 25 4,803,803 1,514,022 678,572 362,613accruedliabilitiesLoans 22 276,168 - - -Amount owing tosubsidiary 12 - - 740,906 613,331companiesTaxes payable 26 2,199,203 244,338 - - ----------- ----------- ----------- -----------Total Current 12,571,807 3,051,290 1,419,478 975,944Liabilities ----------- ----------- ----------- -----------Total 71,563,139 35,410,966 1,419,478 975,944Liabilities ----------- ----------- ----------- ----------- Total Equity and 182,031,735 104,595,656 27,327,453 27,489,284Liabilities =========== =========== =========== =========== The accompanying Notes form an integral part of the Financial Statements. STEPPE CEMENT LTD(Incorporated in Labuan FT, Malaysia under the Offshore Companies Act, 1990)AND ITS SUBSIDIARY COMPANIES STATEMENTS OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2007 Non-distributable Distributable Retained earnings/ Share Share Revaluation Translation (AccumulatedThe Group capital Premium reserve reserve loss) Total/Net USD USD USD USD USD USD Balance as at 1 January 2006 1,000,000 6,300,000 - (41,692) 16,663,231 23,921,539Issue of shares (Note 19) 140,000 20,860,000 - - - 21,000,000Share issuance expenses (Note 20) - (513,018) - - - (513,018)Exchange differences arising on translation of foreign subsidiary companies - - - 1,572,609 - 1,572,609Profit for the year - - - - 14,374,947 14,374,947Revaluation of property, plant and equipment - - 12,612,311 - - 12,612,311Deferred tax liabilities from revaluation of property, plant and equipment - - (3,783,698) - - (3,783,698)Depreciation of revaluation reserve - - (2,336,930) - 2,336,930 - ----------- ----------- ----------- ----------- ----------- -----------Balance as at 31 December 2006 1,140,000 26,646,982 6,491,683 1,530,917 33,375,108 69,184,690 =========== =========== =========== =========== =========== =========== (Forward) Non-distributable Distributable Retained earnings/ Share Share Revaluation Translation (AccumulatedThe Group capital Premium reserve reserve loss) Total/Net USD USD USD USD USD USDBalance as at 1 January 2007 1,140,000 26,646,982 6,491,683 1,530,917 33,375,108 69,184,690Exchange differences arising on translation of foreign subsidiary companies - - - 4,058,613 - 4,058,613Profit for the year - - - - 37,225,293 37,225,293Depreciation of revaluation Reserve - - (1,890,015) - 1,890,015 - ----------- ----------- ----------- ----------- ----------- -----------Balance as at 31 December 2007 1,140,000 26,646,982 4,601,668 5,589,530 72,490,416 110,468,596 =========== =========== =========== =========== =========== =========== STEPPE CEMENT LTD(Incorporated in Labuan FT, Malaysia under the Offshore Companies Act, 1990)AND ITS SUBSIDIARY COMPANIES Non- distributableThe Company Share Share Accumulated capital premium loss Total/Net USD USD USD USD Balance as at 1 January 2006 1,000,000 6,300,000 (770,898) 6,529,102Issue of shares (Note 19) 140,000 20,860,000 - 21,000,000Share issuance expenses (Note 20) - (513,018) - (513,018)Loss for the year - - (502,744) (502,744) ---------- ----------- ----------- -----------Balance as at 31 December 2006 1,140,000 26,646,982 (1,273,642) 26,513,340 ---------- ----------- ----------- ----------- Balance as at 1 January 2007 1,140,000 26,646,982 (1,273,642) 26,513,340Loss for the year - - (605,365) (605,365) ---------- ----------- ----------- -----------Balance as at 31 December 2007 1,140,000 26,646,982 (1,879,007) 25,907,975 ========== =========== =========== =========== The accompanying Notes form an integral part of the Financial Statements. STEPPE CEMENT LTD(Incorporated in Labuan FT, Malaysia under the Offshore Companies Act, 1990)AND ITS SUBSIDIARY COMPANIES CASH FLOW STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2007 The Group The Company 2007 2006 2007 2006 USD USD USD USDOPERATING ACTIVITIES Profit/(Loss) before income tax 53,602,726 21,483,244 (605,365) (502,744) Adjustments for:Depreciation of property, plant and equipment 3,222,110 3,169,977 - -Finance costs 2,100,779 1,328,062 - -Provision/(recovery) of obsolete inventories 271,194 (226,991) - -Interest income (197,120) (613,855) (5,085) (52,497)Unrealised foreign exchange loss/(gain) 128,834 (32,226) - -(Gain)/loss on disposal of property, plant and equipment (155,748) 118,735 - -Provision for doubtful receivables and advances paid no longer required (74,768) (136,270) - -Write-off of payables (816) (1,318) - -Impairment of property, plant and equipment - 168,390 - -Provision for doubtful receivables and advances paid - 103,564 - - ---------- ---------- ---------- ----------Operating Profit/ (Loss) Before Movement in Working Capital 58,897,191 25,361,312 (610,450) (555,241) (Forward) The Group The Company 2007 2006 2007 2006 USD USD USD USDIncrease/ (Decrease) in:Inventories (1,350,583) (1,781,512) - -Trade receivables 591,177 (328,220) - -Amount owing by subsidiary companies - - (299,000) (105,612)Other receivable and prepaid expenses (11,364,622) (691,019) - - Increase/ (Decrease) in:Trade payables 4,000,520 526,779 - -Other payables and accrued liabilities 2,356,685 489,901 315,959 252,886Amount owing to a corporate shareholder - (174,319) - (174,319)Amount owing to subsidiary companies - - 127,575 158,508 ---------- ---------- ---------- ---------- Cash Generated From/ (Used In) Operations 53,130,368 23,402,922 (465,916) (423,778)Income tax paid (14,649,772) (7,659,492) - -Interest paid (2,805,635) (807,346) - - ---------- ---------- ---------- ----------Net Cash From/ (Used In) by Operating Activities 35,674,961 14,936,084 (465,916) (423,778) ---------- ---------- ---------- ---------- INVESTING ACTIVITIESProceeds from disposal of property, plant and equipment 254,066 3,824,189 - -Purchase of property, plant and equipment (66,279,803) (18,878,632) - -Proceeds from short-term investments 16,763,327 - - -Purchase of short-term investments - (16,310,588) - -Advance for non-current assets (9,912,265) (9,799,937) - -Additions to non-current assets (9,596,329) (1,353,728) - - (Forward) The Group The Company Note 2007 2006 2007 2006 USD USD USD USD Cash outflows from subscription of additional shares in a subsidiary company - - - (19,500,000)Interest received 197,120 613,855 5,085 52,497 ---------- ---------- ---------- ----------Net Cash (Used In)/ From Investing Activities (68,573,884) (41,904,841) 5,085 (19,447,503) ---------- ---------- ---------- ---------- FINANCING ACTIVITIESProceeds from issuance of shares - 21,000,000 - 21,000,000Share issue expenses - (513,018) - (513,018) Withdrawal of deposits pledged with financial institutions 55,862 552,027 - -Proceeds from issue of bonds - 20,787,318 - -Proceeds from borrowings 41,798,752 3,114,934 - -Repayment of loans (12,586,278) (10,093,955) - - ---------- ---------- ---------- ---------- Net Cash From by Financing Activities 29,268,336 34,847,306 - 20,486,982 ---------- ---------- ---------- ---------- NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (3,630,587) 7,878,549 (460,831) 615,701EFFECTS OF FOREIGN EXCHANGE RATE CHANGES 395,623 26,066 - -CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 8,808,072 903,457 630,102 14,401 ---------- ---------- ---------- ----------CASH AND CASH EQUIVALENTS AT END OF YEAR 27 5,573,108 8,808,072 169,271 630,102 ========== ========== ========== ========== The accompanying Notes form an integral part of the Financial Statements. STEPPE CEMENT LTD(Incorporated in Labuan FT, Malaysia under the Offshore Companies Act, 1990)AND ITS SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS 1. GENERAL INFORMATION The Company's principal activity is investment holding. The principal activityof the subsidiary companies is disclosed in Note 12. The total number of employees of the Group as at 31 December 2007 is 1,420(2006: 1,382). The Company does not have any employees other than its directors. The registered office of the Company is located at Brumby House, Jalan Bahasa,87011 Labuan FT, Malaysia. The Group's principal place of business is located at Aktau village, Karagandaregion, Republic of Kazakhstan. The financial statements of the Group and the Company have been approved by theBoard of Directors and were authorised for issuance on 16 April 2008. 2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS Basis of preparation The financial statements of the Group and the Company have been prepared inaccordance with International Financial Reporting Standards ("IFRS"). Adoption of new and revised Standards In the current year, the Group has adopted the following Standards: • IFRS 7 "Financial Instruments: Disclosures" - effective for annual periods beginning on or after 1 January 2007; and • Amendment to IAS 1 "Capital Disclosures" - effective for annual periods beginning on or after 1 January 2007. The adoption of IFRS 7 and the amendment to IAS 1 has extended the disclosuresprovided in these financial statements regarding the Group's financialinstruments and management of capital (Note 32). The following interpretations issued by the International Accounting StandardsBoard are effective for the current year: • IFRIC 7 "Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies"; • IFRIC 8 "Scope of IFRS 2"; • IFRIC 9 "Reassessment of Embedded Derivatives"; and • IFRIC 10 "Interim Financial Reporting and Impairment". The adoption of these Interpretations did not have a material effect on theGroup's accounting policy. Standards and Interpretations in issue not yet adopted As at date of authorisation of these financial statements, the followingStandards and Interpretations were issued, but not adopted: • IFRS 8 "Operating Segments" (effective for accounting periods beginning on or after 1 January 2009); • IFRS 3 "Business Combination" (effective for accounting periods beginning on or after 1 July 2009); • amendments to IFRS 2 "Share-based Payment" (effective for accounting periods beginning on or after 1 January 2009); • further amendments to IAS 23 "Borrowing costs" (effective for annual periods beginning on or after 1 January 2009); • further amendments to IAS 1 "Presentation of Financial Statements" (effective for annual periods beginning on or after 1 January 2009); • further amendments to IAS 27 "Consolidated and separate financial statements" (effective for periods beginning on or after 1 July 2009); • further amendments to IAS 31 "Interests in Joint Ventures" (effective from accounting periods beginning on or after 1 January 2009); • IFRIC 11 "IFRS 2 - Company and Treasury Share Transactions" (effective for accounting periods beginning on or after 1 March 2007); • IFRIC 12 "Service Concession Agreements" (effective for accounting periods beginning on or after 1 January 2008); • IFRIC 13 "Customer Loyalty Programmes" (effective for accounting periods beginning on or after 1 July 2008); and • IFRIC 14 "IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction" (effective for accounting periods beginning on or after 1 January 2008). The Group will adopt all applicable new, revised and changed standards and newinterpretations from the effective dates. Management expects that adoption ofthese standards and interpretations will have no significant effect on thefinancial statements in the period of initial application. Use of estimates and assumptions The preparation of financial statements in conformity with IFRS requiresmanagement to make estimates and assumptions that affect the reported amounts ofassets and liabilities, revenues and expenses and the disclosure of contingentassets and liabilities. Due to the inherent uncertainty in making thoseestimates, actual results reported in future periods could differ from suchestimates. Estimated useful life In accordance with Subsurface Use Contracts KO-03 N016 dated 4 August 1999 andLicenses for Subsurface Use K0-03 N016 dated 18 June 1999, Central Asia CementJSC ("CAC JSC"), a subsidiary company of the Company is engaged in limestone andloam extraction at Astakhovskoye deposit in Bukhar- Zhyrauskyi region, Karaganda. CAC JSC's license expires in 2018. In accordance with the accounting policypresented in Note 3, the Group depreciates its building over 25 years and as ofthe expiration of the license, those buildings would have a net carrying valueof USD11,877,013. Management has estimated the useful life of its property,plant and equipment based on the assumption that the license would be renewedbefore its expiration. Revaluation of property, plant and equipment In accordance with the accounting policy presented in Note 3, the Group's landand buildings are revalued with sufficient regularity to ensure that thecarrying amount does not differ materially from that which would be determinedusing fair value at the balance sheet date. Management has made an assessment ofits fair value of land and buildings as at 31 December 2007 and determined thatthe carrying value of those assets as at that date is not materially differentfrom their fair value. Impairment of property, plant and equipment The Group assesses at each reporting date whether there is any indication thatan asset may be impaired. If any such indication exists, or when annualimpairment testing for an asset is required, the Group makes an estimate of theasset's recoverable amount. An asset's recoverable amount is the higher of anasset's or cash-generating unit's fair value less costs to sell and its value inuse and is determined for an individual asset, unless the asset does notgenerate cash inflows that are largely independent of those from other assets orthe Group of assets. Where the carrying amount of an asset exceeds itsrecoverable amount, the asset is considered impaired and is written down to itsrecoverable amount. In assessing value in use, the estimated future cash flowsare discounted to their present value using a pre-tax 9% discount rate thatreflects current market assessment of the time value of money and the risksspecific to the assets. During the financial year, the Group did not recogniseimpairment losses (2006: USD168,390). The determination of impairment of property, plant and equipment involves theuse of estimates that include, but not limited to, the cause, timing and amountof the impairment. Impairment is based on a large number of factors, such aschanges in the restructuring process, expectations of growth in the industry,+changes in the future availability of financing, technological obsolescence,discontinuance of service, current replacement costs and other changes incircumstances that indicate an impairment exists. The recoverable amount and thefair values are typically determined using a discounted cash flow method whichincorporates reasonable market participant assumptions. The identification ofimpairment indicators, the estimation of future cash flows and the determinationof fair values for assets (or group of assets) requires management to makesignificant judgements concerning the identification and validation ofimpairment indicators, expected cash flows, applicable discount rates, usefullives and residual values. The determination of the recoverable amount of acash-generating unit involves the use of estimates by management. Methods usedto determine the value in use include discounted cash flow-based methods. Theseestimates, including the methodologies used, can have a material impact on thefair value and ultimately the amount of any property, plant and equipmentimpairment. Allowances The Group accrues allowance for doubtful receivable accounts. Significantjudgement is used to estimate doubtful accounts. In estimating doubtfulaccounts, historical and anticipated customer performances are considered.Changes in the economy or specific customer conditions may require adjustmentsto the allowance for doubtful accounts recorded in the financial statements. Asof 31 December 2007, allowance for doubtful accounts of USD75,580 (2006:USD144,185) have been provided for in the financial statements (Notes 15 and16). The Group accrues allowance for obsolete and slow-moving inventories based ondata of annual stock count as well as on the results of inventory turnoveranalysis. As of 31 December 2007, allowance for obsolete and slow-movinginventories of USD425,191 (2006: USD142,624) have been provided for in thefinancial statements (Note 14). 3. SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The financial statements of the Group and the Company have been prepared underthe historical cost convention except for the revaluation of certain non-currentassets and financial instruments. The principal accounting policies are set outbelow. Basis of Consolidation The consolidated financial statements incorporate the financial statements ofthe Company and entities controlled by the Company (its subsidiary companies).Control is achieved where the Company has the power to govern the financial andoperating policies of an entity so as to obtain benefits from its activities. The results of subsidiary companies acquired or disposed of during the year areincluded in the consolidated income statement from the effective date ofacquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiarycompanies to bring its accounting policies in line with those used by othermembers of the Group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. Business combinations The acquisition of subsidiary companies is accounted for using the acquisitionmethod. The cost of the acquisition is measured at the aggregate of the fairvalues, at the date of exchange, of assets given, liabilities incurred orassumed, and equity instruments issued by the Group in exchange for control ofthe acquiree, plus any costs directly attributable to the business combination.The acquiree's identifiable assets, liabilities and contingent liabilities thatmeet the conditions for recognition under IFRS 3 are recognised at their fairvalue at the acquisition date. Goodwill (if any), arising on acquisition is recognised as an asset andinitially measured at cost, being the excess of the cost of businesscombinations over the Group's interest in the net fair value of the identifiableassets, liabilities and contingent liabilities recognised. If, afterreassessment, the Group's interest in the net fair value of the acquiree'sidentifiable assets, liabilities and contingent liabilities exceeds the cost ofthe business combinations, the excess is recognised immediately in the incomestatement. Revenue Revenue is measured at the fair value of the consideration received orreceivable. Revenue is reduced for estimated customer returns, rebates and othersimilar allowances. Revenue from the sale of goods is recognised when all the following conditionsare satisfied: • the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; • the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; • the amount of revenue can be measured reliably; • it is probable that the economic benefits associated with the transaction will flow to the entity; and • the costs incurred or to be incurred in respect of the transaction can be measured reliably. Management fee is recognised on accrual basis in accordance with the substanceof the relevant agreement. Management fee is determined on time basis arerecognised on a straight-line basis over the period of the agreement. Interest income is accrued on a time basis, by reference to the principaloutstanding and at the effective interest rate applicable, which is the ratethat exactly discounts estimated future cash receipts through the expected lifeof the financial asset to that asset's net carrying amount. Retirement benefit costs In accordance with the requirements of the legislation of the countries in whichthe Group operates, the Group withholds amounts of pension contributions fromemployee salaries and pays them to the state pension fund. In addition suchpension system provides for calculation of current payments by the employer as apercentage of current total disbursements to staff. Such expense is charged inthe period the related salaries are earned. Upon retirement all retirementbenefit payments are made by pension funds selected by employees. The Group doesnot have any pension arrangements separate from the State pension system of thecountries where its subsidiary companies operate. In addition, the Group has nopost-retirement benefits or other significant compensation benefits requiringaccrual. Provisions Provisions are recognised when the Group and the Company have a presentobligation as a result of a past event, and it is probable that the Group andthe Company will be required to settle that obligation. Provisions are measuredat the directors' best estimate of the expenditure required to settle theobligation at the balance sheet date, and are discounted to present value wherethe effect is material. Contingent liabilities Contingent liabilities are not recognised but are disclosed, except forliabilities on which there are possible outflows of resources, needed forsettlement of the liabilities, and can be measures reliably. Contingent assetsare not recognised in the financial statements, but information about it isdisclosed if having likelihood of inflows of resources, related with obtainingeconomic benefits. Taxation Income tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from profit as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date. Deferred tax is recognised on differences between the carrying amounts of assetsand liabilities in the financial statements and the corresponding tax bases usedin the computation of taxable profit, and are accounted for using the balancesheet liability method. Deferred tax liabilities are generally recognised forall taxable temporary differences and deferred tax assets are recognised to theextent that it is probable that taxable profits will be available against whichdeductible temporary differences can be utilised. Such assets and liabilitiesare not recognised if the temporary difference arises from goodwill or from theinitial recognition (other than in a business combination) of other assets andliabilities in a transaction that affects neither the taxable profit nor theaccounting profit. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset realised. Deferred tax ischarged or credited to the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. Deferred tax assets and liabilities are offset when there is a legallyenforceable right to set off current tax assets against current tax liabilitiesand when they relate to income taxes levied by the same taxation authority andthe Group intends to settle its current tax assets and liabilities on a netbasis. Foreign Currencies The individual financial statements of each group entity are presented in thecurrency of the primary economic environment in which the entity operates (itsfunctional currency). For the purpose of the consolidated financial statements,the results and financial position of each entity are expressed in United StatesDollar, which is the functional currency of the Company, and the presentationcurrency for the consolidated financial statements. In preparing the financial statements of the individual entities, transactionsin currencies other than the entity's functional currency are recorded at therates of exchange prevailing on the dates of the transactions. At each balancesheet date, monetary items denominated in foreign currencies are retranslated atthe rates prevailing on the balance sheet date. Non-monetary items carried atfair value that are denominated in foreign currencies are retranslated at therates prevailing on the date when the fair value was determined. Non-monetaryitems that are measured in terms of historical cost in a foreign currency arenot retranslated. Exchange differences arising on the settlement of monetary items, and on theretranslation of monetary items, are included in the income statement for theperiod. Exchange differences arising on the retranslation of non-monetary itemscarried at fair value are included in the income statement for the year exceptfor differences arising on the retranslation of non-monetary items in respect ofwhich gains and losses are recognised directly in equity. For such non-monetaryitems, any exchange component of that gain or loss is also recognised directlyin equity. For the purposes of presenting consolidated financial statements, the assets andliabilities of the Group's foreign operation (including comparatives) areexpressed in United States Dollar using exchange rates prevailing on the balancesheet date. Income and expense items (including comparatives) are translated atthe average rates at the dates of the transactions. Exchange differencesarising, if any, are classified as equity and transferred to the Group'stranslation reserve. Such translation differences are recognised in the incomestatement in the period in which the foreign operations is disposed of. Goodwill (if any) and fair value adjustments arising on the acquisition offoreign operations are treated as assets and liabilities of the foreignoperation and translated at the closing rate. The principal closing rates used in translation of foreign currency amounts areas follows: 2007 2006 USD USD 1 Sterling Pound 1.9840 1.95891 Euro 1.4590 1.31991 Ringgit Malaysia 0.3024 0.28341 RUB 0.0408 0.0382 ======== ======== KZT KZT 1 USD 120.680 126.795 ======== ======== Impairment of Tangible Assets At each balance sheet date, the Group reviews the carrying amounts of itstangible assets to determine whether there is any indication that those assetshave suffered an impairment loss. If any such indication exists, the recoverableamount of the asset is estimated in order to determine the extent of theimpairment loss (if any). Where it is not possible to estimate the recoverableamount of an individual asset, the Group estimates the recoverable amount of thecash-generating unit to which the asset belongs. Recoverable amount is the higher of the fair value less costs to sell and thevalue in use. In assessing value in use, the estimated future cash flows arediscounted to their present value using a pre-tax discount rate that reflectcurrent market assessments of the time value of money and the risks specific tothe asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset is estimated to be less than its carryingamount, the carrying amount of the asset is reduced to its recoverable amount.An impairment loss is recognised immediately in the income statement, unless therelevant asset is carried at a revalued amount, in which case the impairmentloss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset(or cash-generating unit) is increased to the revised estimate of itsrecoverable amount, but so that the increased carrying amount does not exceedthe carrying amount that would have been determined had no impairment loss beenrecognised for the asset (or cash-generating unit) in prior years. A reversal ofan impairment loss is recognised immediately in income statement, unless therelevant asset is carried at a revalued amount, in which case the reversal ofthe impairment loss is treated as a revaluation increase. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciationand accumulated impairment loss, if any, except for buildings which are statedat their revalued amounts, being the fair value at the date of revaluation, lessany subsequent accumulated depreciation and impairment losses, if any.Revaluation is performed with sufficient regularity such that the carryingamounts do not differ materially from those that would be determined using fairvalues at balance sheet date. Any revaluation increase arising on revaluation is credited to the revaluationreserve, except to the extent that it reverses a revaluation decrease for thesame asset previously recognised in the income statement, in which case, theincrease is credited to the income statement to the extent of the decreasepreviously charged. A decrease in the carrying amount arising on revaluation ischarged to the income statement to the extent that it exceeds the balance, ifany, held in the revaluation reserve relating to a previously revalued asset. Capitalised cost includes major expenditures for improvements and replacementsthat extend the useful lives of the assets or increase their revenue generatingcapacity. Repairs and maintenance expenditures that do not meet the foregoingcriteria for capitalisation are charged to the income statement as incurred. Residual values and useful lives of assets are reviewed, and adjusted ifappropriate, at each balance sheet date. Depreciation is charged so as to write off the cost of assets, other than landand construction in progress, over their estimated useful lives, using thestraight-line method as follows: Buildings 25 yearsMachinery and equipment 14 yearsOther assets 5 - 10 yearsComputer software 1 - 10 years The gain or loss arising on the disposal or retirement of an item of property,plant and equipment is determined as the difference between the sales proceedsand the carrying amount of the asset and is recognised in the income statement. Inventories Inventories are stated at the lower of cost and net realisable value. Costscomprise direct materials and, where applicable, direct labour costs and thoseoverheads that have been incurred in bringing the inventories to their presentlocation and condition. Cost is calculated using the weighted average method.Net realisable value represents the estimated selling price less all estimatedcosts of completion and costs to be incurred in marketing, selling anddistribution. Financial Instruments Financial assets and financial liabilities are recognised on the Group'sconsolidated balance sheet when the Group becomes a party to the contractualprovisions of the instrument. Financial Assets The Group has the following financial assets: cash and cash equivalents;short-term investments; trade and other receivables. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits and othershort-term highly liquid investments that are readily convertible to a knownamount of cash and are subject to an insignificant risk of changes in value. Short-term investments Short-term investments represent current assets, limited in use, with term morethan three months since the date of acquisition. Trade and other receivables Trade and other receivables are measured at initial recognition at fair value,and are subsequently measured at amortised cost using the effective interestrate method. Appropriate allowances for estimated irrecoverable amounts arerecognised in the income statement when there is objective evidence that theasset is impaired. The allowance recognised is measured as the differencebetween the asset's carrying amount and the present value of estimated futurecash flows discounted at the effective interest rate computed at initialrecognition. Impairment of Financial Assets Financial assets are assessed for indicators of impairment at each balance sheetdate. Financial assets are impaired where there is objective evidence that, as aresult of one or more events that occurred after the initial recognition of thefinancial asset, the estimated future cash flows of the investment have beenimpacted. For financial assets carried at amortised cost, the amount of theimpairment is the difference between the asset's carrying amount and the presentvalue of estimated future cash flows, discounted at the original effectiveinterest rate. The carrying amount of the financial asset is reduced by the impairment lossdirectly for all financial assets with the exception of trade receivables wherethe carrying amount is reduced through the use of an allowance account. When atrade receivable is uncollectible, it is written off against the allowanceaccount. Subsequent recoveries of amounts previously written off are creditedagainst the allowance account. Changes in the carrying amount of the allowanceaccount are recognised in income statement. With the exception of available for sale equity instruments, if, in a subsequentperiod, the amount of the impairment loss decreases and the decrease can berelated objectively to an event occurring after the impairment was recognised,the previously recognised impairment loss is reversed through the incomestatement to the extent that the carrying amount of the investment at the datethe impairment is reversed does not exceed what the amortised cost would havebeen had the impairment not been recognised.In respect of available for sale equity securities, any increase in fair valuesubsequent to an impairment loss is recognised directly in equity. Financial Liabilities and Equity Instruments Issued By The Group Debt and equity instruments are classified as either financial liabilities or asequity in accordance with the substance of the contractual arrangement. Anequity instrument is any contract that evidences a residual interest in theassets of an entity after deducting all of its liabilities. Equity instrumentsare recorded at the proceeds received, net of direct issue costs. Debt securities issued Debts securities issued initially are measured at fair value, net of transactioncosts and are subsequently measured at amortised cost using the effectiveinterest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of afinancial liability and of allocating interest expense over the relevant period.The effective interest rate is the rate that exactly discounts estimated futurecash payments through the expected life of the financial liability, or, whereappropriate, a shorter period. Loans Loans, on which interests are accrued, are initially recognised at fair valueplus transaction costs, and are subsequently measured at amortised cost, usingeffective interest rate method. Borrowing costs Borrowing costs directly attributable to the acquisition, construction orproduction of qualifying assets, which are assets that necessarily take asubstantial period of time to get ready for their intended use or sale, areadded to the cost of those assets, until such time as the assets aresubstantially ready for their intended use or sale. Investment income earned onthe temporary investment of specific borrowings pending their expenditure onqualifying assets is deducted from the borrowing costs eligible forcapitalisation. All other borrowing costs are recognised in profit or loss in the period inwhich they are incurred. Trade payables Trade payables are initially measured at fair value, and are subsequentlymeasured at amortised cost, using the effective interest rate method. Derecognition of Financial Assets and Liabilities Financial assets Recognition of financial asset (or, if applicable, portion of financial asset orgroup of similar financial assets) ceases in case when: • rights for receivable of cash flows from asset are expired; • the Group retains rights for receivable of cash flows from asset, but accepted obligation to repay them fully without significant delay to third party in accordance with transfer agreement, and transferred, mostly, all risks and benefits for the asset; or • Group has transferred it's rights for receivable of cash flows from asset or (a) transferred, mostly, all risks and benefits from asset, or (b) has not transferred, and has not retained any risks and benefits from the asset, but transferred control over the asset. If the Group has transferred it's rights for receivable of cash flows from theasset or has not transferred, and has not retained any risks and benefits fromthe asset, or has not transferred control over the asset, then the asset isrecognised to the extent, the Group participates in asset. Continuance inparticipation, which undertakes form of guarantee on transferable asset, ismeasured at the lower of: • initial cost ; or • maximum recoverable amount, which the Group will be required for settlement. Financial liabilities Recognition of financial liability ceases, when it is accomplished, cancelled orexpired. If existing financial liability is substituted by other obligation from the samecreditor on significantly different condition, or the conditions of existingliability is significantly changed, then the substitution or change isconsidered as cessation of initial obligation and recognition of new obligation,and the difference between carrying amounts is recognised in the incomestatement. Cash Flow Statement The Group and the Company adopt the indirect method in the preparation of thecash flow statement. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the process of applying the entity's accounting policies, which are describedabove, the Group has made the following judgments that have a significant effecton the amounts recognised in the consolidated financial statements. Borrowing costs As described above, in accordance with the accounting policy, borrowing costsdirectly attributable to acquisition, construction or production of qualifyingasset are capitalised. Capitalisation of borrowing costs, related to equipmentceases at the moment of shipment to warehouse and when the equipment is readyfor installation at construction in process. Capitalisation of borrowing costsrecommences when the equipment is installed and, accordingly, becomes part ofqualifying asset. In the period, when capitalisation of borrowing costs ceasesand recommences, borrowing costs are recognised in income statement, except whenthe period is very short. 4. REVENUE The Group The Company 2007 2006 2007 2006 USD USD USD USD Sales-manufactured goods 100,824,297 55,624,649 - -Management fee receivable from subsidiary company - - 100,000 - ----------- ----------- ----------- -----------Total 100,824,297 55,624,649 100,000 - =========== =========== =========== =========== 5. OPERATING PROFIT/(LOSS) Operating profit/(loss) for the year have been arrived at after charging/(crediting): The Group The Company 2007 2006 2007 2006 USD USD USD USD Cost of inventories recognised as expenses 14,498,209 12,077,558 - -Staff costs 8,770,205 5,421,457 - -Depreciation of property, plant and equipment (Note 11) 3,222,110 3,169,977 - -Auditors' remuneration for audit services 196,110 111,774 8,000 8,000Provision/(recovery) of obsolete inventories 271,194 (226,991) - -Provision for doubtful receivables and advances paid no longer required (74,768) (136,270) - -Provision for doubtful receivables and advances paid - 103,564 - - ========== ========== ========== ========== Staff costs include salaries, pension contributions and all other staff relatedexpenses. 6. INVESTMENT INCOME The Group The Company 2007 2006 2007 2006 USD USD USD USD Interest income from short term deposit 197,120 613,855 5,085 52,497 ========== ========== ========== ========== 7. FINANCE COSTS The Group The Company 2007 2006 2007 2006 USD USD USD USD Interest expense on loan from financial institution 28,125 275,748 - -Interest on debt securities 2,072,654 795,118 - -Discount on VAT (Note 13) - 255,523 - -Other finance costs - 1,673 - - ---------- ---------- ---------- ----------Total 2,100,779 1,328,062 - - ========== ========== ========== ========== 8. OTHER INCOME, NET The Group The Company 2007 2006 2007 2006 USD USD USD USD Impairment charge (Note 11) - (168,390) - -Foreign exchange gain/(loss): Realised (3,510) (16,171) (2,651) 5,696 Unrealised (128,834) 32,226 - -Gain/(loss) on disposal of property, plant and equipment 155,748 (118,735) - - Payables write-off 816 1,318 - -Other gain, net 1,047,615 376,591 - - ---------- ---------- ---------- ----------Total 1,071,835 106,839 (2,651) 5,696 ========== ========== ========== ========== Included in other gains are income from the sale of purchased goods,transportation services, sale of electricity and other inventory of USD473,438(2006: USD819,759). 9. INCOME TAX EXPENSE The income tax expense is as follows: The Group The Company 2007 2006 2007 2006 USD USD USD USD Estimated current tax payable: - the Company - - - - - subsidiary companies 16,040,000 7,294,857 - -Deferred tax charge/(credit)(Note 23): - the Company - - - - - subsidiary companies 337,433 (186,560) - - ---------- ---------- ---------- ---------- 16,377,433 7,108,297 - - ========== ========== ========== ========== Under the Labuan Offshore Business Activity Tax Act, 1990, the Company has toelect annually whether to be charged tax at the rate of RM20,000 (USD5,263) orat a tax rate of 3% on the chargeable profits of an offshore company carrying onoffshore trading activities for the basis period for that year assessment. Notax is charged on offshore non-trading activities. The Company elected to becharged tax at 3% on the chargeable profits for the current and previousfinancial year. The profits earned by the subsidiary companies incorporated in the Republic ofKazakhstan are subject to a statutory tax rate of 30%. One of the subsidiary companies had on 23 December 2005 entered into anInvestment Contract with the Investment Committee under the Ministry of Industryand Trade of Republic of Kazakhstan, whereby the subsidiary company hascommitted to invest KZT 3,186 million (equivalent to USD26,400,398) inconstruction of cement production plant over a period of five years (2006 -2010) (Note 29). Under the Investment Contract, the subsidiary company is provided with thefollowing investment tax concessions: • For Corporate Income Tax - 5 years exemption is provided for payment of corporate income tax, starting from the date of commissioning of cement production plant; and • For Property Tax - 5 years exemption is provided for payment of property tax on newly built properties of the cement production plant starting from the date of commissioning of cement production plant. A reconciliation of income tax expense applicable to profit/(loss) before tax atthe applicable statutory income tax rate to income tax expense at the effectiveincome tax rate of the Company is as follows: The Group The Company 2007 2006 2007 2006 USD USD USD USD Profit/ (Loss) before income tax 53,602,726 21,483,244 (605,365) (502,744) ========== ========== ========== ========== Tax at statutory tax rate of 3% 1,608,082 644,497 (18,161) (15,082) Effect of different tax rate of subsidiary companies operating in other jurisdictions 14,452,175 5,866,896 - -Tax effects of:Expenses not deductible for tax purposes 230,353 539,549 - -Deferred tax assets not allowed to be carried forward/not recognised 86,823 57,355 18,161 15,082 ---------- ---------- ---------- ----------Income tax expense 16,377,433 7,108,297 - - ========== ========== ========== ========== 10. EARNINGS PER SHARE Basic The Group 2007 2006 USD USD Profit attributable to ordinary shareholders 37,225,293 14,374,947 ============ ============ 2007 2006 Number of shares in issue at beginning of year 114,000,000 100,000,000 Issuance of shares during the year - 14,000,000 ------------ ------------Number of shares in issue at end of year 114,000,000 114,000,000 ------------ ------------Weighted average number of ordinary shares in issue 114,000,000 112,849,315 ============ ============ 2007 2006 USD USDBasic earnings per share (cents) 33 13 ============ ============ The basic earnings per share is calculated by dividing the consolidated profitattributable to shareholders of the Company by the weighted average number ofordinary shares in issue during the financial year. 11. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment as at 31 December 2007 and 31 December 2006consisted of the following: Freehold land Machinery and land and Other Computer Construction The Group improvement Buildings equipment assets software in progress Total USD USD USD USD USD USD USD Cost (unless otherwise indicated)At 1 January 2006 3,239,760 24,309,085 3,683,905 1,637,127 3,321 1,935,605 34,808,803Additions 623,006 1,584,077 1,615,521 114,926 1,980 14,939,122 18,878,632Transfers - 238,661 4,816,034 410,726 - (5,465,421) -Disposals (574,376) (84,940) (45,223) (81,628) (5,947) (1,189,763) (1,981,877)Revaluation (Note 20) - 17,401,120 - - - - 17,401,120Impairment charge - (168,390) - - - - (168,390)Exchange differences 175,793 219,966 199,892 88,832 2,626 (838,961) (151,852) ---------- ---------- --------- --------- --------- ---------- ---------- At 31 December 2006 3,464,183 43,499,579 10,270,129 2,169,983 1,980 9,380,582 68,786,436Additions 1,185 355,411 555,138 92,716 21,528 66,636,540 67,662,518Transfers - (560,035) 4,754,400 1,150,224 - (5,344,589) -Disposals - (12,330) (129,939) (18,860) (563) - (161,692)Exchange differences 175,535 2,175,926 520,400 109,956 100 475,325 3,457,242 ---------- ---------- --------- --------- --------- ---------- ----------At 31 December 2007 3,640,903 45,458,551 15,970,128 3,504,019 23,045 71,147,858 139,744,504 ---------- ---------- --------- --------- --------- ---------- ---------- (Forward) Freehold land Machinery and land and Other Computer Construction The Group improvement Buildings equipment assets software in progress Total USD USD USD USD USD USD USD Accumulated depreciationAt 1 January 2006 - 3,850,061 549,437 453,256 1,511 - 4,854,265Charge for the year - 2,575,073 344,145 248,377 2,382 - 3,169,977Revaluation (Note 20) 4,788,809 - - - - - 4,788,809Disposals - (12,524) (22,998) (7,989) (5,947) - (49,458)Exchange differences - 32,543 27,574 22,977 2,512 - 85,606 ---------- ---------- --------- ---------- --------- ---------- ---------- At 31 December 2006 - 11,233,962 898,158 716,621 458 - 12,849,199Charge for the year - 1,962,375 920,784 327,721 11,230 - 3,222,110Transfer - (195,028) 179,002 16,026 - - -Disposals - (12,928) (43,230) (6,613) (555) - (63,326)Exchange differences - 571,031 59,589 41,323 195 - 672,138 ---------- ---------- --------- --------- --------- ---------- ----------At 31 December 2007 - 13,559,412 2,014,303 1,095,078 11,328 - 16,680,121 ---------- ---------- --------- --------- --------- ---------- ---------- Net Book Value At 31 December 2007 3,640,903 31,899,139 13,955,825 2,408,941 11,717 71,147,858 123,064,383 ========== ========== ========== ========= ========= ========== ===========At 31 December 2006 3,464,183 32,265,617 9,371,971 1,453,362 1,522 9,380,582 55,937,237 ========== ========== ========== ========= ========= ========== =========== The buildings were revalued at 31 December 2005 by independent appraiser notrelated with the Group, by reference to market evidence of recent transactionsfor similar properties. The valuation conforms to International ValuationStandards. During 2007 the Group's subsidiary, Karcement JSC capitalised borrowing costs ofUSD1,382,715 (2006: USD962,380) which includes interest charged on European Bankfor Reconstruction and Development ("EBRD") loan of USD764,617 (2006: USDNil),interest charged on loan from Kazkommertsbank JSC of USD336,046 (2006:USD265,736) and EBRD arrangement fees of USD282,052 (2006: USD696,644). In 2006,the capitalised borrowing costs include reimbursement for the issue of uncoveredletter of credit and EBRD arrangement fees incurred by Central Asia Cement JSCof USD250,254 and USD176,986, respectively. As at 31 December 2007, property, plant and equipment with net book value of USD26,639,982 were pledged under the security sharing agreements signed withEuropean Bank for Reconstruction and Development and Kazkommertsbank JSC. The cost of fully depreciated property, plant and equipment in 2007 amounted toUSD 14,750 (2006: USD 5,079). 12. INVESTMENT IN SUBSIDIARY COMPANIES The Group 2007 2006 USD USD Unquoted shares, at cost 26,500,001 26,500,001 ========== ========== The details of subsidiary companies, are as follows: Place of incorporation Proportion of ownership (or registration) and interest and vesting Principal operation power held Activity 2007 2006 % %Direct Subsidiary Companies Steppe Cement (M) Sdn. Bhd. Malaysia 100 100 Investment holding companyMechanical & Electrical Malaysia 100 100 Provision of consultancy servicesConsulting Services Ltd (Forward) Place of incorporation Proportion of ownership (or registration) and interest and vesting Principal operation power held Activity 2007 2006 % %Indirect Subsidiary Companies (Held through SteppeCement (M) Sdn. Bhd.)Steppe Cement Holdings B.V. * Netherlands 100 100 Investment holding company (Held through SteppeCement (M) Sdn. Bhd.)Central Asia Cement Netherlands 100 100 Investment holding company Holding B.V. * ("CAC BV") (Held through Central AsiaCement Holding B.V.) Central Asia Cement JSC* Republic of Kazakhstan 100 100 Production and sale of cement("CAC JSC") (Held through Central AsiaCement JSC) Stroy Invest LLP ** Republic of Kazakhstan 100 100 Dormant (Held through SteppeCement Holdings B.V.) Karcement JSC * Republic of Kazakhstan 100 100 Production and sale of cement (Development stage and currently undergoing plant refurbishment) * audited by member firm of Deloitte Touche Tohmatsu ** not audited by a member firm of Deloitte Touche Tohmatsu and liquidatedsubsequent to the financial year end. The Group's subsidiary company, Stroy Invest LLP has been liquidated after thefinancial year end. The financial statements of Karcement JSC ("Karcement") are prepared on a goingconcern basis, and there is no evidence that Karcement intends to discontinue,has to discontinue or significantly reduce the volume of its operations in theforeseeable future. Currently, Karcement's operations are concentrated onrefurbishment of cement production plant. Hence, Karcement is currently in thedevelopment stage. The successful completion of the development program ofKarcement and, reaching the profitable stage, will depend on future events,including sufficient financing for conducting development activities, obtainingpermits from regulating authorities and achieving revenue level, sufficient tocover the expenses of Karcement. The financial statements of Karcement do notinclude possible adjustments, which would result if Karcement is not able tooperate as a going concern. Management believes that Karcement will be able tocomplete its plant refurbishment work, produce and sell cement to meet itsobligations in the normal course of business, as the Group has concluded loanagreements with European Bank for Reconstruction and Development andKazkommertsbank JSC to finance Karcement's operations in the near future (Note22). The amount owing by/(to) subsidiary companies arose mainly from unsecuredinter-company payments made on behalf, which are interest-free with no fixedterms of repayment. The foreign currency profile of balances owing by subsidiary companies is asfollows: The Group 2007 2006 USD USDRinggit Malaysia 283,947 281,855Euro 372,914 76,006 --------- --------- 656,861 357,861 ========= ========= 13. OTHER ASSETS The Group The Company 2007 2006 2007 2006 USD USD USD USDVAT (reimbursable) 8,750,249 1,121,630 - -Spare parts 1,962,338 157,743 - -Prepaid insurance 237,471 74,356 - - ---------- ---------- ---------- ---------- 10,950,058 1,353,729 - - ---------- ---------- ---------- ----------Less: Discount on VAT (reimbursable) (1,385,341) (255,523) - - ---------- ---------- ---------- ---------- 9,564,717 1,098,206 - - =========== ========== ========== ========= As of 31 December 2007, the Group classified construction materials ofUSD1,962,338 (2006: USD Nil) and certain spare parts of USD237,471 (2006:USD158,776)) as non-current assets. Management expects to use the constructionmaterials and spare parts during the period exceeding one year. Karcement JSC's management re-assessed recoverability of VAT (reimbursable),which resulted from capital expenditure and reclassified it as non-current assetsince the recoverability is expected in 2009-2010. The VAT (reimbursable) wasdiscounted at the rate of 9% and the discount was capitalised to property, plantand equipment in the amount of USD1,129,818 as the management considers thatthese expenses relate to construction works. The directors consider that the carrying amount of other non-current assetsapproximates its fair value. 14. INVENTORIES, NET The Group The Company 2007 2006 2007 2006 USD USD USD USD --------------------------------------------------Work in progress 1,164,849 1,832,588 - -Finished goods 1,845,650 1,753,492 - -Raw materials 2,556,613 2,140,715 - -Spare parts 3,449,370 2,167,420 - -Construction materials 78,099 74,995 - -Other material 936,352 711,140 - - -------------------------------------------------- 10,030,933 8,680,350 - -Less: Provision for obsolete inventories (425,191) (142,624) - - ---------- ---------- ---------- ----------Net 9,605,742 8,537,726 - - ========== ========== ========== ========== 15. TRADE RECEIVABLES, NET Trade accounts receivable, net as at 31 December 2007 and 2006 consisted of thefollowing: The Group The Company 2007 2006 2007 2006 USD USD USD USD Trade receivables from third parties 566,432 1,157,609 - - ---------- --------- --------- ---------Less: Provision for doubtful Receivables (12,587) (6,948) - - ---------- --------- --------- ---------Net 553,845 1,150,661 - - ========== ========= ========= ========= The standard credit period granted to trade receivables ranges from 1 to 30days. The receivables are denominated in Kazakhstan Tenge. An allowance of USD12,587 (2006: USD6,948) has been made for estimatedirrecoverable amounts from the sale of goods. This allowance has been determinedby reference to past default experience. 16. OTHER RECEIVABLES, ADVANCES AND PREPAID EXPENSES Other receivables as at 31 December 2007 and 2006 consisted of the following: The Group The Company 2007 2006 2007 2006 USD USD USD USD Receivable from employees 141,175 91,384 - -Other receivables ---------- ---------- ---------- ---------- - VAT reimbursable 3,582,897 - - - - Others 1,290,014 711,393 - - ---------- ---------- ---------- ---------- 4,872,911 711,393 - -Prepaid expenses 450,865 422,757 1,320 1,320 ---------- ---------- ---------- ---------- 5,464,951 1,225,534 1,320 1,320 ---------- ---------- ---------- ----------Advances paid to third parties, net of provisionof USD62,993 (2006:USD137,237) 28,204,989 11,019,031 - - ---------- ---------- ---------- ---------- 33,669,940 12,244,565 1,320 1,320 ---------- ---------- ---------- ----------Advances paid to third parties - non-current portion (19,958,584) (10,046,319) - - ---------- ---------- ---------- ---------- 13,711,356 2,198,246 1,320 1,320 ========== ========== ========== ========== Advances paid are mainly those advances incurred by subsidiaries for thepurchase of machinery, equipment and construction work for the cement plant.Short-term advances are those incurred for the purchase of materials and otherservices by subsidiaries for cement production. The advances paid to third parties are expected to be utilised for the purchaseof property, plant and equipment, materials and other services after the nexttwelve months. An allowance of USD62,993 (2006: USD137,237) has been made for estimatedirrecoverable amounts of advances paid for the purchase of goods. The directors consider that the carrying amount of other receivables, advancesand prepaid expenses approximates their fair value. 17. SHORT-TERM INVESTMENTS In 2006, the short-term investments of USD16,763,327, include USD10,832,761deposits denominated in Tenge in Kazkommertsbank JSC with maturity from 3 to 12months and interest rates ranging from 8 to 8.25% per annum and depositdenominated in USD of USD5,765,717 and interest receivable of USD164,849 placedwith Kazkommertsbank JSC with maturity of more than 3 months and at an interestrate of 6% per annum. During the year, the Group uplifted the short-term investments to finance thecost of refurbishment of the cement plant of its subsidiary companies. 18. CASH AND BANK BALANCES The Group The Company 2007 2006 2007 2006 USD USD USD USD Cash in hand and at bank 1,930,004 4,137,718 169,271 59,307Short term deposits 3,643,104 4,726,216 - 570,795 --------- --------- --------- --------- 5,573,108 8,863,934 169,271 630,102 ========= ========= ========= ========= The analysis of cash and bank balances in foreign currencies is as follows: The Group The Company 2007 2006 2007 2006 USD USD USD USD Kazakhstan Tenge 4,002,875 7,709,791 - -United States Dollars 1,340,558 808,000 36,633 330,102Euro 227,094 343,636 132,638 300,000Ringgit Malaysia 2,581 2,507 - - --------- --------- --------- --------- 5,573,108 8,863,934 169,271 630,102 ========= ========= ========= ========= 19. SHARE CAPITAL The Group and The Company 2007 2006 USD USD Authorised: At beginning and end of year 5,000,000 5,000,000 ========= ========= Issued and fully paid:Ordinary shares of USD0.01 eachAt beginning of year 1,140,000 1,000,000Issued during the year - 140,000 --------- ---------At end of year 1,140,000 1,140,000 ========= ========= 20. RESERVES The Group The Company 2007 2006 2007 2006 USD USD USD USD Non-distributable reserves: Share premium Balance at beginning of the year 26,646,982 6,300,000 26,646,982 6,300,000 Shares issued at a premium - 20,860,000 - 20,860,000 Less: Share issuance expenses - (513,018) - (513,018) ---------- ---------- ---------- ----------Balance at end of the year 26,646,982 26,646,982 26,646,982 26,646,982 ========== ========== ========== ==========Revaluation reserve Balance at beginning of the year 6,491,683 - - - Revaluation of property, plant and equipment, net (Note 11) - 12,612,311 - - Deferred tax liabilities on revaluation (Note 23) - (3,783,698) - - Depreciation transfer of revaluation reserve (1,890,015) (2,336,930) - - ---------- ---------- ---------- ----------Balance at end of the year 4,601,668 6,491,683 - - ========== ========== ========== ==========Translation reserve account Balance at beginning of the year 1,530,917 (41,692) - - Exchange differences on translation of foreign subsidiary companies 4,058,613 1,572,609 - - ---------- ---------- ---------- ----------Balance at end of the year 5,589,530 1,530,917 - - ========== ========== ========== ========== Share premium Share premium arose from the issuance of ordinary shares at prices above the parvalue of USD0.01 each. Revaluation reserve Revaluation reserve arises on the revaluation of land and buildings. Whererevalued land or buildings are sold or retired, the realised portion of therevaluation reserve is transferred directly to unappropriated profits. Therevaluation reserve is not available for distribution to the Company'sshareholders. Translation reserve account Exchange differences arising from the translation of assets and liabilities offoreign subsidiary companies, are taken to the translation reserve account. Retained earnings Any dividend distributions to be made by Central Asia Cement JSC to Central AsiaCement Holding BV are in principle subject to Kazakhstan dividend withholdingtax rate of 15%. However, under the tax treaty concluded between the Netherlandsand Kazakhstan, this percentage can be reduced to 5% of the gross amounts of thedividends. Any dividend distributions by Central Asia Cement Holding BV toSteppe Cement (M) Sdn Bhd in Malaysia would normally be subject to 25% Dutchdividend withholding tax. However, under the tax treaty concluded between theNetherlands and Malaysia this percentage can be reduced to nil, assuming thatSteppe Cement (M) Sdn Bhd is entitled to treaty protection under the Netherlands/Malaysia tax treaty. Under Malaysian tax law any dividend income received by Steppe Cement (M) SdnBhd from Cement Asia Cement Holding BV and Steppe Cement Holdings BV will becredited into an exempt income account from which tax-exempt dividends can bedistributed to the Company. There is no withholding tax on dividends distributedby Steppe Cement (M) Sdn Bhd to the Company. Under the Labuan Offshore Business Activity Tax Act, 1990, dividends received bythe Company from Steppe Cement (M) Sdn Bhd will be exempted from tax. There isno withholding tax on dividends distributed by the Company to its shareholders. 21. BONDS The Group 2007 2006 USD USDBonds issued at price of: 97.1895% 5,601,483 5,601,483 98.3230% 5,230,908 5,230,908 99.0574% 2,366,024 2,366,024 99.0574% 2,864,884 2,864,884 100.0096% 5,230,916 5,230,916 ---------- ---------- 21,294,215 21,294,215Exchange differences 1,079,003 -Discount on bonds issued (411,783) (478,220)Amounts of accrued interest on bonds issued 769,771 761,268 ---------- ---------- Total 22,731,206 21,577,263 ========== ========== In 2006, Central Asia Cement JSC issued 5-year KZT2.7 billion (USD 21,294,915)bonds at a coupon rate of 9% per annum maturing in August 2011. The interest ispayable semi-annually and the repayment of principal is in one bullet payment.The bonds are listed on the Kazakhstan Stock Exchange. The directors consider that the carrying amount of the bonds issued approximatestheir fair value. 22. LOANS The Group The Company Interest 2007 2006 2007 2006 Rate USD USD USD USD Total outstanding 12.44% 24,864,932 - - -Current portion (276,168) - - - ---------- ---------- ---------- ----------Non-current portion 24,588,764 - - - ========== ========== ========== ========== In accordance with the Loan Agreement ("Agreement") dated 13 December 2005 andamended and restated Loan Agreement dated 28 June 2007, the Group's subsidiary,Karcement JSC was granted a syndicated loan which comprises of the A loan of upto USD 32 million and the C loan of USD10 million from European Bank forReconstruction and Development ("EBRD") and B loan of up to USD 23.2 millionfrom Kazkommertsbank JSC. The rehabilitation of production lines number 5 and 6shall be partially financed by the syndicated loan. On 2 September 2007, the Group's subsidiary received the first tranche of the Aloan amounting to USD 25 million. Under the Agreement, the Group's subsidiaryshall repay the A loan in ten equal semi-annual instalments commencing on 11November 2008 and ending on 11 May 2013. The A loan bears interest at LIBOR plus3.75% per annum, payable semi-annually from the date of the initial draw down. According to the terms of the loan agreement, all movable and immovable assetsas well as any types of bank accounts are pledged to secure the syndicated loan.The EBRD and Kazkommertsbank JSC have signed the security sharing agreements forthe pledged assets of the Group's subsidiaries. As at year end, the Group's subsidiary, Karcement JSC has undrawn loancommitments of USD 17 million and USD 23 million from the loan granted by EBRDand Kazkommertsbank JSC, respectively. 23. DEFERRED TAX LIABILITIES The Group The Company 2007 2006 2007 2006 USD USD USD USD Balance at beginning of the year 10,782,413 6,814,311 - -Exchange differences 551,516 370,964 - -Deferred tax on revaluation (Note 20) - 3,783,698 - - Charged/(Credited) to income statement (Note 9) 337,433 (186,560) - - ---------- ---------- ---------- ----------At end of the year 11,671,362 10,782,413 - - ========== ========== ========== ========== Deferred Tax Assets/ (Liabilities) The Group The Company 2007 2006 2007 2006 USD USD USD USD Tax effects of temporarydifferences in respect of:Property, plant and equipment (11,511,303) (10,849,656) - -Inventories 127,560 42,786 - -Taxes 10,176 32,825 - -Trade receivables 3,779 2,082 - -Others (301,574) (10,450) - - ---------- ---------- ---------- ----------Net deferred tax liabilities (11,671,362) (10,782,413) - - ========== ========== ========== ========== 24. TRADE PAYABLES The standard credit period granted by creditors ranges from 1 to 30 days. Thetrade payables are denominated in Kazakhstan Tenge. 25. OTHER PAYABLES AND ACCRUED LIABILITIES The Group The Company 2007 2006 2007 2006 USD USD USD USD Liquidation fund accruals 41,647 28,889 - -Accruals 1,507,499 1,006,289 678,572 362,613Payable to employees 346,362 - - -Advances received 2,908,295 478,844 - - ---------- ---------- ---------- ---------- 4,803,803 1,514,022 678,572 362,613 ========== ========== ========== ========== In accordance with the Subsurface Use Contracts requirements, the subsidiarycompany, Central Asia Cement JSC, shall contribute on an annual basis; 0.5% fromthe amount of actual expenditures for limestone and loam extraction to theliquidation fund, which shall be used for site restoration and abandonment ofthe Group mining operations. 26. TAXES PAYABLE The Group The Company 2007 2006 2007 2006 USD USD USD USD Corporate income tax 1,510,912 5,669 - -Property tax 128,861 48,377 - -Personal income tax 80,643 58,236 - -Other taxes 478,787 132,056 - - ---------- ---------- ---------- ---------- 2,199,203 244,338 - - ========== ========== ========== ========== 27. CASH AND CASH EQUIVALENTS The Group The Company 2007 2006 2007 2006 USD USD USD USD Cash in hand and at banks 1,930,004 4,137,718 169,271 59,307Short term deposits 3,643,104 4,726,216 - 570,795 ---------- ---------- ---------- ---------- 5,573,108 8,863,934 169,271 630,102Less: Restricted cash - (55,862) - - ---------- ---------- ---------- ---------- 5,573,108 8,808,072 169,271 630,102 ========== ========== ========== ========== Restricted cash represents deposits required to be held under Letters of credit. As at 31 December 2007, in accordance with the Law on Labor of Kazakhstan, anon-interest bearing deposits in the amount of KZT470,000 (equivalent toUSD3,836) (2006: KZT485,000 equivalent to USD3,825) was placed with banks inKazakhstan as a part of work permit requirements for non-resident employees ofits subsidiary companies. The deposit is subject to annual renewal. 28. RELATED PARTIES Related parties include shareholder directors, affiliates and entities undercommon ownership, over which the Group has the ability to exercise a significantinfluence. Transactions between the Company and its subsidiary companies, which are relatedparties of the Company, have been eliminated on consolidation and are notdisclosed in this note. The following transactions with related parties are included in the consolidatedincome statement for the financial year ended 31 December 2007 and 2006: Purchase of services 2007 2006 USD USD Rental expenses 81,265 35,762Services rendered by related parties 616,712 217,715 ========= ========= The following balances with related parties are included under trade payables inthe consolidated balance sheet as of 31 December 2007 and 2006: Payable to related parties 2007 2006 USD USD Services rendered by related parties 37,695 40,270 ========= ========= Included in services rendered by related parties are drilling and blastingservices performed by Maxam Kazakhstan of USD521,437 (2006: USD136,000). MaxamKazakhstan is a subsidiary company of Maxam SA which the Company director,Javier Del Ser Perez, indirectly holds 20% equity interest via Portola GroupLtd. Compensation of key management personnel Included in the staff costs are remuneration of directors and other members ofkey management during the financial year as follows: The Group The Company 2007 2006 2007 2006 USD USD USD USD Remunerations 1,039,856 798,667 310,336 243,368Short-term benefit 124,260 96,729 - - ---------- ---------- ---------- ----------Total 1,164,116 895,396 310,336 243,368 ========== ========== ========== ========== The remuneration of directors and key executives is determined by theremuneration committees of the Company and subsidiary companies having regard tothe performance of individuals and market trends. 29. COMMITMENTS AND CONTINGENCIES Contingent liabilities - On 13 December 2005, a Loan Agreement between EuropeanBank for Reconstruction and Development ("EBRD") and Karcement JSC (the"Borrower") was signed. On and subject to the terms and conditions of thisAgreement, EBRD agrees to lend to the Borrower an amount not exceeding USD 65million. On 28 June 2007, the Loan Agreement was amended and restated. On andsubject to the terms and conditions of this Agreement, EBRD agrees to lend tothe Borrower an amount not exceeding USD 42 Million. Under the Guarantee andSupport Agreement signed between the Company, Steppe Cement (M) Sdn Bhd, CACJSC, CAC BV, SCH BV and other parties ("Guarantors"), EBRD and the Borrower, theGuarantors irrevocably and unconditionally guarantees to EBRD the due andpunctual payment by the Borrower of all sums payable under or in connection withthe Loan Agreement and agrees that it will pay to EBRD each and every sum ofmoney which the Borrower is at any time liable to pay to EBRD under or pursuantto the Loan Agreement which is due but unpaid. Obligations under Liquidation Fund - In accordance with the Subsurface UseContracts requirements, the subsidiary company, Central Asia Cement JSC shallcontribute on annual basis 0.5% from the amount of actual expenditures forlimestone and loam extraction to the liquidation fund, which shall be used forsite restoration and abandonment of the subsidiary company mining operations.Not later than 6 months before the Subsurface Use Contract expiration thesubsidiary company shall submit the liquidation program to competent body. As at31 December 2007, the undiscounted contractual liability on future contributionsto the liquidation fund obligation is KZT 17,785,000 (equivalent to USD147,373)(2006: KZT 16,617,000 (equivalent to USD131,054). Management estimated thisliability, if discounted, will not have a material effect on these consolidatedfinancial statements and therefore the Group recorded only current periodcontributions as liability in the consolidated balance sheet. Also, inaccordance with the Law on Land and resource usage and Environmentalrehabilitations, the Group will be obliged to provide additional resources tothe state in the case the liquidation fund will be insufficient to cover actualsite restoration and abandonment costs in the future. As at 31 December 2007management believes that the amount of obligatory liquidation fund exceedsfuture site restoration and abandonment costs. Social commitments - Certain Group entities have entered into collectiveagreements with its employees. Under terms of such agreements the Group has acommitment to make certain social payments to the employees, the amount of whichcan vary from year to year. No provision for such commitments is recorded in theconsolidated financial statements as the Group's management is unable toreasonably estimate the amount of the future social expense. Legal issues - The Group has been and continues to be the subject of legalproceedings and adjudications from time to time, none of which has had,individually or in the aggregate, a material adverse impact on the Group.Management believes that the resolution of all such matters will not have amaterial impact on the Group's financial position or operating results. Implementation of Investment Contract - In accordance with the InvestmentContract entered into by a subsidiary company, the subsidiary company is obligedto follow and execute working program and report to the state authorities ofKaraganda region on the status of work performed quarterly. The total amount ofinvestment to be made by the subsidiary company in accordance with the workingprogram is KZT 3,186 million (equivalent to USD26,400,398) over the period offive years (2006 - 2010). Purchase commitments - The Group has outstanding commitments for the purchasesof equipment, materials and services from various suppliers for rehabilitationof its production lines. The Group's purchase commitments as at 31 December 2007is KZT 2,339,241,000 (equivalent to USD19,383,833) (2006: KZT5,661,459,000(equivalent to USD44,650,490)). Subsequent to the financial year end, the Grouphas contracted additional capital commitments of approximately USD40 Million. 30. SEGMENTAL REPORTING No industry and geographical segmental reporting are presented as the Group'sprimary business is in the production and sale of cement which is located inKaraganda region, Republic of Kazakhstan. 31. OPERATING ENVIRONMENT The Group's business activities are within the Republic of Kazakhstan. Laws andregulations affecting businesses operating in the Republic of Kazakhstan aresubject to rapid changes and the Group's assets and operations could be at riskdue to negative changes in the political and business environment. The Group believes it is currently in compliance with all existing environmentallaws and regulations within the Company and its foreign subsidiary companies'jurisdiction. However, it is noted that the laws and regulation of its mainsubsidiary company may change in the future. The Group is unable to predict thetiming or extent to which these environmental laws and regulations may change.Such change, if it occurs, may require the Group to modernise technology to meetmore stringent standards. The government of the Republic of Kazakhstan continues to reform the businessand commercial infrastructure in its transition to a market economy. As a resultlaws and regulations affecting businesses continue to change rapidly. Thesechanges are characterised by poor drafting, different interpretations andarbitrary application by the authorities. In particular taxes are subject toreview and investigation by a number of authorities enabled by law to imposefines and penalties. While the Group believes it has provided adequately for alltax liabilities based on its understanding of the tax legislation, the abovefacts may create risks for the Group. 32. FINANCIAL INSTRUMENTS Capital Risk Management The Group's capital risk management objectives are to maximise value toshareholders and to ensure that the Group's subsidiaries will continue tooperate as a going concern via optimisation of equity and debt structure. The Group's capital structure consists of equity attributable to theshareholders of the holding company and debt. Equity attributable to theshareholders includes share capital, share premium, reserves and retainedearnings and debt comprises bonds and loans. During the financial year, the Group's subsidiary, Karcement JSC has compliedwith the debt covenants stated in the Loan Agreement dated 13 December 2005 andthe amended and restated Loan Agreement dated 28 June 2007. Financial Risk Management Objectives and Policies The operations of the Group are subject to a variety of financial risks,including foreign currency risk, interest rate risk, credit risk, liquidity riskand cash flow risk. The Group continuously manage its exposures to risks and/or costs associatedwith the financing, investing and operating activities of the Group. (i) Foreign Currency Risk The Group undertakes trade and non-trade transactions with its trade customersand suppliers which are denominated in foreign currencies. As a result, theamount outstanding is exposed to currency translation risks. The Group monitors the fluctuations in exchange rate of foreign currencies tolimit currency risk. Foreign currency sensitivity analysis The Group's financial assets and liabilities are mainly exposed to risk ofchange in KZT. Balance sheet value of financial assets and financial liabilities in foreigncurrencies as of 31 December are presented below: 2007 KZT GBP EUR MYR RUB USD Total Financial AssetsCash and cash equivalents 3,977,519 - 227,124 2,581 - 1,365,884 5,573,108Trade receivables 553,845 - - - - - 553,845Other receivables, advances and prepaid expenses 13,645,045 - - 1,083 - 65,228 13,711,356 Financial LiabilitiesTrade payables 3,115,835 780,834 172,166 - 14,849 1,208,949 5,292,633Other payables 3,840,048 608,674 71,713 8,111 - 275,257 4,803,803Bonds 22,731,206 - - - - - 22,731,206 2006 KZT GBP EUR MYR RUB USD Total Financial AssetsCash and cash equivalents 7,652,187 - 346,202 2,507 55,862 807,176 8,863,934Trade receivables 1,150,661 - - - - - 1,150,661Other receivables, advances and prepaid expenses 2,196,025 - - - - 2,221 2,198,246Short-term investments - - - - - 16,763,327 16,763,327 Financial LiabilitiesTrade payables 1,227,573 - 65,357 - - - 1,292,930Other payables 506,053 328,321 83,668 - - 595,980 1,514,022 Bonds 21,577,263 - - - - - 21,577,263 The following table displays the Group's sensitivity to a 10% increase anddecrease in the value of USD against the relevant foreign currencies. Abenchmark sensitivity rate of 10% is used to report foreign currency riskinternally to key management and represents management's assessment of thereasonably possible change in foreign exchange rates. The sensitivity analysisincludes only outstanding foreign currency denominated monetary items and theseitems are translated at financial year end for a 10% change in foreign currencyrates. The sensitivity analysis includes payables, loans where the denominationof the loan is in a currency other than the currency of the lender or theborrower. The sensitivity analysis below indicates the changes in financialassets and liabilities of the effect of a 10% increase in value of USD againstthe relevant foreign currency. A positive/(negative) effect will increase/(decrease) the Group's profits. In the case of 10% decrease in value of USDagainst the relevant foreign currency, there would be an equal and oppositeimpact on the Group's profits. Effect of KZT 2007 2006 Financial assets (1,652,401) (800,259)Financial liabilities 2,698,826 2,119,172 ========= ========= Effect of GBP 2007 2006 Financial assets - -Financial liabilities 79,571 32,832 ========= ========= Effect of EUR 2007 2006 Financial assets (22,712) (33,857)Financial liabilities 10,203 9,461 ========= ========= Effect of MYR 2007 2006 Financial assets (333) (228)Financial liabilities 737 - ========= ========= Effect of RUB 2007 2006 Financial assets - (24,577)Financial liabilities 6,649 - ========= ========= The Group's sensitivity to foreign currency has increased during the currentyear mainly due to the increased in other receivables, advances and prepaidexpenses. (ii) Credit Risk Financial instruments, which affect the Group in respect of credit risk, includecash and cash equivalents, bank deposits, accounts receivable and advances. Inspite of the fact that Group can incur losses on unpaid financial instruments incase of breach of contract by other parties, it does not expect occurrence ofsuch losses. Concentration of credit risk on accounts receivable and payable is limited dueto large customer profile and use of prepayment terms for major sales. The Groupinvests its cash in financial institutions with high credit level. (iii) Liquidity Risk Ultimate responsibility for liquidity risk management rests with the Board ofDirectors, which has built an appropriate liquidity risk management frameworkfor the management of the Group's short, medium and long-term funding andliquidity management requirements. The Group manages liquidity risk bymaintaining adequate reserves, banking facilities and reserve borrowingfacilities by continuously monitoring forecast and actual cash flows andmatching the maturity profiles of financial assets and liabilities. The Group's subsidiary, Karcement JSC has USD40 million undrawn loan commitmentsto meet its funding requirement and to further reduce liquidation risk (Note22). Tables on Liquidity and Interest Risk The following tables reflect contractual terms of the Group for itsnon-derivative financial liabilities. The table was prepared based on theundiscounted cash flows on financial liabilities on the basis of the earliestdate at which the Group can be required to pay. The table includes both interestand principal cash flows. Weighted average Greater effective Less than 3 months than2007 interest rate 1 months 1-3 months - 1 year 1-5 years 5 years TotalInterest bearingBonds 9.00% - - 2,043,744 28,504,450 - 30,548,194Loans 12.44% - - 4,772,564 25,311,344 3,044,498 33,128,406 Non-interest bearingTrade accounts payable - 5,292,633 - - - - 5,292,633Other payables - 390,404 969,798 - - - 1,360,202 ----------- ---------- ---------- ---------- ---------- ---------- 5,683,037 969,798 6,816,308 53,815,794 3,044,498 70,329,435 =========== ========== ========== ========== ========== ========== 2006Interest bearingBonds 9.00% - - 2,043,744 30,548,194 - 32,591,938 Non-interest bearing----------------------Trade accounts payable - 783,949 - 574,495 - - 1,358,444Other payables - 302,312 529,125 - - - 831,437 ----------- ---------- ---------- ---------- ---------- ---------- 1,086,261 529,125 2,618,239 30,548,194 - 34,781,819 =========== ========== ========== ========== ========== ========== The following table reflects expected maturities of non-derivative financialassets of the Group. The table was prepared based on undiscounted contractualterms of financial assets, including interest received on these assets, exceptwhen the Group expects the cash flow in a different period. Weighted average Greater effective Less than 3 months than2007 interest rate 1 months 1-3 months - 1 year 1-5 years 5 years TotalInterest bearing----------------Cash and cash equivalents 3.25 - 4.68% 3,613,853 - - - - 3,613,853 Non-interest bearing-------------------- Cash and cash equivalents 1,959,255 - - - - 1,959,255Trade receivables 553,845 553,845Other receivables, advances and prepaid expenses 171,064 - 3,318 8,750,249 - 8,924,631 ----------- ---------- ---------- ---------- ---------- ---------- 6,298,017 - 3,318 8,750,249 - 15,051,584 =========== ========== ========== ========== ========== ========== 2006Interest bearing----------------Cash and cash equivalents 3.15% - 4.00% 4,720,649 - - - - 4,720,649Short-term investments 6.00% - 8.20% 5,939,887 - 11,020,560 - - 16,960,447 Non-interest bearing--------------------Cash and cash equivalents 4,143,285 - - - - 4,143,285Trade receivables 1,150,661 - - - - 1,150,661Other receivables, advances and prepaid expenses 115,667 - 2,220 1,121,629 - 1,239,516 ----------- ---------- ---------- ---------- ---------- ---------- 16,070,149 - 11,022,780 1,121,629 - 28,214,558 =========== ========== ========== ========== ========== ==========(iv) Cash Flow Risk The Group reviews its cash flow position regularly to manage its exposure tofluctuations in future cash flows associated with its monetary financialinstruments. (v) Interest rate risk The only potential risk of the Group connected with change in interest rates isrelated to loans of the Group. The Group does not use any derivative financialinstruments to manage its interest rate exposure. The sensitivity analysis below shows the Group's sensitivity to the increase/decrease of floating rate by 1%. The analysis was applied to floating rate loansbased on the assumptions that amount of liability outstanding as at the balancesheet date was outstanding for the whole year. 2007 2006 USD USD Increase/Decrease in finance costs capitalised 83,071 - ========= ========= Fair Value of Financial Assets and Financial Liabilities Fair value is defined as the amount at which the instrument could be exchangedin a current transaction between knowledgeable willing parties in an arm'slength transaction, other than in forced or liquidation sale. As no readilyavailable market exists for a large part of the Group's financial instruments,judgment is necessary in arriving at fair value, based on current economicconditions and specific risks attributable to the instrument. The following methods and assumptions were used by the Group to estimate thefair value of financial instruments: Cash and cash equivalents The carrying value of cash and cash equivalents approximates their fair valuedue to the short-term nature of maturity of these financial instruments. Trade and other receivables and payable For assets and liabilities with maturity less than twelve months, the carryingvalue approximate fair value due to the short-term nature of maturity of thesefinancial instruments. For following table shows the carrying and fair value of monetary assets andliabilities as of 31 December: The Group The Company Carrying value Fair value Carrying value Fair value RM RM RM RM2007Financial AssetsTrade receivables, net 553,845 553,845 - -Amount owing by subsidiary companies - - 656,861 656,861Other receivables, advances and prepaid expenses 13,711,356 13,711,356 1,320 1,320Short-term investments - - - - Cash and bank balances 5,573,108 5,573,108 169,271 169,271 ========== ========== ========== ========== Financial LiabilitiesBonds 22,731,206 22,731,206 - -Loans 24,864,932 24,864,932 - -Trade payables 5,292,633 5,292,633 - -Other payables and accrued liabilities 4,803,803 4,803,803 678,572 678,572Amount owing to subsidiary companies - - 740,906 740,906 ========== ========== ========== ========== The Group The Company Carrying value Fair value Carrying value Fair value RM RM RM RM2006 Financial AssetsTrade receivables, net 1,150,661 1,150,661 - -Amount owing by subsidiary companies - - 357,861 357,861Other receivables, advances and prepaid expenses 2,198,246 2,198,246 1,320 1,320Short-term investments 16,763,327 16,763,327 - -Cash and bank balances 8,863,934 8,863,934 630,102 630,102 ========== ========== ========== ========== Financial LiabilitiesBonds 21,577,263 21,577,263 - -Loans - - - -Trade payables 1,292,930 1,292,930 - -Other payables and accrued liabilities 1,514,022 1,514,022 362,613 362,613Amount owing to subsidiary companies - - 613,331 613,331 ========== ========== ========== ========== STEPPE CEMENT LTD(Incorporated in Labuan FT, Malaysia under the Offshore Companies Act, 1990)AND ITS SUBSIDIARY COMPANIES STATEMENT BY A DIRECTOR I, JAVIER DEL SER PEREZ, on behalf of the directors of STEPPE CEMENT LTD statethat, in opinion of the Directors, the accompanying balance sheets and therelated statements of income, cash flows and changes in equity are drawn up inaccordance with International Financial Reporting Standards so as to give a trueand fair view of the state of affairs of the Group and of the Company as of 31December 2007 and of the results and the cash flows of the Group and of theCompany for the year ended on that date. Signed in accordance with a resolution of the Directors, ________________________ JAVIER DEL SER PEREZ Labuan16 April 2008 This information is provided by RNS The company news service from the London Stock Exchange