Steppe Cement Regulatory News (STCM)

Steppe Cement Ltd

2 May 2014

Annual results (unaudited) for the year ended 31 December 2013

In 2013 Steppe Cement posted a net profit of USD10.5 million with factory capacity utilization of 86%. Sales volume improved by 1% while selling prices increased by 5% in USD or 7% in KZT, which was above the overall inflation rate of 5% for the year. Steppe Cement's EBITDA rose to USD28.7 million compared with USD24.9 million in 2012.

During the year Steppe Cement completed the reconstruction and modernisation of dry line 5, taking its total capacity to 2 million tonnes of cement in the dry lines and 0.8 million tonnes in the wet lines. The project cost of reconstruction of the Line 5 project was USD105 million of which USD23 million was spent in 2013.

Although the wet lines worked at more than 74% capacity in 2013 and continue to work in 2014, we decided to start recognising impairment loss on depreciable fixed assets used in the wet lines' clinker production process. We plan to replace them progressively with the more cost efficient Line 5 but we shall maintain them in standby pending the future evolution of the market and competition. We decided to charge an impairment loss of USD4.1 million to the statement of profit and loss and we charged USD1 million (net of tax) to the revaluation reserve. At the current exchange rate of USD/KZT of 183, the impairment loss which may be recognised in the future amounts to USD3.2 million and the charge to the revaluation reserve is USD0.8 million.

The market volume increased by 13% in 2013 and we expect a 6% increase in 2014

The Kazakh cement market in 2013 was 8.1 million tonnes, an increase of 13% compared to 7.2 million tonnes in 2012. Our expectations are that overall market demand in 2014 will increase by 6% to 8.6 million tonnes. The increase in market size is mostly expected to be taken up by new production capacities coming on stream in 2013 and 2014, Steppe Cement, Kazakh Cement and Caspi Cement (Heidelberg group). Imports increased in 2013 as the local producers could not cope with the increased demand. The local producers' market share decreased from 87% in 2012 to 81% in 2013. We expect that in 2014 it will improve to 88%, especially in West Kazakhstan where Caspi Cement operates.

Steppe Cement's average cement selling prices increased by 5% during the year to USD94 per tonne delivered (equivalent to USD79 per tonne ex-factory). Steppe Cement had a market share of 17% in 2013 compared to 19% in 2012. In 2014 we expect to increase our share back to 20% in line with increased production capacity.

The outlook of the construction industry in Kazakhstan remains positive, mainly driven by the Expo 2017, road building programs and general infrastructure works.

Dry Line 6 continues to improve its performance while the wet lines will be used to cover the balance of demand until Line 5 produces at designed capacity

The four wet lines produced 593,425 tonnes in 2013, a slight increase as compared to 2012. The dry line contributed 778,040 representing 57% of total production of Steppe Cement. The production from the dry lines will increase significantly in 2014 to cover at least 75% of the total sales, resulting in a significant reduction in production costs per tonne.

Capital investment

During 2013 we concentrated our main capital investment on Line 5 and the completion of the electrical bypass. The bypass project allows Karcement JSC to connect directly to KEGOC (Kazakhstan Electricity Grid Operating Company). It will save in excess of 35% from the electricity costs associated with the dry lines. The total investment in this project was USD3 million and it is expected to save yearly KZT800 million or USD4.4 million at the current exchange rates.

Dry Line number 6 capital improvements and maintenance plans brought a 15% increase in clinker production and an 18% increase in running hours. The main capital investment included:

● Change of raw mill fans that brought a potential increase of 22% production in raw mills

● Cement silos dust plant

● New drag chains below the electrostatic precipitators

● New girth gear in one slag dryer.

We will continue with a reduced capital investment program in the years ahead. The capex will be mostly used to improve the cement mills and cope with the additional clinker produced. Planned capital expenditure on the dry lines will be limited yearly to a maximum of USD5 million.

Wagons

In April 2014 we obtained financing to purchase up to 300 wagons of 72 tonnes capacity for USD50,000 each. They represent 40% of the current rented fleet and they have an expected lifespan of at least 30 years with minimum maintenance in the first 7 years. We currently rent similar but older wagons for USD10,500 each yearly. The financing has been designed so that the principal and interest payments in the first 5 years match the current rent. The purchase will allow us to secure the distribution of our increased volume and improve the bargaining power on the remaining rented wagons. A further purchase of 300 wagons is planned if the financing and purchase price continues to be attractive. This operation will initially increase the long term debt by USD15 million and the EBITDA by USD3 million yearly.

Cost of production in dry and wet lines

Cash production costs increased by 3% to USD50/tonne. There were significant increases in electricity, coal and transportation but they were compensated for by higher productivity, savings in electricity transportation and coal consumption. The increased costs in Central Asia Cement ("CAC") were balanced with lower cost of USD43/tonne in Line 6.

With the completion of Line 5 and the electrical bypass, we expect our overall variable production cost to decrease in 2014 by at least 10%. The continuing increase in capacity utilization has also enabled us to bring down fixed production costs per tonne.

Selling expenses, reflecting mostly delivery costs, reduced slightly to USD14.5 per tonne in 2013. This was due to increasing deliveries by truck to Astana. During the high season we chose to maintain delivery to the markets closer to the factory. From 2014 our transportation costs per tonne are expected to decrease further as we invest in our own fleet of wagons.

General and administrative expenses

General and administrative expenses increased by 9% to USD12.7 million from USD11.7 million in 2012 mainly due to an increase in provision for slow-moving inventories of spare parts.

An impairment charge of USD4.1 million was made for the clinker workshop in CAC. While CAC continues to work as a company, its clinker will be progressively replaced by the one produced by Karcement. Even if the wet lines are stopped, they could be restarted again if the market conditions allow it. CAC will continue to operate all ancillary functions such as quarries, garage, locomotives, compressors, water, cement mills, administration, sales and marketing.

The labour count stood at 1,099 on 31 March 2014 compared with 1,025 on 31 March 2013. We now have 719 employees in the wet lines and administration and 380 in the dry lines to run both Lines 5 and 6.

Line 5

After the successful commissioning of Line 5, we expect it to operate at 80% capacity by this summer, in time for the high season. Line 5 is expected to contribute 35% of the total sales volumes in 2014. At full capacity, Line 5 will be able to produce 1.2 million tonnes of cement and the cash cost savings per tonne when compared to the wet lines are estimated at USD12/tonne.

Financial position

The last round of equity financing in late 2012 and the operational cash flows in 2013 allowed Steppe Cement to complete the reconstruction and modernisation of Line 5 while continuing to pay down its long term loans. During the year we reduced our long term debt by USD14.4 million. The reduction in long term debts is mainly due to principal repayments of USD12.2 million. As of 31 December 2013 we have loans of USD31.4 million denominated in USD and unsecured bonds of USD9.4 million denominated in KZT to be repaid in November 2017.

After a further principal repayment of USD2.1 million to HSBC in March 2014 and the devaluation of the KZT in February 2014, our total borrowings at the end of April 2014 stand at USD37.1 million of which USD29.3 million are denominated in USD and the balance of USD8.1 million are denominated in KZT.

In April 2014 we decided to refinance the USD denominated debts from EBRD and HSBC in order to spread the principal repayments evenly over 3 years, return the principal after the selling season to better fit our cash flows and reduce the need for working capital in the winter. The new loan bears interest at 6.2%, a rate comparable to the existing ones, and is repayable by November 2016. At the same time the refinancing will allow Steppe Cement to free some of the assets currently pledged.

We have renewed the revolving working capital credit line from Halyk Bank for KZT3 billion at 10.75% per annum and obtained an additional line of KZT750 million from HSBC. Together they represent approximately USD20 million at the 183 USD/KZT exchange rate.

In 2013 finance costs decreased to USD2.7 million from USD3.5 million in 2012 excluding the effect of interest capitalised for Line 5. Had the interest not been capitalized, the financial expenses would have been USD3.9 million in 2013 and USD4.3 million in 2012. From 1 January 2014 capitalisation of interests ceased as the physical construction activities of Line 5 were substantially completed.

Depreciation was slightly reduced to USD9 million during 2013. The statutory corporate income tax rate remains at 20% in Kazakhstan. Karcement JSC, our wholly owned subsidiary, enjoyed its last year of income tax exemption under 5-year tax holiday and will start normal tax payments in 2014.

I would like to thank the efforts of our employees, which were essential to complete these projects. We expect to collect the fruits of this work in coming years. Finally, I want to thank all the shareholders for their patience and their contributions in the past.

Javier del SerChief Executive Officer

2013 Annual Report and Annual General Meeting

Steppe Cement expects to release its 2013 Annual Report on its web site at www.steppecement.com during the week commencing 19 May 2014.

The Company's Annual General Meeting is expected to take place at its Malaysian Office at Suite 10, 10th Floor, West Wing, Rohas Perkasa, 8 Jalan Perak, Kuala Lumpur Malaysia on, 13 June 2014 at 2.30 p.m.

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

Contact Stephen Allen or Trinity McIntyre on +61 8 9480 2500.

STEPPE CEMENT LTD

(Incorporated in Labuan FT, Malaysia under the Labuan Companies Act, 1990)

AND ITS SUBSIDIARY COMPANIES

INCOME STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2013

STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2013

STATEMENTS OF FINANCIAL POSITION

AS OF 31 DECEMBER 2013

STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2013

STATEMENTS OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2013