Steppe Cement Regulatory News (STCM)

CEO STATEMENT 

In 2018, Steppe Cement posted a net profit of USD 8.9 million. Steppe Cement's EBITDA increased to USD 21.3 million from USD 11.6 million in 2017 mostly due to higher prices and volumes.

The overall domestic cement market decreased by 4% to 8.6 million tonnes, but our sales volume increased by 6% mostly due to an increase of 63% in exports, helped by the continued weakness of the KZT against the neighbouring currencies. The delivered price in USD increased by 18%.

In 2018 our cost of production per tonne in KZT increased by 6%, in line with inflation.

Steppe Cement operated both lines at 90% of their current combined capacity (which is 1.1 million tonnes for line 5 and 0.8 million tonnes for line 6). We aim to increase their utilization and we are planning to increase the capacity of line 6 to 0.9 million tonnes in late 2019.

Shareholders' funds decreased to USD55.9 million from USD59.5 million after dividend distribution of USD3 million to shareholders and due to the devaluation of the KZT. However, the replacement cost of the Company's assets remains many times higher than their current book value.

The Kazakh cement market decreased by 4% in 2018 but we expect it to improve in 2019

The Kazakh cement market in 2018 was 8.6 million tonnes, a decrease of 4% from 2017. Imports into Kazakshtan decreased by 4% to 0.65 million tonnes or 8% of the total market. Exports from local producers increased by 118% to 1.9 million tonnes.

Our expectations are that overall market demand in 2019 will increase by 5% reflecting a recovering of the market from 2018. The Kazakh population has reached 18 million people and therefore consumption represents 500 kg/person per year.

Improving exports mostly to Uzbekistan and Kyrgyzstan helped local companies to increase their overall volumes by 7%. The companies that benefited most were the ones in the south. In the west, a new competitor has started near Kyzylorda and is expected to increase its production steadily during the year.

In 2019, the local cement factories should maintain these trends with similar level of exports. Imports into Kazakhstan should remain contained to regions near the Russian border and be subject to competiton from a new factory.

Steppe Cement's average cement selling prices increased by 25% in KZT and by 18% in USD, to USD 47.7 per tonne delivered.

Line 5 produced 993,850 tonnes of cement while Line 6 produced 726,767. We continue to make small improvements in Line 6 that we expect will contribute to an additional 80,000 tonnes in 2019.

Capital investment in 2018 was directed to the improvement of packing and logistics and we will continue to do so in 2019

The new packing line for 1,800 bags per hour was commisionned in the summer of 2018 and we have doubled the capacity of the big bag facility to 100 tonnes per hour. Capital investment was increased slightly to USD2.7 million from USD1.6 million in 2017.

In 2019, we will plan the following capital investments:

- Increase the capacity of the 50 kg bags packing line to 2,400 bags per hour, equivalent to 120 tonnes per hour.

- Commission the fully automated loading of wagons and trucks.

- Installation of a separator in cement mill number four.

- Change the two preheater fans in Line 6 to improve energy efficiency.

- Automatize the silos and loading in the wet line mill area.

Cost per tonne were maintained as volumes increased

The average cash production cost of cement was maintained at USD23/tonne as production and sales increased offsetting some of inflation increases. Some of the variable costs have been reassigned to fixed costs in 2018 - if we compare with the same cost base 2017 and 2018, the variable cost has increased by around USD0.7/tonne or 3%.

Selling expenses, reflecting mostly cement delivery costs, increased to USD9/tonne from USD7/tonne in 2017, due to higher export volumes (+63%) and transportation tariffs.

General and administrative expenses

General and administrative expenses increased by 19% to USD 6.2 million from USD 5.2 million in 2017. The general expenses have been adjusted both for 2017 and 2018 and include expense previously included in the production costs.

In 2017, we transferred USD1 million from cost of production to general expenses of which USD0.65 million were transfers of management salaries and USD0.35 million were provisions for obsolete inventory. Cost of production for 2017 was therefore decreased by 0.6 USD/tonne.

After taking into consideration these adjustments, the general expenses in 2018 have still increased by USD1 million. This is broken down as follows:

- USD0.28 million as transfers of maintenance and logistic from production to general expenses.

- USD0.25 million as a provision of doubtful receivables in accordance with changes in IFRS9.

- USD0.15 million as increased salaries, extra half month bonus and other compensation as company performance has improved.

- USD0.06 million in increased bank commission as we try to reduce the cash payments.

The balance represents an effective increase of 5% which is in line with the increase of volumes.

On 31 March 2019 the labour count stood at 735 the same level as last year.

Financial position: Continuous debt reduction

During the year, our total loans outstanding were reduced from USD20 million to USD11.8 million.

Long term loans were reduced from USD9.8 million to USD 6.6 million as we continued to repay principals to Halyk Bank for the long term loan for wagons and various government subsidised loans for capex. In addition, due to devaluation, the KZT denominated loans were reduced in USD.

The effective interest rate in the long term loans in USD and KZT was maintained at 6.2% per annum (p.a.).

Our short term loans and current part of the long term loans were significantly reduced from USD10.2 million in 2017 to USD5.2 million in 2018, while the cash position at the end of the year was increased from USD3 million to USD5.7 million.

We consider the risk of a sharp devaluation is now much lower but we have not borrowed significantly since December 2018. We have drawn subsidized short term loans at 6% p.a. in KZT and short term loans at 10% p.a. in KZT when the banks offered them.

We maintain three short term credit lines available as stand by:

- KZT3 billion from Halyk Bank at 6% p.a. in USD or 12% p.a. in KZT which includes a government subsidized program of KZT0.5 billion in KZT at 6% p.a.

- KZT0.9 billion from Altyn Bank at 10% p.a. in KZT.

- KZT3 billion from VTB Bank Kazakhstan at 11.5% p.a. signed in March 2018.

In 2017, finance costs decreased to USD1.6 million from USD2.2 million in 2017 due to the continuous repayment of loan principals.

All covenants under the various credit lines have been met comfortably.

Depreciation stayed the same in 2018 at USD7.3 million.

The statutory corporate income tax rate remains at 20% in Kazakhstan.

Javier del Ser

Chief Executive Officer

2018 Annual Report and Annual General Meeting

Steppe Cement expects to release its 2018 Annual Report on its web site at www.steppecement.com during the week commencing 15 May 2019.

The Company's Annual General Meeting is expected to take place at its Malaysian Office at Suite 10.1, 10th Floor, West Wing, Rohas Perkasa, 8 Jalan Perak, Kuala Lumpur Malaysia on Wednesday, 12 June 2019 at 2:30 p.m.

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

Nominated Adviser contact: Stephen Allen or Andrew Thomson on +61 8 9480 2500.

Broker contact: Charlie Cryer at +44 20 3440 6800.

STEPPE CEMENT LTD

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

STATEMENTS OF PROFIT OR LOSS

FOR THE YEAR ENDED 31 DECEMBER 2018

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2018

STATEMENTS OF FINANCIAL POSITION

AS OF 31 DECEMBER 2018

STATEMENTS OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2018

STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2018