Steppe Cement Regulatory News (STCM)

3 Apr 2006 11:18

Steppe Cement Limited03 April 2006 Steppe Cement Limited Trading Results of Key Operating Subsidiary for the Year Ended 31 December 2005 Steppe Cement Limited ("Steppe") is pleased to announce the finalisation of theaudited accounts of its key operating subsidiary, Central Asia Cement JSC("Central Asia Cement") for the year ended 31 December 2005. Central Asia Cement (and its subsidiary) has recorded a consolidated net profitafter tax for the year of 1,744.8 million tenge, being a 62.8% increase on the1,071.5 million tenge returned for the year ended 31 December 2004. Based on the average exchange rate for the year ended 31 December 2005 of133.675 tenge per US$ (2004: 135 tenge per US$), the result for the 31 December2005 year is equivalent to US$13,053,000. This compares with the US$7,937,000for the year ended 31 December 2004 as reported in Steppe's September 2005 AIMadmission document. Central Asia Cement is the owner and operator of the Steppe Cement Group'scement production assets in Kazakhstan. Steppe has a 100% interest in CentralAsia Cement held indirectly through two non-operating subsidiaries. The currentgroup structure having been finalised during July 2005. Steppe anticipates the release of its full consolidated financial statements forthe year ended 31 December 2005 will occur during April 2006 following thecompletion of the audit of the group consolidation by Deloitte & Touche.Accounting standards require that the Steppe profit and loss statement for theyear ended 31 December 2005 will only consolidate the results of Central AsiaCement from the date the present group structure was finalised. A copy of Central Asia Cement's financial statements for the year ended 31December 2005 follows. JOINT STOCK COMPANY CENTRAL ASIA CEMENTAND ITS SUBSIDIARY Independent Auditors' Report Consolidated Financial Statements For the Year Ended 31 December 2005 JOINT STOCK COMPANY CENTRAL ASIA CEMENTAND ITS SUBSIDIARY TABLE OF CONTENTS STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS Page 1 INDEPENDENT AUDITORS' REPORT Page 2 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005: Consolidated balance sheet Page 3 Consolidated income statement Page 4 Consolidated statement of changes in shareholders' equity Page 5 Consolidated statement of cash flows Pages 6-7 Notes to the consolidated financial statements Pages 8-25 STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR the years ENDED 31 december 2005 and 2004 The following statement, which should be read in conjunction with theindependent auditors' responsibilities stated in the independent auditors'report set out on page 2, is made with a view to distinguishing the respectiveresponsibilities of management and those of the independent auditors in relationto the consolidated financial statements of Joint Stock Company Central AsiaCement and its subsidiary (the "Group"). Management is responsible for the preparation of the consolidated financialstatements that present fairly the financial position of the Group at 31December 2005 and 2004, the results of its operations, cash flows and changes inequity for the years then ended, in accordance with International FinancialReporting Standards ("IFRS"). In preparing the consolidated financial statements, management is responsiblefor: • selecting suitable accounting principles and applying them consistently; • making judgements and estimates that are reasonable and prudent; • stating whether IFRS have been followed, subject to any material departures disclosed and explained in the consolidated financial statements; and • preparing the consolidated financial statements on a going concern basis, unless it is inappropriate to presume that the Group will continue in business for the foreseeable future. Management is also responsible for: • designing, implementing and maintaining an effective and sound system of internal controls, throughout the Group; • maintaining proper accounting records that disclose, with reasonable accuracy at any time, the financial position of the Group, and which enable them to ensure that the consolidated financial statements of the Group comply with IFRS; • maintaining accounting records in compliance with legislation and IFRS; • taking such steps as are reasonably available to them to safeguard the assets of the Group; and • detecting and preventing fraud and other irregularities. The consolidated financial statements for the years ended 31 December 2005 and2004 were authorized for issue on 9 March 2006 by the Management board of JSCCentral Asia Cement. On behalf of the Management of the Group:____________________________ __________________________Tham Hock Soon Nelly BrajnikovaGeneral Director Chief Accountant 9 March 2006 9 March 2006Almaty Almaty INDEPENDENT AUDITORS' REPORT To the Shareholders of Joint Stock Company Central Asia Cement: We have audited the accompanying consolidated balance sheet of Joint StockCompany Central Asia Cement and its subsidiary ("the Group") as at 31 December2005 and the related consolidated statements of income, changes in shareholders'equity and cash flows for the year then ended (the "consolidated financialstatements"). These consolidated financial statements are the responsibility ofthe Group's management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing.Those Standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the consolidated financial statements.An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall consolidatedfinancial statement presentation. We believe that our audit provides areasonable basis for our opinion. In our opinion, the consolidated financial statements present fairly, in allmaterial respects, the consolidated financial position of the Group as at 31December 2005 and the consolidated results of its operations and its cash flowsfor the year then ended in accordance with International Financial ReportingStandards. 9 March 2006 (Except for Note 26, which is dated 28 March 2006) JOINT STOCK COMPANY CENTRAL ASIA CEMENT AND ITS SUBSIDIARY CONSOLIDATED BALANCE SHEETAS AT 31 DECEMBER 2005 (in thousands of tenge) Notes 2005 2004ASSETS NON-CURRENT ASSETS:Property, plant and equipment, net 4 3,764,981 468,725Intangible assets, net 242 218Advances paid 17,521 - --------- --------- 3,782,744 468,943 --------- --------- CURRENT ASSETS:Inventories, net 5 872,794 753,729Prepaid expenses 23,370 16,051Trade accounts receivable, net 6 158,905 27,788Advances paid, net 7 137,068 65,863Value added tax receivable 30,851 7,130Other receivables 8 17,922 17,608Cash and cash equivalents 9 178,953 419,014Assets classified as held for sale 10 238,950 - --------- --------- 1,658,813 1,307,183 --------- --------- TOTAL ASSETS 5,441,557 1,776,126 ========= ========= SHAREHOLDERS' EQUITY AND LIABILITIES SHAREHOLDERS' EQUITY:Share capital 11 80,000 80,000Revaluation reserve 12 2,015,902 -Retained earnings/(accumulated deficit) 1,182,692 (232,871) --------- --------- 3,278,594 (152,871) --------- --------- NON-CURRENT LIABILITIES:Deferred tax liabilities, net 13 910,903 -Loans 14 - 910,000 --------- --------- 910,903 910,000 --------- --------- CURRENT LIABILITIES:Trade accounts payable 15 102,239 87,513Other payables and accrued liabilities 16 81,941 133,030Taxes payable 17 98,265 70,767Loans 14 946,682 704,936Advance received 22,933 22,751 --------- --------- 1,252,060 1,018,997 --------- --------- TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 5,441,557 1,776,126 ========= ========= Signed on behalf of the Management of the Group: ___________________ ____________________Tham Hock Soon Nelly BrajnikovaGeneral Director Chief Accountant 9 March 2006 9 March 2006 The notes on pages 8 to 25 form an integral part of these consolidated financialstatements. The Independent Auditors' Report is on page 2. JOINT STOCK COMPANY CENTRAL ASIA CEMENT AND ITS SUBSIDIARY CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2005 (in thousands of tenge) Notes 2005 2004 REVENUE 18 6,185,962 4,376,225 COST OF SALES 19 (2,520,817) (1,771,486) --------- --------- GROSS PROFIT 3,665,145 2,604,739 Selling expenses 20 (334,993) (284,411)General and administrative expenses 21 (594,025) (830,606) --------- ---------OPERATING PROFIT 2,736,127 1,489,722 Finance costs, net 22 (160,377) (119,628)Other (loss)/ income, net 23 (13,251) 220,825 --------- --------- PROFIT BEFORE INCOME TAX 2,562,499 1,590,919 INCOME TAX EXPENSE 13 (817,698) (519,434) --------- --------- NET PROFIT for the year 1,744,801 1,071,485 ========= ========= Signed on behalf of the Management of the Group: ____________________ ____________________Tham Hock Soon Nelly BrajnikovaGeneral Director Chief Accountant 9 March 2006 9 March 2006 The notes on pages 8 to 25 form an integral part of these consolidated financialstatements. The independent auditors' report is on page 2. JOINT STOCK COMPANY CENTRAL ASIA CEMENT AND ITS SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITYFOR THE YEAR ENDED 31 DECEMBER 2005 (in thousands of tenge) Notes Share Revaluation Retained earnings/ Total capital reserve (accumulated deficit) shareholders' equityBalance asat31 December 80,000 (1,304,356) (1,224,356)2003 Net profitfor - - 1,071,485 1,071,485the year --------- --------- --------- ---------Balance asat31 December 80,000 - (232,871) (152,871)2004 Net profitfor - - 1,744,801 1,744,801the yearDividends 11 - - (434,080) (434,080)paidRevaluationofproperty,plant and 4 - 3,029,634 - 3,029,634equipmentDeferred taxliabilitiesrelated torevaluedproperty,plant andequipment 13 - (908,890) - (908,890)Depreciationofrevaluation - (104,842) 104,842 -reserve --------- --------- --------- --------- Balance asat31 December 80,000 2,015,902 1,182,692 3,278,5942005 ========= ========= ========= ========= Signed on behalf of the Management of the Group: ____________________ ____________________ Tham Hock Soon Nelly BrajnikovaGeneral Director Chief Accountant9 March 2006 9 March 2006 The notes on pages 8 to 25 form an integral part of these consolidated financialstatements. The independent auditors' report is on page 2. JOINT STOCK COMPANY CENTRAL ASIA CEMENT AND ITS SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER 2005 (in thousands of tenge) Notes 2005 2004OPERATING ACTIVITIES:Profit before income tax 2,562,499 1,590,919Adjustments for:Depreciation and amortization 156,828 34,956Loss on disposal of property, plant and 23 6,549 192equipmentProvision for doubtful receivables and advancespaid 21 1,563 7,650Recovery of obsolete inventory 21 (129) -Unrealized foreign exchange loss/(gain) 46,731 (227,544)Write off of receivables 23 2,761 -Write off of payables 23 (41,397)Finance costs, net 22 160,377 119,628 --------- ---------Operating cash flow before movements in workingcapital 2,895,782 1,525,801(Increase)/ decrease in trade accounts (131,439) 27,747receivableIncrease in advances paid (89,967) (19,579)(Increase)/ decrease in prepaid expenses (7,319) 3,890(Increase)/ decrease in value added tax (23,721) 148,255receivable(Increase)/ decrease in other receivables (38,175) 17,990Increase in inventories (118,936) (379,284)Increase in trade accounts payable 14,726 59,527Decrease in advances received, other payablesand (9,510) (73,445)accrued liabilitiesIncrease /(decrease) in tax liability (otherthan 6,662 (16,711)income tax) --------- ---------Cash provided by operations 2,498,103 1,294,191 Income tax paid (794,849) (487,730)Interest paid (177,747) (471,624) --------- ---------Net cash provided by operating activities 1,525,507 334,837 --------- --------- INVESTING ACTIVITIES:Purchase of property, plant and equipment 4 (671,527) (204,406)Proceeds from disposal of property, plant andequipment 4 3,130 -Purchase of intangible assets (576) (311)Disposal of short-term investments - 79 --------- ---------Net cash used in investing activities (668,973) (204,638) --------- --------- JOINT STOCK COMPANY CENTRAL ASIA CEMENT AND ITS SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2005 (in thousands of tenge) Notes 2005 2004 FINANCING ACTIVITIES:Dividends paid 11 (434,080) -Proceeds from bank loans - 1,872,851Repayment of loans (662,515) (1,862,098) --------- ---------Net cash (used in)/provided by financingactivities (1,096,595) 10,753 --------- --------- NET (DECREASE)/INCREASE IN CASH AND CASHEQUIVALENTS (240,061) 140,952 --------- ---------CASH AND CASH EQUIVALENTS, beginning of the 419,014 278,062year --------- --------- CASH AND CASH EQUIVALENTS, end of the year 178,953 419,014 ========= ========= Non-cash transactions for the year ended 31 December 2005 consisted of theoff-set of the loan in the amount of KZT 35,100 thousand (2004: nil) made byCement Engineering Consultancy Ltd. to the Group against other accountsreceivable (see Note 14). Signed on behalf of the Management of the Group: ____________________ ____________________Tham Hock Soon Nelly BrajnikovaGeneral Director Chief Accountant 9 March 2006 9 March 2006 The notes on pages 8 to 25 form an integral part of these consolidated financialstatements. The Independent Auditors' Report is on page 2. JOINT STOCK COMPANY CENTRAL ASIA CEMENT AND ITS SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 (in thousands of tenge) 1. NATURE OF THE BUSINESS Closed Joint Stock Company Central Asia Cement (the "Company") was founded inthe Republic of Kazakhstan and was registered in September 1998. The Company wasreregistered in April, 2005 as Joint Stock Company Central Asia Cement. The Group's primary business is the production and sale of cement. The address of its registered office is Aktau village, Karaganda region,Republic of Kazakhstan. The Company's subsidiary as at 31 December 2005 and 2004 was as follows: Operating Entity Principal Activity Country of incorporation Stroy Invest LLP Dormant Republic of Kazakhstan The Company's subsidiary, Stroy Invest LLP is currently dormant and themanagement has the intention to discontinue the entity (see also Note 26). The sole shareholder of the Group as at 31 December 2005 and 2004 is CentralAsia Cement Holding B.V. The ultimate shareholder is Steppe Cement Ltd.,Malaysia. In accordance with Subsurface Use Contracts dated 4 August 1999 and Licenses forSubsurface Use KO-03 N 016 and KO-03 N 016 dated 18 June 1999, the Company isengaged in limestone and loam extraction at Astakhovskoye deposit inBukhar-Zhyrauskyi region, Karaganda oblast. The number of employees of the Company as at 31 December 2005 and 2004 were1,354 and 1,368 respectively. 2. PRESENTATION OF FINANCIAL STATEMENTS Basis of presentation These consolidated financial statements have been prepared in accordance withInternational Financial Reporting Standards ("IFRS"). These consolidatedfinancial statements are presented in thousands of tenge unless otherwiseindicated. The Company, together with its subsidiary, collectively referred toas "the Group" maintains its accounting records in tenge ("Tenge" or "KZT") inaccordance with Kazakhstani Accounting Standards ("KAS"). Kazakhstani statutoryaccounting principles and procedures differ from those generally accepted underIFRS. Accordingly, the consolidated financial statements, which have beenprepared from the Group's Kazakhstani statutory accounting records, reflectadjustments necessary for such financial statements to be presented inaccordance with IFRS. These consolidated financial statements of the Group are prepared on thehistorical cost basis, except for revaluation of land, buildings andconstructions and financial instruments. 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. Measurement currency The measurement currency of the accompanying consolidated financial statementsis tenge. Adoption of new and revised international financial reporting standards In the current year, the Group has adopted all of the new and revised Standardsand Interpretations issued by the International Accounting Standards Board (theIASB) and the International Financial Reporting Interpretations Committee(IFRIC) of the IASB that are relevant to its operations and effective foraccounting periods beginning on 1 January 2005. The adoption of these new andrevised Standards and Interpretations has resulted in changes to the Group'saccounting policies in the following areas that have affected the amountsreported for the current year: - Non-current assets held for sale and discontinued operations (IFRS 5); The impact of this change in accounting policies is discussed in detail later inNotes 3 and 10. The directors anticipate that the adoption of these Standards andInterpretations in future periods will have no material impact on theconsolidated financial statements of the Group. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of consolidation The consolidated financial statements incorporate the financial statements ofthe Company and entity controlled by the Company (its subsidiary). Control isachieved where the Company has the power to govern the financial and operatingpolicies of an entity so as to obtain benefits from its activities. Where necessary, adjustments are made to the financial statements of subsidiaryto bring its accounting policies into line with those used by other members ofthe Group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. Foreign currencies 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. Property, plant and equipment Land and buildings held for use in the production or supply of goods orservices, or for administrative purposes, are stated in the balance sheet attheir revalued amounts, being the fair value at the date of revaluation, lessany subsequent accumulated depreciation and subsequent accumulated impairmentlosses. Any revaluation increase arising on the revaluation of such land and buildingsis credited to the properties revaluation reserve, except to the extent that itreverses a revaluation decrease for the same asset previously recognised inprofit or loss, in which case the increase is credited to profit or loss to theextent of the decrease previously charged. A decrease in carrying amount arisingon the revaluation of such land and buildings is charged to profit or loss tothe extent that it exceeds the balance, if any, held in the propertiesrevaluation reserve relating to a previous revaluation of that asset. Depreciation on revalued buildings is charged to profit or loss. On thesubsequent sale or retirement of a revalued property, the attributablerevaluation surplus remaining in the properties revaluation reserve istransferred directly to retained earnings. Properties in the course of construction for production, rental oradministrative purposes, or for purposes not yet determined, are carried atcost, less any recognised impairment loss. Cost includes professional fees and,for qualifying assets, borrowing costs capitalised in accordance with theGroup's accounting policy. Depreciation of these assets, on the same basis asother property assets, commences when the assets are ready for their intendeduse. Machinery and equipment and other assets are stated at cost less accumulateddepreciation and any accumulated impairment losses. Capitalized 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 capitalization are charged to the consolidated income statement asincurred. Depreciation is charged so as to write off the cost or valuation of assets,other than land and properties under construction, over their estimated usefullives, using the straight-line method. Buildings 25 yearsMachinery and Equipment 14 yearsOther assets 5-10 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 profit or loss. Intangible assets Intangible assets are stated at cost less accumulated amortization. Amortizationis computed under the straight-line method over the estimated useful lives ofassets of 1 - 10 years. Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts of itstangible and intangible assets to determine whether there is any indication thatthose assets have suffered an impairment loss. If any such indication exists,the recoverable amount of the asset is estimated in order to determine theextent of the impairment loss (if any). Where it is not possible to estimate therecoverable amount of an individual asset, the Group estimates the recoverableamount of the cash-generating unit to which the asset belongs. 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 profit or loss, unless therelevant asset is carried at a revalued amount, in which case the impairmentloss is treated as a revaluation decrease. Inventories Inventories are stated at the lower of cost and net realisable value. Costcomprises 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. Non-current assets held for sale Non-current assets and disposal groups are classified as held for sale if theircarrying amount will be recovered through a sale transaction rather than throughcontinuing use. This condition is regarded as met only when the sale is highlyprobable and the asset (or disposal group) is available for immediate sale inits present condition. Management must be committed to the sale, which should beexpected to qualify for recognition as a completed sale within one year from thedate of classification. Non-current assets (and disposal groups) classified asheld for sale are measured at the lower of the assets' previous carrying amountand fair value less costs to sell. Financial instruments Financial assets and financial liabilities are recognized on the Group'sconsolidated balance sheet when the Group becomes a party to the contractualprovisions of the instrument. Trade receivables Trade receivables are measured at initial recognition at fair value, and aresubsequently measured at amortised cost using the effective interest ratemethod. Appropriate allowances for estimated irrecoverable amounts arerecognized in profit or loss when there is objective evidence that the asset isimpaired. The allowance recognised is measured as the difference between theasset's carrying amount and the present value of estimated future cash flowsdiscounted at the effective interest rate computed at initial recognition. 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. Trade payables Trade payables are initially measured at fair value, and are subsequentlymeasured at amortised cost, using the effective interest rate method. Bank borrowings Interest-bearing bank loans and overdrafts are initially measured at fair value,and are subsequently measured at amortised cost, using the effective interestrate method. Any difference between the proceeds (net of transaction costs) andthe settlement or redemption of borrowings is recognised over the term of theborrowings in accordance with the Group's accounting policy for borrowing costs(see below). Revenue recognition Revenue is recognized when it is probable that the economic benefits associatedwith the transaction will flow to the enterprise and the amount of revenue canbe measured reliably. Sales are recognized net of value added tax. 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. 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 funds. 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 theRepublic of Kazakhstan and countries where its subsidiaries operate. Inaddition, the Group has no post-retirement benefits or other significantcompensated benefits requiring accrual. Provisions Provisions are recognised when the Group has a present obligation as a result ofa past event, and it is probable that the Group will be required to settle thatobligation. Provisions are measured at the directors' best estimate of theexpenditure required to settle the obligation at the balance sheet date, and arediscounted to present value where the effect is material. 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 is 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 recognized 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 profit or loss, except when it relates to items chargedor credited directly to equity, in which case the deferred tax is also dealtwith 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. Reclassifications The consolidated financial statements as at December 31, 2004 and for the yearended December 31, 2004 were reclassified to comply with the consolidatedfinancial statements presentation requirements as at December 31, 2005 and forthe year ended December 31, 2005. These reclassifications have not affectedpreviously reported results of operations or shareholders' equity. Thesereclassifications are presented below: For the year For the year ended December 31, Total ended 2004 December 31, 2004 (Reclassified) Sellingexpenses: Railwaytransportation 221,569 189,839 31,730Shipping andtransportation 4,771 59,504 (54,733)Payroll andrelated taxes 17,936 17,936 -Rent 2,475 4,151 (1,676)Advertising 1,349 910 439Depreciation - 5,017 (5,017)Other 36,311 7,054 29,257 --------- --------- ---------Total sellingexpenses 284,411 284,411 - ========= ========= ========= 4. PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment as at 31 December 2005 and 2004 consisted of thefollowing: Land and Buildings Machinery Other Construction Total land and Assets in progress improvement equipment Cost At 1 January2005 24,339 202,579 179,893 153,088 21,268 581,167 Additions 169 50,123 316,768 66,993 237,474 671,527 Transfers - 1,244 (2,590) 1,346 - - Disposals - (6,871) (1,625) (2,584) - (11,080)Reclassification as held forsale (see Note 10) - (139,517) - - (119,693) (259,210) Revaluation 408,567 3,002,442 - - - 3,411,009 -------- -------- -------- -------- -------- --------At 31 December2005 433,075 3,110,000 492,446 218,843 139,049 4,393,413 -------- -------- -------- -------- -------- -------- Accumulated depreciation At 1 January2005 - (24,340) (52,567) (35,535) - (112,442) Charge for theyear - (109,226) (21,924) (25,126) - (156,276) Reclassification as held forsale (see Note 10) - 20,260 - - 20,260 Revaluation - (381,375) - - - (381,375) Transfers - (261) 344 (83) - - Disposals - 545 701 155 - 1,401 -------- -------- -------- -------- -------- --------At 31 December2005 - (494,397) (73,446) (60,589) - (628,432) -------- -------- -------- -------- -------- -------- Net Book ValueAt 31 December2005 433,075 2,615,603 419,000 158,254 139,049 3,764,981 ======== ======== ======== ======== ======== ========At 31 December2004 24,339 178,239 127,326 117,553 21,268 468,725 ======== ======== ======== ======== ======== ======== Land and buildings were revalued at 31 December 2005 by Rice Group LLC,independent appraisers not connected with the Group, by reference to marketevidence of recent transactions for similar properties. The valuation conformsto International Valuation Standards. As at December 31, 2005 and 2004 fully depreciated property, plant and equipmentamounted to KZT 5,355 thousand and nil, respectively. As at 31 December 2005 and 2004 a property with a book value of KZT 3,103,938thousand and KZT 395,316 thousand, respectively, was pledged under the LoanAgreement #3220/04 dated 2 November 2004 (Note 14). 4. INVENTORIES, NET Inventories, net as at 31 December 2005 and 2004 consisted of the following: 2005 2004 Work in Process 199,722 190,768Finished goods 128,487 154,446Fuel 56,359 80,668Raw materials 55,188 39,950Spare parts 37,514 26,801Goods for resale 13,395 13,475Packing materials 10,939 10,712Construction materials 9,284 6,324Other material 408,584 277,392 Less: provision for obsolete inventory (46,678) (46,807) --------- --------- Total 872,794 753,729 ========= ========= 5. TRADE ACCOUNTS RECEIVABLE, NET Trade accounts receivable, net as at 31 December 2005 and 2004 consisted of thefollowing: 2005 2004Trade receivables from third parties 100,321 39,920Accounts receivable from related parties (see Note 24) 71,038 -Less: Provision for doubtful receivables (12,454) (12,132) --------- --------- Total 158,905 27,788 ========= ========= An allowance has been made for estimated irrecoverable amounts from the sale ofgoods of 12,454 thousand tenge (2004: 12,132 thousand tenge). This allowance hasbeen determined by reference to past default experience. The directors consider that the carrying amount of trade receivablesapproximates their fair value. 6. ADVANCES PAID, NET Advances paid, net as at 31 December 2005 and 2004 consisted of the following: 2005 2004Advances paid to third parties 147,016 74,570Less: Provision for advances paid (9,948) (8,707) --------- --------- Total 137,068 65,863 ========= ========= An allowance has been made for estimated irrecoverable amounts of advances paidfor the purchase of goods of 9,948 thousand tenge (2004: 8,707 thousand tenge). The directors consider that the carrying amount of advances paid approximatestheir fair value. 7. OTHER RECEIVABLES Other receivables as at 31 December 2005 and 2004 consisted of the following: 2005 2004 Receivable from employees 12,934 14,059Other receivables 4,988 3,549 --------- --------- Total 17,922 17,608 ========= ========= The directors consider that the carrying amount of other receivablesapproximates their fair value. 9. CASH AND CASH EQUIVALENTS Cash and cash equivalents as at 31 December 2005 and 2004 consisted of thefollowing: 2005 2004Cash in banks, in KZT 163,192 395,033Cash in banks, in USD 929 891Petty cash 23 712Restricted cash 14,422 22,378Deposits 387 - --------- --------- Total 178,953 419,014 ========= ========= Restricted cash represents deposits required to be held under letters of credit. As at 31 December 2005 in accordance with the Law on Labor a non-interestbearing deposit in the amount of 387 thousand tenge (2004: nil) was placed withHalyk Savings Bank of Kazakhstan as a part of work permit requirements fornon-resident employees. The deposit is subject to annual renewal. Cash in current bank account of 500,000 US Dollars (KZT 66,885 thousand) waspledged under the loan from JSC Kazkommertsbank, according to the Loan Agreement#3220/04 dated 2 November, 2004 (see Note 14). 10. ASSETS CLASSIFIED AS HELD FOR SALE On 9 March 2006 the shareholders resolved to dispose the Group's dry line ofcement production. The assets attributable to the production line, which areexpected to be sold within twelve months, have been classified as a disposalgroup held for sale and are presented separately in the balance sheet (see Note4). The major classes of assets comprising the disposal group classified as held forsale are as follows: 2005 2004Construction in progress 119,693 -Buildings and constructions 119,257 --------- --------- Total 238,950 - ========= ========= 11. SHARE CAPITAL At 31 December 2005 and 2004 the Company had 1,000 ordinary shares authorized,issued and fully paid with a par value of USD 1,000, or KZT 80,000 each. In accordance with the decision of the Board of Directors as of 19 August 2005dividends were declared and paid for the 6 months ended 30 June 2005 in theamount of KZT 412,376 thousand, net of withholding tax of KZT 21,704 thousandand nil for the same period and for the year ended 31 December 2004. 12. REVALUATION RESERVE At 31 December 2005 revaluation reserve amounted to 2,015,902 thousand tengewhich consist of revaluation performed by Rice Group LLC (2004:nil). Therevaluation reserve is not available for distribution to the Company'sshareholders. 13. INCOME TAX The Group's provision for income tax for the years ended 31 December 2005 and2004 is as follows: 2005 2004 Current income tax expenses 815,685 519,434Deferred income tax expenses 2,013 - --------- --------- Total income tax expense 817,698 519,434 ========= ========= Deferred taxes reflect the net tax effects of temporary differences between thecarrying amounts of assets and liabilities for financial reporting purposes andthe amounts used for tax purposes. The tax effect on the major temporary differences that give rise to the deferredtax assets and liabilities as at 31 December is presented below: 2005 2004Deferred tax assetsProvision for doubtful accounts 3,736 6,251Difference in depreciable value of property, plant andequipment - 16,107Provision for obsolete inventory 14,003 -Taxes 6,559 -Other adjustments 273 3,978 --------- --------- Total 24,571 26,336 ========= ========= 2005 2004Deferred tax liabilitiesDifference in depreciable value of property, plant andequipment (935,445) -Other adjustments (29) - --------- --------- Total (935,474) - ========= ========= Deferred tax (liabilities)/assets (910,903) 26,336 Valuation allowance - (26,336) --------- ---------Net deferred tax liabilities (910,903) - ========= ========= Recorded:in the consolidated income statement (2,013) -in the consolidated statement of changes in shareholder'sequity (908,890) - --------- --------- Total (910,903) - ========= ========= The statutory tax rate effective in the Republic of Kazakhstan, was 30% in 2005and 2004. The taxation charge for the year is different from that which would beobtained by applying the statutory income tax rate to the net profit beforeincome tax. Below is a reconciliation of theoretical income tax at 30% to theactual expense recorded in the Group's consolidated income statement: 2005 2004 Profit before income tax 2,562,499 1,590,919 ========= =========Theoretical income tax at statutory rate of 30% 768,750 477,276Adjustments due to:Tax effect of non-deductible expenses 75,284 30,220Change in valuation allowance (26,336) 11,938 --------- ---------Income tax expense 817,698 519,434 ========= ========= 14. LOANS Loans as at 31 December 2005 and 2004 consisted of the following: Interest 2005 2004 rate JSC Kazkommertsbank (a) 12.5% 936,390 1,560,000Cement Engineering Consultancy (b) 2 x 1 year LIBOR - 35,100Interest payable 10,292 19,836 --------- --------- Total 946,682 1,614,936 ========= ========= a) The loan of 12,000,000 US Dollars (KZT 1,560,000 thousand) was provided byJSC Kazkommertsbank, according to the Loan Agreement #3220/04 dated 2 November,2004 for the purpose of repayment of the loan provided by Kazakhstan InvestmentFund (former shareholder). The principle is repayable monthly by equalinstallments of 500,000 USD. As at 31 December 2005 and 2004 a property with abook value of KZT 3,103,938 thousand and KZT 395,316 thousand, respectively, waspledged under the Loan Agreement #3220/04 dated 2 November 2005 (Note 4) andcash in current bank account of 500,000 US Dollars (KZT 66,885 thousand) (seeNote 9). The outstanding principal and interest were repaid by the Group in fullon 28 March, 2006 (see also Note 26). b) The loan of 350,000 US Dollars (KZT 50,477 thousand) was provided by CementEngineering Consulting, a former shareholder of the Group, for three yearsaccording to the agreement dated 21 March, 2000. The principal amount of 80,000US Dollars was repaid in year 2004. The outstanding amount of the loan as at 31December 2004 amounted to 270,000 US Dollars (KZT 35,100 thousand) and wasoff-set against other accounts receivable during 2005. There was no collateralobligation under this loan agreement. The loans and interest payable are repayable as follows: 2005 2004Within one year 946,682 704,936Within two to five years - 910,000 --------- --------- Total 946,682 1,614,936 ========= ========= Bank loans of 936,390 thousand tenge (2004: 1,595,100 thousand tenge) arearranged at fixed interest rates and expose the Group to fair value interestrate risk. 15. TRADE ACCOUNTS PAYABLE Trade accounts payable as at 31 December 2005 and 2004 consisted of thefollowing: 2005 2004Trade payables to third parties 102,239 87,513 --------- --------- Total 102,239 87,513 ========= ========= 16. OTHER PAYABLES AND ACCRUED LIABILITIES Other payables and accrued liabilities as at 31 December 2005 and 2004 consistedof the following: 2005 2004 Payables to employees 54,098 20,649Liquidation fund accruals 2,612 1,764Other payables and accruals 25,231 110,617 --------- --------- Total 81,941 133,030 ========= ========= Other payables and accruals for 2004 include accrued management fee to CementEngineering Consultancy Ltd (former shareholder of the Group) of KZT 75,833thousand, accrued interest and penalty on the loan from Cement EngineeringConsultancy Ltd of KZT 2,266 thousand and KZT 14,528 thousand, respectively. According to the Assignment Agreement dated 5 March 2005 between KazakhstanAsset Management Ltd ("KAM") and the Group, KAM has assigned and transferred tothe Group the loans and all other amounts due and payable by Cement EngineeringConsultancy Ltd, a former shareholder of the Group ("CEC"), to KAM in the amountof US$1,015,431 (KZT 133,265 thousand) in consideration of the payment for theamount of US$700,000 (KZT 91,868 thousand) by the Group to KAM as the purchaseprice for the assignment of such receivables, payable pursuant to the provisionsof such Assignment Agreement. As a result of such assignment, the debts formerlydue and payable by CEC to KAM became debts due and payable by CEC to the Group.The remaining amount of payables of KZT 41,397 thousand was written off as otherincome (see Note 23). 17. TAXES PAYABLE Taxes payable as at 31 December 2005 and 2004 consisted of the following: 2005 2004 Corporate income tax 52,540 31,704Withholding tax - 15,167Property tax 21,755 283Personal income tax 4,977 4,815Other taxes 18,993 18,798 --------- --------- Total 98,265 70,767 ========= ========= 18. REVENUE Revenue for years ended 31 December 2005 and 2004 consisted of the following: 2005 2004 Sales-manufactured goods 6,070,106 4,317,602Other sales 115,856 58,623 --------- --------- Total 6,185,962 4,376,225 ========= ========= 19. COST OF SALES Cost of sales for years ended 31 December 2005 and 2004 consisted of thefollowing: 2005 2004Cost of productionMaterials 1,376,961 1,203,982Payroll and related taxes 465,204 347,271Electricity 256,739 219,278Depreciation 130,917 31,205Other 181,432 97,899 --------- --------- 2,411,253 1,899,635 Work in progress as at beginning of the year 190,768 111,584Work in progress as at end of the year 199,722 190,768 --------- ---------Change in work in progress (8,954) (79,184) Finished goods as at beginning of the year 154,446 64,102Finished goods as at end of the year 128,487 154,446 --------- ---------Change in finished goods 25,959 (90,344) --------- ---------Cost of sales, manufactured goods 2,428,258 1,730,107 --------- --------- Cost of sales, purchased goods 92,559 41,379 --------- --------- Total 2,520,817 1,771,486 ========= ========= 20. SELLING EXPENSES Selling expenses for the years ended 31 December 2005 and 2004 consisted of thefollowing: 2005 2004 Railway transportation 191,505 189,839Shipping and transportation 105,599 59,504Payroll and related taxes 21,951 17,936Rent 5,231 4,151Advertising 1,779 910Depreciation 1,748 5,017Other 7,180 7,054 --------- --------- Total 334,993 284,411 ========= ========= 21. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses for the years ended 31 December 2005 and2004 consisted of the following: 2005 2004 Payroll and related taxes 132,927 128,349Management fee 93,511 87,900Tax and customs duties 80,405 60,798Security 36,595 34,193Transport expenses 28,999 14,235Materials 26,600 22,987Current repair expenses 26,149 19,829Depreciation and amortization 24,163 3,751Legal services (a) 18,311 144,041Bank service payments 17,188 13,315Audit expenses 16,001 6,609Business trip expenses 11,475 5,843Communication costs 10,131 5,089Utilities 6,298 9,452Laboratory costs 3,712 1,231Office costs 2,840 3,326Penalties (a) 422 256,682Provision for doubtful receivables and advances paid 1,563 7,650Consulting and project expenses 150 2,957Recovery of obsolete inventory (129) -Other expenses 56,714 2,369 --------- --------- 594,025 830,606 ========= ========= a) Legal fee in 2004 was incurred mainly for refinancing of theshareholder's loan and purchase of former shareholder's interest in the Company. b) Penalties in 2004 related to the late payment of principal and intereston the loan provided in accordance with the loan agreement dated 21 May 1998granted by Kazakhstan Investment Fund (see Note 14). 22. FINANCE COSTS, NET Finance costs, net for the years ended 31 December 2005 and 2004 consisted ofthe following: 2005 2004 Interest income 7,826 5,257Interest expense (168,203) (88,500)Other finance costs - (36,385) --------- --------- Total (160,377) (119,628) ========= ========= Other finance costs for 2004 related to the bank commission paid toKazkommertsbank. 23. OTHER (LOSS)/INCOME, NET Other (loss)/income, net for the years ended 31 December 2005 and 2004 consistedof the following: 2005 2004Foreign exchange (loss)/ gain (46,704) 227,544Loss on disposal of property, plant and equipment (6,549) (192)Receivables write-off (2,761) -Payables write-off 41,397 -Other gain/(loss) 1,366 (6,527) --------- --------- Total (13,251) 220,825 ========= ========= 24. RELATED PARTIES The immediate parent and the ultimate controlling party respectively of theGroup are Central Asia Cement Holding B.V. (incorporated in Netherlands) andSteppe Cement Ltd. (incorporated in Malaysia). 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 subsidiaries, which are related partiesof the Company, have been eliminated on consolidation and are not disclosed inthis note. Details of transactions between the Group and other related partiesare disclosed below. The following transactions and balances with related parties are included in theconsolidated income statement and balance sheet for the years ended 31 December2005 and 2004: Purchases of services 2005 2004 Management fee 93,511 87,900Other - 62,897 Accounts receivable from related parties (see Note 6) 2005 2004 Steppe Cement Ltd. andsubsidiaries 71,038 - The amounts outstanding are unsecured and will be settled in cash. No guaranteeshave been given or received. No expense has been recognized in the period forbad or doubtful debts in respect of the accounts receivable from relatedparties. Accounts receivable from related parties for 2005 represent the amount ofexpenses on obtaining loan from the European Bank for Reconstruction andDevelopment ("EBRD"), which will be reimbursed by JSC KarCement in the amount ofKZT 9,792 thousand and receivable for listing fee at London Stock Exchange fromthe ultimate parent, Steppe Cement Ltd. in the amount of KZT 61,246 thousand. Compensation of key management personnel The remuneration of directors and other members of key management during theyear was as follows: 2005 2004Short-term benefit 12,320 5,441Post-employment benefit 1,155 488 --------- --------- Total 13,475 5,929 ========= ========= The remuneration of directors and key executives is determined by theremuneration committee having regard to the performance of individuals andmarket trends. 25. COMMITMENTS AND CONTINGENCIES Operating environment - The Group's business activities are within the Republicof Kazakhstan. Laws and regulations affecting businesses operating in theRepublic of Kazakhstan are subject to rapid changes and the Group's assets andoperations could be at risk due to negative changes in the political andbusiness environment. 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. Tax and regulatory environment - The government of the Republic of Kazakhstancontinues to reform the business and commercial infrastructure in its transitionto a market economy. As a result laws and regulations affecting businessescontinue to change rapidly. These changes are characterized by poor drafting,different interpretations and arbitrary application by the authorities. In particular taxes are subject to review and investigation by a number ofauthorities enabled by law to impose fines and penalties. While the Groupbelieves it has provided adequately for all tax liabilities based on itsunderstanding of the tax legislation, the above facts may create tax risks forthe Group. Contingent liabilities - On 13 December, 2005 Loan agreement between EBRD andJSC KarCement (the "Borrower") was signed. On and subject to the terms andconditions of this Agreement, EBRD agrees to lend to the Borrower an amount notto exceed 35,000,000 US Dollars. Under the Guarantee and Support Agreementbetween the JSC Central Asia Cement, EBRD, the Borrower and other parties, theCompany acts as guarantor and irrevocably and unconditionally guarantees to EBRDthe due and punctual payment by the Borrower of all sums payable under or inconnection with the Loan agreement and agrees that it will pay to EBRD each andevery sum of money which the Borrower is at any time liable to pay to EBRD underor pursuant to the Loan agreement which is due but unpaid. Environment protection matters - The Group believes it is currently incompliance with all existing Republic of Kazakhstan environmental laws andregulations. However, Kazakhstan environmental laws and regulations may changein the future. The Group is unable to predict the timing or extent to whichthese environmental laws and regulations may change. Such change, if it occurs,may require the Group to modernize technology to meet more stringent standards. Obligations under Liquidation Fund - In accordance with the Subsurface UseContracts requirements, the Group should contribute on 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. Not later than 6 months before the Subsurface UseContract expiration the Group shall submit the liquidation program to competentbody. As at 31 December 2005 the undiscounted contractual liability on futurecontributions to the liquidation fund obligation is 59,771 thousand tenge.Management estimated this liability, if discounted, not to have material effecton these consolidated financial statements and therefore the Group recorded onlycurrent period contributions as liability on 2005 consolidated balance sheet.Also, in accordance with the Law on Land and resource usage and Environmentalrehabilitations the Group will be obliged to provide additional resources to thestate in the case the liquidation fund will be insufficient to cover actual siterestoration and abandonment costs in the future. As at December 31, 2005management believes that amount of obligatory liquidation fund exceeds futuresite restoration and abandonment costs. 26. EVENTS AFTER THE BALANCE SHEET DATE According to the minute of the meeting of the board of directors dated 27February, 2006 the management of the Group made the decision on liquidation ofthe Company's subsidiary Stroy Invest LLP. The Company signed the agreement on a credit line #219/06 dated 15 February 2006with JSC Kazkommertsbank. Under the accessory agreement #220/06 dated 16February 2006, JSC Kazkommertsbank issued to the Company a loan of 1,483,600 USDollars (KZT 194,693 thousand). Under the collateral agreement #126/06-z dated15 February 2006, JSC Kazkommertsbank pledged cash in the Company's bank accountincoming from the contract between the Company and JSC Stroyconstructsiya forthe total amount of 4,000,000 US Dollars (KZT 524,920 thousand). According to the management of the Company, fixed assets with total cost of KZT238,950 thousand will be sold to JSC KarCement on an arm's length basis during2006 (see Note 10). On 28 March, 2006 the Group repaid in full the outstanding principal andinterest on the loan provided by JSC Kazkommertsbank under the Loan Agreement #3220/04 dated 2 November, 2004 (see Note 14). This information is provided by RNS The company news service from the London Stock Exchange