Last checked at 14 Apr 2009 07:31
STEPPE CEMENT LTD
Preliminary annual results (unaudited) for the year ended 31 December 2008
Steppe Cement Ltd ("Steppe Cement" or "the Company") is pleased to announce its preliminary annual results (unaudited) for the year ended 31 December 2008:
| Key financials | Year ended 31-Dec-08 | Year ended 31-Dec-07 | Inc/ (Dec) % |
| Sales (tonnes) | 807,300 | 820,287 | (2) |
| Consolidated turnover (USD Million) | 91.5 | 100.8 | (9) |
| Consolidated profit before tax (USD Million) | 26.6 | 53.6 | (50) |
| Consolidated profit after tax (USD Million) | 18.6 | 37.2 | (50) |
| Earnings per share (cents) | 16 | 33 | (50) |
| Shareholders' funds (USD Million) | 128.9 | 110.5 | (17) |
| Exchange rate (USD/KZT) | 120.8 | 122.5 |
CEO Statement
Thanks to the exceptional efforts of Steppe Cement employees, Dry Line #6 ("Line #6") was commissioned in October 2008. The operating license for commercial operation of Line #6 was received on 5th February 2009 and all other necessary licenses and permits were received during the first quarter of 2009. Cement produced from this dry line will cost USD8 to USD12 per tonne less than cost of cement produced from the wet lines, a competitive advantage that should help Steppe Cement deal with the uncertainties imposed by current market conditions.
The cement market in 2008 continued its declining trend which was anticipated in 2007. The first half of 2008 saw a slower cement market than in 2007 but the same seasonal pattern persists. The second half of 2008 saw a sharp deceleration in economic activity that was compounded by the drop in commodity prices, resulting in lower demand and prices.
Banks struggled to repay their foreign debts and the Kazakhstan Government finally decided to step in to support them. On 4 February 2009, the Kazakhstan Tenge ("KZT") was devalued against the USD by 25% from KZT 120 to KZT 150. An adverse effect of the devaluation for Steppe Cement will be the increase in the amount of KZT required to service its USD denominated bank loans.
Import volumes have continued to decrease during the second half of 2008 and the beginning of 2009.
Our four wet lines performed according to expectations and produced 807,300 tonnes during 2008. Following the commissioning of Line #6, Steppe Cement produced clinkers for inventory. Its production will be increased progressively through 2009 and will reach its full 800,000 tonnes capacity per year when Steppe Cement completes the second string of the pre-heater. Steppe Cement plans to meet demand first from Line #6 and then from the wet lines.
Steppe Cement has decided to slow down further investment in Dry Line #5 ("Line #5") with an expected annual production capacity of 1.4 million tonnes) until Steppe Cement has greater clarity on the size of the market and the prevailing prices. Steppe Cement estimates that an additional USD25 million is needed to complete Line #5. Steppe Cement intends to continue with its construction as soon as market conditions permit.
The team to run Line #6 has been assembled and Steppe Cement will maintain a skeleton team to work on Line #5. In 2008, Steppe Cement experienced a small decrease of 2% in the sales volume, mostly in the last three months of the year. Prices fell by 9% overall for the year but the decrease was sharper in the second half of 2008.
The available production capacity in Kazakhstan outstrips the demand in the last two months of 2008. As a result, all cement companies in Kazakhstan either curtailed operations or stockpiled inventories through the winter.
The overall cement market decreased by 25% in 2008 and a similar further decrease is anticipated in 2009.
The market demand for cement in 2008 decreased by 25% to 5.7 million tonnes as GDP growth slowed to 3% per annum in 2008 from 10% per annum in 2007. Currently, Steppe Cement estimates the demand for cement in 2009 to contract further by approximately 25%, to about 4.5 million tonnes, due to continuing limited credit availability. The size of the 2009 market will not be visible until the spring construction season begins. Nevertheless, it is expected that Steppe Cement will be able to increase its volumes as Steppe Cement continues to replace imports through aggressive pricing which Steppe Cement could afford due to Steppe Cement's competitive cost structure. Prices in the neighbouring countries are slightly higher than in Kazakhstan and transportation costs remain significant, so Steppe Cement expects imports to decrease to approximately 10% of the market in 2009 from 30% in 2008. Russia and other neighbouring countries are experiencing a macro economic situation similar to the one in Kazakhstan.
After the drop of prices in the last months of 2008 and the beginning of 2009, Steppe Cement expects prices to remain flat during the remaining of 2009.
Steppe Cement dedicated much of its cash flows in 2008 to the refurbishment project. In 2009, Steppe Cement intends to apply available cash flows to repay the existing loans and credit lines. As a result, Steppe Cement does not anticipate to distribute any dividends to shareholders in 2009.
Costs: Inflation for our inputs is now contained and Steppe Cement does not expect any increases in utilities or salaries.
Costs increased during the first half of 2008 but remained relatively stable subsequently due to lower oil and commodity prices in the second half of 2008 as well as to a lack of credit. Overall, utility and coal prices were significantly higher in 2008 than in 2007 but coal prices are now stable or cheaper than last year. Transport prices started to fall in late 2008 and this trend continued todate in 2009.
Steppe Cement has initiated a program to optimize the use of in-house labor in the wet lines. Steppe Cement has subcontracted certain departments to external companies. In cooperation with the local authorities, Steppe Cement has encouraged retraining and redeployment in other companies. Steppe Cement intends to maximize the productivity of the remaining work force. As of 31 March 2009, the labor force of the wet lines had been reduced from 1316 average in 2008 to 1073 people. Further improvements in production efficiency and optimization are expected to follow. The dry lines currently have a total headcount of 240.
Effective 1st January 2009, the Kazakhstan Government reduced the VAT and corporate income tax rates from 13% to 12% and from 30% to 20% respectively. The reduction in taxes will have a positive impact on Steppe Cement's cash flows although it is expected for Karcement JSC to take a longer time to recover its substantial accumulated import VAT.
Wet lines output remains stable; the wet lines will be used to supplement production according to market demand
The four kilns production capacity increased slightly in 2008. In 2009, Steppe Cement plans to commission a new chain system in two kilns and re-commissioning of Cement Mill #6.
The limestone quarry license was extended by 25 years until 2043.
Line #6 refurbishment project completed and Line #5 is on stand by
Steppe Cement completed the commissioning of Line #6 in October 2008. Clinkers of increasing quality were produced for stock. No cement was sold from the dry lines in 2008 until receipt of the official license for commercial operations. Steppe Cement received all remaining licenses during the first quarter of 2009. As a result, the five year tax holiday will start from the 5th of February 2009.
Steppe Cement will devote the rest of 2009 to improve the productivity and stability of Line #6 with minimal investment and to optimize the output of the four 80 tonnes/hour cement mills.
Steppe Cement aims to reduce production costs and fixed expenses to remain competitive in the market place.
The local authorities have stood by the Company during 2008 and Steppe Cement and the board of Directors would like to thank them, our shareholders and the main banks - EBRD, HSBC, Halyk and Centercredit - for their continuing support.
Javier del Ser
Chief Executive Officer
Annual report and Annual General Meeting 2009
Steppe Cement expects to release its 2008 Annual Report on its web site www.steppecement.com during the week commencing 20 April 2009.
The Company's Annual General Meeting will take place in London at offices of Hanson Westhouse Limited, 12th Floor, One Angel Court, London EC2R 7HJ, England on Thursday, 7 May 2009 at 2.00 p.m.
Steppe Cement's AIM nominated adviser is RFC Corporate Finance Ltd.
Contact Stephen Allen or Trinity McIntyre on +61 8 9480 2500.
STEPPE CEMENT LTD
(Incorporated in Labuan FT, Malaysia under the Offshore Companies Act, 1990)
AND ITS SUBSIDIARY COMPANIES
INCOME STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2008
| | | | | | | | | |
| | | The Group | | | | The Company | | |
| | | 2008 | | 2007 | | 2008 | | 2007 |
| | | USD | | USD | | USD | | USD |
| | | | | | | | | |
| Revenue | | 91,525,652 | | 100,824,297 | | 100,000 | | 100,000 |
| | | | | | | | | |
| Cost of sales | | (40,859,535) | | (31,821,857) | | - | | - |
| | | | | | | | | |
| Gross profit | | 50,666,117 | | 69,002,440 | | 100,000 | | 100,000 |
| | | | | | | | | |
| Selling expenses | | (7,536,189) | | (5,331,059) | | | | - |
| | | | | | | | | |
| General and administrative | | | | | | | | |
| expenses | | (13,892,248) | | (9,236,831) | | (591,711) | | (707,799) |
| | | | | | | | | |
| Operating profit/(loss) | | 29,237,680 | | 54,434,550 | | (491,711) | | (607,799) |
| | | | | | | | | |
| Investment income | | 21,545 | | 197,120 | | - | | 5,085 |
| Finance costs | | (2,804,520) | | (2,100,779) | | - | | - |
| Other income/(expense), net | | 180,640 | | 1,071,835 | | 2,524 | | (2,651) |
| | | | | | | | | |
| Profit/(Loss) before income tax | | 26,635,345 | | 53,602,726 | | (489,187) | | (605,365) |
| | | | | | | | | |
| Income tax expense | | (7,993,412) | | (16,377,433) | | - | | - |
| | | | | | | | | |
| Profit/(Loss) for the year | | 18,641,933 | | 37,225,293 | | (489,187) | | (605,365) |
| | | | | | | | | |
| Attributable to: | | | | | | | | |
| Shareholders of the Company | | 18,641,933 | | 37,225,293 | | (489,187) | | (605,365) |
| | | | | | | | | |
| Earnings per share: | | | | | | | | |
| | | | | | | | | |
| Basic (cents) | | 16 | | 33 | | | | |
BALANCE SHEETS
AS OF 31 DECEMBER 2008
| Assets | | | | | | | | |
| | | The Group | | | | | | |
| | | 2008 | | 2007 | | 2008 | | 2007 |
| | | USD | | USD | | USD | | USD |
| | | | | | | | | |
| Non-Current Assets: | | | | | | | | |
| Property, plant and equipment | | 172,250,501 | | 123,064,383 | | - | | - |
| Investment in subsidiary companies | | - | | - | | 26,500,001 | | 26,500,001 |
| Advances paid | | 9,145,506 | | 19,958,584 | | - | | - |
| Other assets | | 33,492,095 | | 9,564,717 | | - | | - |
| | | | | | | | | |
| Total Non-Current Assets | | 214,888,102 | | 152,587,684 | | 26,500,001 | | 26,500,001 |
| | | | | | | | | |
| Current Assets | | | | | | | | |
| Inventories, net | | 20,508,732 | | 9,605,742 | | - | | - |
| Trade receivables, net | | 957,932 | | 553,845 | | - | | - |
| Amount owing by subsidiary companies | | - | | - | | 746,873 | | 656,861 |
| Other receivables, advances and prepaid expenses | | 8,950,510 | | 13,711,356 | | 3,467 | | 1,320 |
| Short-term investments | | 2,391,437 | | - | | | | - |
| Cash and bank balances | | 729,636 | | 5,573,108 | | 135,408 | | 169,271 |
| | | | | | | | | |
| Total Current Assets | | 33,538,247 | | 29,444,051 | | 885,748 | | 827,452 |
| | | | | | | | | |
| Total Assets | | 248,426,349 | | 182,031,735 | | 27,385,749 | | 27,327,453 |
| | | | | | | | | |
| Equity and Liabilities | | | | | | | | |
| | | | | | | | | |
| Capital and Reserves | | | | | | | | |
| Share capital | | 1,140,000 | | 1,140,000 | | 1,140,000 | | 1,140,000 |
| Share premium | | 26,646,982 | | 26,646,982 | | 26,646,982 | | 26,646,982 |
| Revaluation reserve | | 3,364,936 | | 4,601,668 | | - | | - |
| Translation reserve | | 5,400,137 | | 5,589,530 | | - | | - |
| Retained earnings/ (Accumulated loss) | | 92,369,081 | | 72,490,416 | | (2,368,194) | | (1,879,007) |
| | | | | | | | | |
| Total Equity | | 128,921,136 | | 110,468,596 | | 25,418,788 | | 25,907,975 |
| | | | | | | | | |
| Non-Current Liabilities | | | | | | | | |
| Bonds | | 22,871,578 | | 22,731,206 | | - | | - |
| Loans | | 55,089,531 | | 24,588,764 | | - | | - |
| Deferred tax liabilities, net | | 9,547,203 | | 11,671,362 | | - | | - |
| | | | | | | | | |
| Total Non-Current Liabilities | | 87,508,312 | | 58,991,332 | | - | | - |
| | | | | | | | | |
| Current liabilities | | | | | | | | |
| Trade payables | | 12,341,535 | | 5,292,633 | | - | | - |
| Other payables and accrued liabilities | | 2,855,764 | | 4,803,803 | | 666,191 | | 678,572 |
| Loans | | 14,987,979 | | 276,168 | | - | | - |
| Amount owing to subsidiary companies | | - | | - | | 1,300,770 | | 740,906 |
| Taxes payable | | 1,811,623 | | 2,199,203 | | - | | - |
| | | | | | | | | |
| Total Current Liabilities | | 31,996,901 | | 12,571,807 | | 1,966,961 | | 1,419,478 |
| Total Liabilities | | 119,505,213 | | 71,563,139 | | 1,966,961 | | 1,419,478 |
| | | | | | | | | |
| Total Equity and Liabilities | | 248,426,349 | | 182,031,735 | | 27,385,749 | | 27,327,453 |
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2008
| | | | Non-distributable | | | | | | Distributable | | |
| The Group | Share capital | | Share Premium | | Revaluation reserve | | Translation reserve | | Retained earnings/(Accumulated loss) | | Total/Net |
| | USD | | USD | | USD | | USD | | USD | | USD |
| | | | | | | | | | | | |
| Balance as at 1 January 2007 | 1,140,000 | | 26,646,982 | | 6,491,683 | | 1,530,917 | | 33,375,108 | | 69,184,690 |
| Exchange differences arising on translation of foreign subsidiary companies | - | | - | | - | | 4,058,613 | | - | | 4,058,613 |
| Profit for the year | - | | - | | - | | - | | 37,225,293 | | 37,225,293 |
| Depreciation 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 |
| | | | | | | | | | | | |
| | | | Non-distributable | | | | | | Distributable | | |
| The Group | Share capital | | Share Premium | | Revaluation reserve | | Translation reserve | | Retained earnings/(Accumulated loss) | | Total/Net |
| | USD | | USD | | USD | | USD | | USD | | USD |
| | | | | | | | | | | | |
| Balance as at 1 January 2008 | 1,140,000 | | 26,646,982 | | 4,601,668 | | 5,589,530 | | 72,490,416 | | 110,468,596 |
| Exchange differences arising on translation of foreign subsidiary companies | - | | - | | - | | (189,393) | | - | | (189,393) |
| Profit for the year | - | | - | | - | | - | | 18,641,933 | | 18,641,933 |
| Depreciation of revaluation reserve | - | | - | | (1,236,732) | | - | | 1,236,732 | | - |
| | | | | | | | | | | | |
| Balance as at 31 December 2008 | 1,140,000 | | 26,646,982 | | 3,364,936 | | 5,400,137 | | 92,369,081 | | 128,921,136 |
| | | | Non-distributable | | | | |
| The Company | Share capital | | Share premium | | Accumulated loss | | Total/Net |
| | USD | | USD | | USD | | USD |
| Balance as at 1 January 2007 | 1,140,000 | | 26,646,982 | | (1,273,642) | | 26,513,340 |
| Loss 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 |
| | | | | | | | |
| Balance as at 1 January 2008 | 1,140,000 | | 26,646,982 | | (1,879,007) | | 25,907,975 |
| Loss for the year | - | | - | | (489,187) | | (489,187) |
| | | | | | | | |
| Balance as at 31 December 2008 | 1,140,000 | | 26,646,982 | | (2,368,194) | | 25,418,788 |