ANNUAL REPORT
2016
Plant Location In Kazakhstan
AKTOBE
ATYRAU
ASTANA
KARAGANDA
SEMEY
AKTAU
ALMATY
SHYMKENT
2
Steppe Cement Ltd. Contents
04 - Financial Highlights
05 - Operational and Market Data
06 - Financial Ratios
07 - Corporate Information
08 - Chairman’s Statement
10 - CEO’s Statement
14 - Group Structure
15 - Board Of Directors
16 - Senior Management Karcement JSC & CAC JSC
18 - Corporate Governance Statement
24 - Financial Statements
98 - Statement by a Director
99 - Notice of Annual General Meeting
3
Annual Report 2016 Financial Highlights
Revenue (USD Million)
128.0
120.2
116.6
93.6
EBITDA* (USD Million)
52.4
28.7
24.9
2012
2013
2014
2015
2016
Profit/Loss after Tax (USD Million)
10.5
8.4
22.7
17.4
9.7
2012
2013
2014
2015
2016
*
excluding foreign exchange gain/ losses arising on
devaluation of the Tenge.
Shareholders Fund (USD Million)
0.2
2012
2013
2014
2015
2016
154.6
149.2
3.4
117.6
7.9
56.7
58
2012
2013
2014
2015
2016
4
Steppe Cement Ltd. Operational and Market Data
12.1
11.1
10.8
10.2
9.6
79
74
60
49
28
1.64
1.61
1.57
1.37
1.35
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
Ex-factory price (KZT’000)
Ex-factory price (USD)
Sales volume (million tonnes)
19
19
17
17
17
82
80
76
86
84
9.6
9*
8.5
8.1
7.0
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
Market Size (million tonnes)
* estimated
Market share (%)
Capacity utilisation (%)
342
222
180
152
149
2012
2013
2014
2015
2016
Average exchange rates (USD/KZT)
5
Annual Report 2016 Financial Ratios
Ratios
2012
2013
2014
2015
2016
Gross profit margin (%)
40
42
31
Profit / (Loss) after tax margin (%)
Net earnings / (Loss) per share (cents)
Return on shareholders funds (%)
7
5
6
8
5
7
(7)
(4)
(7)
NTA Per Share (cents per share)
68
71
54
36
(4)
(2)
(6)
26
30
0
0
0
27
Shares data
Number of shares issued (million)
219
219
219
219
219
6
Steppe Cement Ltd. Listing
London Stock Exchange AIM Market,
London
Since 15 September 2005
AIM Stock Code
STCM
Bloomberg Ticker
STCM LN
Reuters Ticker
STCM L
Company Registration
LL04433
Country of incorporation
Federal Territory of Labuan, Malaysia
Registered Address
Brumby Centre
Lot 42, Jalan Muhibbah
87000 Federal Territory of Labuan
Malaysia
Head Office Address
Suite 10.1, 10th Floor
Rohas Perkasa, West Wing
No.8, Jalan Perak
50450 Kuala Lumpur
Malaysia
Main Country of Operation
(Operating Subsidiaries’ Address)
472380, Aktau Village
Karaganda Region
Republic of Kazakhstan
Company Secretary
TMF Trust Labuan Limited
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Nominated Advisor
RFC Ambrian Limited
Level 14, 19-31 Pitt Street
Sydney, NSW 2000
Australia
Level 28, QV1 Building
250 St Georges Tce
Perth, Western Australia 6000
Broker
RFC Ambrian Limited
Level 5, Condor House
10 St Paul’s Churchyard
Londond EC4M 8AL, United Kingdom
Group Auditor
Deloitte & Touche PLT
Unit 3(I2) Main Office Tower
Financial Park Labuan Complex
Jalan Merdeka, 87000
Wilayah Persekutuan Labuan
Malaysia
UK Registrar
Computershare Investor Services PLC
PO Box 82
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
Bankers
Halyk Bank JSC
Altyn Bank JSC
VTB Bank Kazakhstan JSC
Solicitor
BMF Group LLP
Alatau Business Center
151 Abay Street, Almaty
050009, Republic of Kazakhstan
Adelaida Legal Group, LLP
12/1 Kunayev Street, Block 5B, 4th floor,
Office #1, Astana
010000, Republic of Kazakhstan
7
Annual Report 2016
Chairman’s Statement
“For the first time in the recent years,
industry capacity marginally exceeded
demand. This situation will most likely
persist through 2017. As regards 2018
and beyond, the supply-demand
balance will depend on when the last
factory currently under construction is
commissioned and what market demand
will be at that time.”
the multi-year capital
During 2016 and as anticipated in last year’s report,
Steppe Cement experienced significant adverse
impacts from external economic pressures and
increased domestic competition, both of which
factors were beyond its control. Their effects will
be mitigated, however, by the favorable impacts
investment and
from
maintenance program to enhance the performance
of the two dry lines together with the continued
streamlining of operations, both of which measures
will result in increased internal efficiencies. Also
within management’s control was the further overall
reduction of the Company’s bank borrowings and
refinancing the balance of the hard currency debt at
a lower interest rate while also saving withholding
taxes. Spreading lower repayments over a longer
period will maximize available cash flow
for
operational purposes.
The overall growth rate of the Kazakh economy
slowed further from 1.2% in 2015 to an anemic low of
1% in 2016 although economic activity appeared to
strengthen towards the end of the year. This lackluster
performance, the worst in two decades, resulted
primarily from the continuing low commodity prices
in the oil and minerals sectors. On the positive side,
the exchange rate of the Tenge (“KZT”) generally
stabilized for the year at an average of USD/KZT 342
(despite a significant spike in January) as compared
with the USD/KZT 222 average in 2015 – a 54%
depreciation. The inflation rate thus subsided from
the double-digit year-on-year levels in 2015 to 8.2%
for 2016, marginally above the government targeted
band.
As regards to competition, the full-year effect of
the two newest competing dry lines in the south
(Shymkent, Standard Cement) that had started
operating during 2015 was also felt in terms of prices
and volumes. For the first time in the recent years,
industry capacity marginally exceeded demand. This
situation will most likely persist through 2017. As
regards 2018 and beyond, the supply-demand
balance will depend on when the last factory
currently under construction is commissioned and
what market demand will be at that time. The current
pricing environment is not favorable to further new
investments in the sector.
The volume of cement sold by Steppe Cement
decreased by 4% to 1,570,140 tonnes in 2016 from
1,643,136 tonne in 2015 although a market share of
about 17% was maintained. The resulting decrease of
8% in consolidated turnover in Tenge terms stemmed
from the lower volumes and the downwards pressure
on the average price for delivered product which
averaged 11,426 KZT/tonne in 2016 versus 11,890
KZT/tonne in 2015 (also a 4% decrease). However,
because of the full-year effect of the currency’s 2015
devaluation, turnover in US Dollar terms was reduced
by 44% to USD52.5 million from USD93.6 million.
8
Steppe Cement Ltd.
Prices for raw material inputs were contained at the
inflation rate. The reliability of the milling department
to handle peak period volumes was significantly
improved as were logistical facilities such as silos,
loading areas and bagging facilities. With respect to
the latter, Steppe Cement is actively expanding its
capabilities in the bagging area not only so as to be
able to bag up to 30% of its production in the near
future but also to expand its offerings to big bags
and 25kg bags. In addition, expanded production
of M500 is also under implementation in order to
compete more effectively in that market. Overall,
the disbursement for these investments were mostly
completed during the first four months of 2016
although the implementation took most of 2016. In
2017, all but the most essential capital expenditures
have been placed on hold due to the present
uncertain commercial environment. Line 5 worked
at 84% of its 1.1 million tonne capacity. Line 6 only
produced at 74% of its 800,000 tonne capacity,
mostly due to an extended planned shut-down for
maintenance and upgrade to 900,000 tonnes.
2016 EBITDA of USD9.7 million represented a
reduction of 57% from the USD22.7 million achieved
in 2015 largely due to the devaluation and lower
prices. Notwithstanding, a minimal net profit after-
tax of USD0.2 million represented a positive trend
as compared with the net losses of USD3 and USD8
million sustained in 2015 and 2014, respectively,
caused by the progressive devaluation and the
existence of borrowings in USD. The 24% increase
in the Company’s share price over the year to 18p,
admittedly from the very low base of 14.5p following
the devaluation, represented a recognition of
management’s strategic moves but is far from the
replacement value of the Company.
The Company modified its sales strategy during the
fourth quarter of 2016 by opting to maintain higher
prices at the expense of its market share. This policy
has been continued until the present. The average
ex-factory selling price so far in 2017 was therefore
14% higher than last year but, in the first quarter,
market share fell to 10% from 16% the previous
year. The Company has decided to continue this
market strategy into May but subject to a constant
review of market conditions. With its substantial
inventory of clinker and low operating costs, it will
be possible to enter the market decisively during the
peak season whatever the competitive conditions
might dictate as well as with an eye to the modest
in country-wide production capacity
increase
anticipated to come on line in 2018.
Although the first two months of 2017 witnessed a
small increase in construction spending according to
the statistics department, overall demand for cement
fell 10% during the first four months of 2017 but was
compensated with more than double the volume of
exports. Overall, the industry’s shipments were only
reduced by 3%. Three of the eight cement producers
accounted for all this shortfall, including Steppe
Cement which suffered a 30% reduction in volume.
For the entire year 2017, an approximate reduction
of 6% in the overall market size, to 8.5 million tonnes
is anticipated while exports will continue to increase
as long as the exchange rate is favorable. While a
slowdown in construction is expected in Astana due
to the EXPO 2017, it is expected that construction in
other regions will increase.
I am yet again pleased to report that this year’s audit
report included no qualifications. The auditors have
expressed to me that Steppe Cement appears in a
much better financial position at the end of 2016
than 2015 and 2014.
At this point in time, Steppe Cement appears well-
positioned with respect to its competition. The two
dry lines still constitute the single largest cement
plant in Kazakhstan. Technically, needed production
improvements have been identified and the ongoing
capital investment and maintenance programs are
enabling the kilns to approach their anticipated
production efficiencies and capacities. The existing
core of experienced technical, production and
administrative personnel remains largely intact and
motivated. Financially, the reduced and restructured
debt represents one of the lowest financial gearings
in Kazakhstan and the Company’s excellent banking
relationships will allow the greatest degree of
commercial flexibility in the current competitive
environment. Steppe Cement should, as a result, be
able to make a rapid return to solid profitability when
the market dynamics improve.
Having served as an independent non-executive
member of your Board since April 2007 and as
Chairman for the last two years, I will not be
standing for re-election this year. The last ten years
have witnessed an exceptional transformation of
Steppe Cement to a low-cost dry lines cement
producer. None of this would have been possible
without the vision, dedication and skill not only
of the management team but of the employees
themselves. Hats off to all of them! Notwithstanding
the difficult economic times, your Company is today
better positioned than ever to survive and prosper.
Paul Rodzianko
Non-Executive Chairman
9
Annual Report 2016 CEO’s Statement
“We expect the demand to drop in the
Astana region with the completion of the
Expo 2017 but grow in infrastructure and
smaller cities development. Population
continues to concentrate in the cities and
population growth is occurring mostly in
the southern regions and around Astana.”
The 2016 results versus 2015 were conditioned by
the sharp devaluation of the Kazakhstan Tenge (KZT)
in August 2015 against our reporting currency. The
weakness of the KZT against the rouble allowed the
market to cut imports down and increase exports
significantly. The overall domestic market went down
by 6% and our sales volume decreased by 4% while
the price in KZT decreased by 4%.
In 2016 we produced exclusively from the dry lines
and our cost of production increased in line with
official inflation of 8.5%.
Steppe Cement operated Line 5 at 84% of its current
capacity (1.1 million tonnes) and Line 6 at 74% of
capacity (0.8 million tonnes) as we took an extended
repair period to increase its reliability and capacity
for 2017. We expect to increase the capacity of Line
6 to 0.9 million tonnes.
Shareholders’ funds increased marginally to USD58
million from USD56.7 million over the year. The
assets remain many times undervalued compared to
their replacement costs due to the devaluation of the
local currency.
In 2016 Steppe Cement posted a marginal net
profit of USD 0.2 million. Steppe Cement’s EBITDA
decreased to USD 9.7 million from USD 22.7 million
in 2015 mostly due to the devaluation of the KZT
against the USD, lower pricing and the reversal of
provision of electricity charges.
The overall market volume decreased by 6%
in 2016 and we expect the trend to continue
in 2017
The Kazakh cement market in 2016 was 9 million
tonnes, a decrease of 6% compared to 9.6 million
tonnes in 2015. The devaluation made imports
decrease by 63% to 0.47 million tonnes and exports
increase by 270% to 0.41 million tonnes. The local
producers’ market share increased to 94%.
Our expectations are that overall market demand
in 2017 will decrease by 5 to 10%. The demand
depends upon the government investment plans and
macroeconomic situation. We expect the demand
to drop in the Astana region with the completion
of the Expo 2017 but grow in infrastructure and
smaller cities development. Population continues to
concentrate in the cities and population growth is
10
Steppe Cement Ltd.
Key financials
Year ended
31-Dec-2016
Year ended
31-Dec-2015
Inc/
(Dec)%
Sales (tonnes of cement)
1,570,140
1,643,136
Consolidated turnover (KZT million)
Consolidated turnover (USD Million)
Consolidated profit/(loss) before tax (USD Million)
Consolidated profit/(loss) after tax (USD Million)
Profit/(loss) per share (US cents)
Shareholders’ funds (USD Million)
Average exchange rate (USD/KZT)
Exchange rate as at year end (USD/KZT)
17,941
52.5
0.7
0.2
0.1
58.0
342
333
19,537
93.6
(8.8)
(3.4)
(1.5)
56.7
222
339.5
(4%)
(8%)
(44%)
108%
106%
107%
2%
(54%)
1%
occurring mostly in the southern regions and around
Astana.
Capital investment in 2016 took advantage of
the availability of subsidized credit line
After the sharp devaluation of KZT, exports continue
to increase from 0.1 million tonnes in 2015 to 0.4
million in 2016 helping local companies increase
slightly their overall volumes. The companies
that increased more were Standard Cement and
Shymkent Cement both with new commissioned dry
kilns.
In 2017, the local cement factories should increase
significantly again their export levels to try to
compensate the drop in domestic demand while
imports will remain contained to regions near the
Russian border.
Steppe Cement’s average cement selling prices
decreased by 4% in KZT and by 39% in USD
(equivalent to 33.4 USD per tonne) due to the
devaluation of the KZT.
During 2016 capital investment was increased to
USD4.8 million from USD2 million in 2015.
Steppe Cement obtained a credit facility of 1.69
billion denominated in KZT at 6% and repayable
over 10 years. The facility was used mostly in the
first four months of 2016 to improve the reliability
of the milling department and in logistics i.e. silos,
loading areas, bagging plant capacity increase and
the terminal in Astana.
Cost were increased in line with inflation and
were affected but the extended maintenance
period of Line 6
Average cash production of cement in KZT increased
in line with inflation but was reduced to USD21/
tonne from USD30/tonne in 2015.
Line 5 produced 923,243 tonnes of cement while
Line 6 produced 594,429 tonnes as it was shut
down for extended maintenance in the spring.
Selling expenses, reflecting mostly cement delivery
costs, were reduced to USD 5/tonne from USD 8/
tonne in 2015.
11
Annual Report 2016 principal to VTB Bank before we refinanced the
balance of long term loans with Halyk Bank to save
withholding tax. The effective interest rate in the long
term loans in USD went down from 7.8% to 6.3%.
In the first six months of 2016 we completed the
draw down of the subsidized investment capital loan
of KZT 1.69 billion (equivalent to USD4.9 million) for
10 years at 6%.
General and administrative expenses
General and administrative expenses decreased by
41% to USD 4.7 million from USD 8 million in 2015
due mostly to management efforts and the effect of
devaluation.
The labour count stood at 724 on 31 March 2017
compared with 785 on 31 March 2016. We will
continue to optimize the labor count until the end
of 2017.
Dry lines’ improved operating performance
In 2016, Line 5 contributed 60% of sales and Line
6 the balance. After the repairs in Line 6 that took
place in the spring, its capacity has increased and it
will be available for the summer 2017.
Line 5’s current capacity is 1.1 million tonnes of
cement and Line 6 is 0.9 million tonnes.
Financial position: Continuous debt reduction
and compliance with ratios
During the year we maintained our non-current
portion of borrowings from USD14.9 million to
USD15.4 million. We repaid USD 7.3 million in
12
Steppe Cement Ltd. The current portion of borrowings was reduced from
USD 15.8 million in 2015 to USD11 million in 2016 as
we controlled the draw down of the short-term lines
and limited the cash position at the end of year to
USD1 million from USD2.4 million at 31 December
2015. We consider the risk of further devaluation
is now much lower and therefore we have chosen
to borrow short term mostly in USD this winter as
the interest differential was 10%. Therefore we have
been borrowing at 6% in USD during the first quarter
of 2017.
In KZT we maintain three short term credit lines
available:
• A KZT 3 billion from Halyk Bank that includes
a government subsidized program of KZT0.5
billion in KZT at 6%.
• A line of 0.9 billion KZT from Altyn Bank .
• A working capital loan from VTB Bank Kazakhstan
for 1 billion at 12.5% signed in March 2017.
In 2016 finance costs decreased to USD2.8 million
from USD4.2 million in 2015 due to the continuous
repayment of loan principals.
All covenants under the various credit lines have
been met comfortably.
Depreciation decreased to USD6.8 million in 2016
from USD10.7 million in 2015 mostly due to the
exchange rate.
The statutory corporate income tax rate remains at
20% in Kazakhstan.
Javier del Ser
Chief Executive Officer
13
Annual Report 2016
GROUP STRUCTURE
100%
Mechanical and Electrical
Consulting Services Ltd
(Malaysia)
100%
Steppe Cement (M) Sdn Bhd
(Malaysia)
100%
Steppe Cement Holdings B.V.
(Netherlands)
100%
100%
100%
Central Asia Cement
JSC
(Kazakhstan)
Karcement JSC
(Kazakhstan))
Central Asia Services LLP
(Kazakhstan))
14
Steppe Cement Ltd.
Board of Directors
Paul Rodzianko
(Non-Executive Chairman)
Paul Rodzianko, 71, is an international
business
extensive
executive with
experience in the energy, infrastructure
and green technology sectors. He serves
or has served as a senior executive or
as Chairman of several companies in
the Russian Federation, the Republic of
Georgia, Kazakhstan, Sweden and the US.
These include Kavkaz Cement, GreenFuel
Technologies, Access Industries, CNPC
Aktobemunaigas, Bogatyr Access Komir,
Tyumen Oil Company, Energibolaget
i Sverige, Mt. Hope Hydro, Grace
Geothermal, and General Electric. He
has represented Access at the President’s
Foreign Investor Council in Kazakhstan
and as Vice-Chairman of the Board of
the US-Kazakhstan Business Association.
He serves on the boards of the US-Russia
Business Council and the Kennan Council.
Currently, he volunteers concurrently as
Vice-Chairman of the American-Russian
Cultural
Foundation;
Cooperation
the Hermitage
Chairman Emeritus of
Museum Foundation (USA), and Director
of the Russian Orthodox Theological Fund.
Paul holds a B.A. from Princeton University
and an M.A. from the Institute of Critical
Languages. He is a Fellow of The Explorers
Club and the Royal Geographic Society.
Javier Del Ser Perez
(Chief Executive Officer)
Javier del Ser Perez 51, is a Chartered Engineer (Spain),
master in Structural Engineering and has a degree in
Finance from HEC. Javier has lived in Kazakhstan since
1996, when he was appointed as the Investment Adviser
to a large investment fund focused on the country. It
was through this role that Javier first became involved
with the Group’s cement business. He is the Chairman
of the Company’s operating subsidiaries, Central Asia
Cement and Karcement. Javier has other business
interests in Kazakhstan, including being a Director and
large shareholder in the Chagala Group. Javier is also a
Director of Steppe Cement Holding B.V. and Mechanical
and Electrical Consulting Services Ltd.
Xavier Blutel
(Non-Executive Director)
Xavier Blutel, 62, is currently the Senior Adviser, Wagram
Corporate Finance, President and founding partner of SAS
Baudrimont and a Conseiller du Commerce Extérieur de
la France. Xavier Blutel spent 33 years as an international
executive in capital intensive industries such as the
cement industry, with Italcementi Group and Ciments
Français Group, and the petrochemicals industry. Besides
managing various operations in numerous countries, he
was actively involved in screening approach, negotiation
and integration of new acquisitions, disposals of non-core
businesses and potential mergers. He also spent 6 years
(2002-2007) in international lobbying and developed and
implemented the Sustainable Development approach in
Italcementi Group. He was formerly a director of Shymkent
JSC and Beton ATA LLP from 2008 to 2013.
15
Annual Report 2016 Senior Management
MANAGEMENT AND STAFF OF KARCEMENT JSC
MANAGEMENT AND STAFF OF CENTRAL ASIA CEMENT JSC
16
Steppe Cement Ltd. MANAGEMENT OF KARCEMENT JSC
Gan Chee Leong
General Director
from
is a Chartered Accountant
Gan
England and Wales. He started work in
Kuala Lumpur as a senior auditor with
a well-known international firm. He has
about 23 years of experience in cement
industry
in various capacities. Before
joining CAC and Karcement, he was GM-
marketing of a leading cement company
in Malaysia and held various directorships
within the Group companies He also held
a number of positions in the Cement and
Concrete Association Malaysia and was
once the Deputy Secretary General of Asian
Federation of Cement Manufacturers.
George Ramesh
Operation Director
A Mechanical Engineer by profession with
a Master degree in Business Management
(Finance & Marketing) from India. He has
about 24 years’ of vast experience in the Dry
process cement industry in various countries
(India, Malaysia & Singapore), handled
plant improvement projects, operational
reliability, methodology development and
maintenance. Before joining Karcement in
September 2007, he worked as Maintenance
& Project Manager for Holcim (Malaysia) and
prior to that, with Lafarge (Malaysia). He was
the Project Manager of the Line 5 dry line
modernization Project in Karcement which
was successfully commissioned in 2014.
P. Sampathkumar
Head of Production
He is a Chemistry graduate with a Master
degree
in Sociology, Post Graduate
Diploma holder in Personnel Management
& Industrial Relations and also a holder
of Technical Diploma in Total Productive
Maintenance (Gemba Kaizen).
He has extensive experience of more than
33 years in the operation of all types of
kilns right from wet process to modern
kilns. He specializes in process stabilization
and optimization.
He has worked in India, Iraq, and UAE with
companies like ACC Ltd – (Now HOLCIM)
and Lafarge.
G. Srinivasa Reddy
Head of Maintenance
A Mechanical Engineer from India and
graduated
from Prestigious Regional
Engineering College, Warangal. He has
the cement
extensive experience
industry for more than 23 years in projects,
maintenance and operation in various
capacities. He has worked in The India
cements Ltd, Dalmia Cements (B) Ltd., and
Holcim India before joining Karcement in
2008. He has very good knowledge about
modern dry plant maintenance, operation,
process control and optimization.
in
Veronica Kuznetsova
Legal Department Chief
A graduate from the Legal Academy of
Kazakhstan with a Master’s Degree in Law.
She joined CAC in 2005 as a Lawyer. In 2007
she was transferred to Karcement and from
2010, she was appointed Chief of the Legal
Department.
Tkachenko Yulia Vladislavovna
Chief Accountant
In 1998 she graduated
from Buketov
Karaganda State University where she was
trained in the field of “Finance and credit”.
In 2012 she graduated with a bachelors
degree in law from Kunayev University. She
has a total work experience of 17 years, of
which Yulia worked as chief accountant
(chief economist) for more than 11 years.
She has worked in Karcement since October,
2014 and as the chief accountant since
August 2016. Yulia is a certified professional
accountant since January 2016.
Aymakasheva Svetlana Kirillovna
Quality Assurance
Svetlana graduated from Temirtau industrial
college in the field of ‘Technology of the
knitting refractory nonmetallic and silicate
products’ as process engineer in 1995. She
graduated with a bachelor’s degree from
Karaganda industrial university in the field of
‘Technology of organic substances’ in 2006.
Since July 2000 Svetlana has worked in
several positions
including QA at the
cement plant.
MANAGEMENT OF CENTRAL ASIA CEMENT JSC
PETER DURNEV
General Director
A graduate of Academy Marketing Moscow. He has
worked in CAC for about 18 years rising from marketing
executive to his present position. He also holds the
position of Marketing Director.
ZILYA KHASANOVA
Chief Accountant
She holds a bachelor degree in accounting and
audit from the Karagandy Economical University of
Kazpotrebsouz and has worked for 25 years in the
cement industry.
DEREK KUAN BOON SAN
Finance Director
Derek Kuan is a member of Malaysian Institute of
Certified Public Accountants (MICPA). He started his
career as an articled student with a local accounting firm
in Kuala Lumpur and presently has over 30 years of audit
and commercial working experience. Before joining CAC,
he held a position of financial controller based in Liberia,
after having spent 9 years in Jakarta. His expertise
encompasses audit, financial reporting, internal control
procedures, corporate finance and investment evaluation.
IRINA POLUYCHIK
Personnel Manager
An economist by qualification. She specializes in human
resources matters. She has been with CAC for more
than 25 years.
17
Annual Report 2016 Corporate Governance
The Board of Directors (“Board”) is fully committed
and strives to take the necessary measures to uphold
the best principles and practices of corporate
the Group. Good corporate
governance
governance is fundamental to the Group’s discharge
of its corporate responsibilities and accountability to
protect and enhance the financial performance and
shareholders’ value of the Group.
in
Steppe Cement is not required to comply with the
UK Combined Code of Corporate Governance
(“Combined Code”) published by the UK Financial
Reporting Council. The Combined Code applies
to companies listed on the Main Board but not AIM
companies.
The Quoted Companies Alliance
(“QCA”) has
published a set of corporate governance guidelines
for AIM companies as a minimum standard to follow.
The QCA guidelines are less rigorous than the
Combined Code and recommendations include the
following:
• Separation of Chairman and CEO roles – both
roles should not be performed by the same
individual.
• Timely information – the Board should be
supplied with timely information to discharge its
duties.
• Review of internal controls annually. The review
should encompass all material controls including
financial, operational and compliance controls
and risk management systems.
• Steppe Cement complies with
the QCA
guidelines. Nonetheless, Steppe Cement adopts
the principal requirements of the Combined
Code, as far as practicable, to ensure high
standards of corporate governance.
BOARD OF DIRECTORS
The Board’s primary objective is to protect and
enhance long-term shareholders’ value. The Board
is responsible for:
•
•
formulating the Group’s strategic direction and
major policies;
review performance of the Group and monitor
the achievement of management’s goals;
•
Independent non-executive directors – at least
two independent non-executive directors, one
of whom may be the Chairman.
• approval of the Group’s financial statements,
annual report and announcements;
• Establishment of Audit, Remuneration and
Nomination Committees and that Audit and
Remuneration Committees should comprise at
least two independent non-executive directors.
• Re-election of directors – All directors should
be submitted to re-election at regular intervals
subject to continued satisfactory performance of
the directors.
• Dialogue with shareholders – there should be
a dialogue with shareholders based on mutual
understanding of objectives.
• Matters reserved for the Board – there be a
formal schedule of matters specifically reserved
for the Board’s decision.
• approval of Group’s operational and capital
budgets;
• approval of major contracts, capital expenditure,
acquisitions and disposals;
•
•
setting the remuneration, appointing, removing
and creating succession policies for directors and
senior executives;
the effectiveness and integrity of the Group’s
internal control and management information
systems; and
• overall corporate governance of the Group.
18
Steppe Cement Ltd.
BOARD PROCESSES
The Board has established a framework for the
management of the Group including a system of
internal control, risk management practices and the
establishment of appropriate ethical standards. The
Board holds regular meetings to discuss strategy,
operational matters and any extraordinary meetings
at such other times as may be necessary to address
any specific and significant matters that may arise.
The Board has determined that individual directors
have the right qualification and experience to
perform their duties and responsibilities as directors.
Board Meetings
During the year ended 31 December 2016, 4
board meetings were held. The table below is the
attendance record of the directors.
BOARD COMPOSITION
has delegated responsibility for the day-to-day
management and operations of the Group in
accordance with the objectives and strategies
established by the Board to the Chief Executive
Officer and the senior management.
Independence
The Non-Executive Directors are responsible for
providing independent advice and are considered
by the Board to be independent of management
and free from any business or relationship that
would materially interfere with the exercise of
independent judgment as a member. No one
individual in the Board has unfettered powers of
decision and no director or group of directors is able
to unduly influence the Board’s decision making.
This enables the independent directors to debate
and constructively challenge the management
on the Group’s strategy, financial and operational
matters.
At least half of the Board comprises of independent
non-executive directors. The Board composition
reflects the balance of skills and expertise to ensure
that these are in line with the Group’s strategies.
There is a clear segregation of roles of between the
Chairman and Chief Executive Officer. The Chairman
is responsible for leadership and management of
the Board and ensures that it operates effectively
and fully discharges its responsibilities. The Board
Selection and appointment of directors
The mix of skills, business and industry experience
of the directors is considered to be appropriate for
the proper and efficient functioning of the Board.
The Board has delegated the functions of selection
and appointment of directors to the Nomination
Committee including the annual review of the
structure, size, composition and balance of the
Board.
Directors
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Paul Rodzianko
(Non-Executive Chairman)
Javier Del Ser Perez
(Chief Executive Officer)
Xavier Blutel
(Non-Executive Director)
4
4
4
4
4
N/A
N/A
4
4
4
4
4
Committee meetings are held concurrently with the board meetings.
19
Annual Report 2016 Corporate Governance
Section 87(1) of the Labuan Companies Act provides
that every company shall have at least one director
who may be a resident director. Section 87(2) states
that only an officer of a trust company established
in Labuan shall act or be appointed as a resident
director. The Company’s Articles provide that there
shall be at least one and not more than 7 directors.
If the Company’s activities increase in size, nature
and scope the size of the Board will be reviewed
periodically and the optimum number of directors
required to supervise adequately the Company is
determined within the limitations imposed by the
Company’s Articles and as circumstances demand.
Performance evaluation
The Board regularly evaluates its performance and
the effectiveness of the Board Committees. The
performance of the Chairman and individual directors
is continually assessed to ensure that each director
continues to contribute effectively and demonstrates
commitment to the role.
Re-election of directors
Every year, the directors offer themselves for re-
election and their re-election is subject to the
shareholders approval at the Company’s Annual
General Meeting.
Independent advice and insurance
The Board may seek independent consultant’s advice
at the Company’s expense in relation to director’s
rights and duties and the engagement is subject to
prior approval of the Chairman and this will not be
withheld unreasonably. The company maintains a
Directors’ and Officers’ Liability Insurance policy that
provides appropriate cover in respect of legal action
brought against its directors.
BOARD COMMITTEES
The Board has established
the Nomination
Committee, the Remuneration Committee and the
Audit Committee and delegated certain functions
to these committees as set out in each Committee’s
Terms of Reference.
Nomination Committee
The Committee comprises of majority independent
Non-Executive Directors. The Terms of Reference of
the Nomination Committee was approved by the
Board. The Nomination Committee meets at least
once a year.
The Nomination Committee’s members comprises
of:
Remuneration policy
Remuneration levels are competitively set to attract
and retain appropriately qualified and experienced
directors and senior executives. The Board has
delegated the setting of broad remuneration policy
to the Remuneration Committee. The purpose of the
policy is to ensure the remuneration package properly
reflects the person’s duties and responsibilities
and level of performance, and that remuneration is
competitive in attracting, retaining and motivating
people of the highest quality. Where necessary,
independent advice on the appropriateness of
remuneration packages is obtained.
20
1.
2.
3.
Paul Rodzianko (Chairman)
Javier Del Ser Perez
Xavier Blutel
The principal objectives of the Committee are to
review that the Board structure, size, composition
and the mix of skills and expertise to ensure that
these are in line with the Group’s strategies and to
recommend to the Board the potential candidates
for directorship. The selection criteria for selection
the potential candidates
and
include qualifications of
for directorship shall
and
knowledge
the
achievements, credibility and background and ability
of the candidates to contribute effectively to the
Board and Group.
individual, experience,
recruitment of
Steppe Cement Ltd.
The functions of the Nomination Committee include:
• Review annually
size and
composition of the Board taking into account the
Group’s strategies;
structure,
the
•
Identify and nominate the potential candidates
to the Board for approval;
• Monitor the appointment process of directors;
• Review the contracts for the Chairman, Chief
Executive Officer, Executive Directors and the
contractual terms;
• Obtain information on the remuneration of other
listed companies of similar size and industry;
• Report and make recommendations to the Board
on the Committee’s activities; and
• Recommend to the Board for approval on the re-
appointment of directors;
• Review and update the Terms of Reference every
two (2) years, or more frequently as required to
ensure its ongoing relevance and effectiveness.
• Oversee the succession planning of directors
the Group’s
into consideration of
taking
strategies;
The Remuneration Committee’s members comprises
of:
• Report and make recommendations to the Board
on the Committee’s activities; and
1.
2.
Xavier Blutel (Chairman)
Paul Rodzianko
• Review and update the Terms of Reference at
least once a year.
Audit Committee
Remuneration Committee
The Remuneration Committee comprises entirely of
independent Non-Executive Directors. The functions
of the Remuneration Committee are governed by
the Terms of Reference which was approved by the
Board. The Remuneration Committee meets at least
twice (2) a year.
The principal objectives of the Committee are to ensure
that the broad remuneration policy and practices
of the Group reflect the level of responsibilities,
performance, relevant legal requirements and high
standards of governance. In determining such policy,
the Committee shall ensure that remuneration levels
are appropriately and competitively set to attract,
retain and motivate people of the highest quality.
The Audit Committee comprises entirely of
independent Non-Executive Directors. The functions
of the Audit Committee are governed by the Terms
of Reference which was approved by the Board. The
Audit Committee meets at least three times (3) a
year.
The principal objectives of the Committee are to
monitor and review the adequacy, integrity and
compliance of the Group’s financial reporting and
policies, internal controls system and procedures
including risk management and compliance and the
external audit process. The Committee shall make
the necessary recommendations to the Board to
achieve its objectives.
The functions of the Audit Committee include:
The functions of the Remuneration Committee
include:
regulatory announcements
Group’s results;
• Review
the Group’s financial
statements,
the
to
relating
• Determine and review the broad remuneration
policy of the Chairman, Chief Executive Officer,
Executive Directors and Senior Executives;
• Review
the Group’s significant accounting
policies and practices;
21
Annual Report 2016 Corporate Governance
• Review compliance with international financial
reporting standards, regulatory and other legal
requirements;
to act with the utmost integrity and objectivity,
striving at all times to enhance the reputation and
performance of the Group.
• Review and advise the Board on the appointment,
nomination and re-appointment of the external
auditors;
• Oversee the relationship with the external
auditors, including the engagement of auditors,
the audit scope, plan,
remuneration and
objectivity;
• Evaluate and monitor
the adequacy and
effectiveness of the internal controls system
and procedures including risk management and
compliance;
• Monitor and review the performance and
effectiveness of the internal audit function;
• Report and make recommendations to the Board
on the Committee’s activities; and
• Review and update the Terms of Reference at
least once a year and recommend any changes
to the Board for approval.
The Audit Committee’s members comprises of:
1.
2.
Paul Rodzianko (Chairman)
Xavier Blutel
BUSINESS CONDUCT AND ETHICS
In the course of business, the Board acknowledges
the need to maintain high standards of business
and ethical conduct by all Directors, management
and employees of the Group. In this respect, the
Group has the responsibility to observe local laws,
customs and culture of each country in which it
operates in particular Kazakhstan and to adopt the
high standards of business practice, procedure and
integrity. All Directors and employees are expected
Conflict of interest
All Directors must keep the Board advised, on an
ongoing basis, of any interest that could potentially
conflict with those of the Group. Where the Board
believes that a significant conflict exists for a director
on a board matter, the director concerned does not
receive the relevant board papers and is not present
at the meeting whilst the item is considered. Directors
are required to take into consideration any potential
conflicts of interest when accepting appointments to
other Boards.
INVESTOR RELATIONS
The Board recognises and values the importance
of managing its relationship with the investing
community. The Board
committed and
regularly with shareholders on
communicates
the Group’s
strategy, financial performance,
developments and prospects via issuance of annual
and interim financial statements to shareholders,
stock exchange announcements and in meetings.
is
The Group’s management meets regularly with fund
managers, analysts and shareholders to convey
information about the development of the Group’s
performance and operations in Kazakhstan.
Annual General Meeting
The Annual General Meeting (“AGM”) provides
the main forum and opportunity for discussion and
interaction between the Board and the shareholders.
The Board encourages the active participation of
shareholders, both individuals and institutional at
the AGM on important and relevant matters. The
results of the AGM are announced via Regulatory
News Service to the public after the AGM.
22
Steppe Cement Ltd. assess, manage and monitor key business risks and
exposure and for evaluation of their financial impact
and other implications.
Monitoring and review mechanism
The Audit Committee is tasked to monitor and review
the adequacy and effectiveness of the internal control
system and procedures including risk management
and compliance. The Group’s internal audit function
is responsible for conducting internal audits based
on the risk-based audit plan approved annually by
the Audit Committee. The internal audit function
provides regular reports to the Audit Committee
highlighting the observations, recommendations and
management action to improve the internal control
system. The scope of work, authority and resources
of the internal audit function are reviewed by the
Audit Committee at annually. The Audit Committee
also deliberates on control issues highlighted by
the external auditors during the course of statutory
audits.
INTERNAL CONTROL
The Board places importance on the maintenance
of a strong internal control system in the Group,
including compliance and risk management practices
to ensure good corporate governance. The Board
regularly evaluates and monitors the effectiveness of
the internal control system.
Purpose
investments. The Group’s
The Group’s internal control system is designed
to safeguard the Group’s assets and enhance the
shareholders
internal
control system is designed to manage rather than
fully eliminate the risk of failure to achieve business
objectives. Therefore, that the
internal control
system can only provide reasonable but not absolute
assurance against material misstatement or loss.
Key elements
The key elements of the Group’s internal control
system are:
Control - an organisational structure is in place with
clearly defined levels of responsibility and authority
together with appropriate reporting procedures,
particularly with respect to financial information and
capital expenditure.
Financial Reporting and Budgeting – A financial
reporting and budgeting system with an annual
budget approved by the directors has been
established to monitor the performance of the
subsidiaries. The management evaluates the actual
against budget to identify and explain the causes of
the significant variances for appropriate action. The
budgets are revised regularly taking into internal and
external variables such as performance, costs, capital
expenditure requirements, macro outlook and other
relevant factors.
Risk Management and Compliance – Risk
management and compliance policies, controls
and practices are in place for the Group to identify,
23
Annual Report 2016 FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(In United States Dollar)
24
Steppe Cement Ltd. CONTENTS
Independent auditors’ report
Statements of profit and loss
Statements of profit and loss and other
comprehensive income
Statements of financial position
Statements of changes in equity
Statements of cash flows
Notes to the financial statements
Statement by a director
PAGES
26 - 31
32
33
34 - 35
36 - 38
39 - 41
42 - 97
98
25
Annual Report 2016 INDEPENDENT AUDITORS’ REPORT
REPORT TO THE MEMBERS OF STEPPE CEMENT LTD
(Incorporated in Labuan FT, Malaysia under the Labuan Companies Act, 1990)
Report on the Audit of the Financial Statements
Opinion
We have audited the financial statements of STEPPE CEMENT LTD (the “Company”), which comprise
the statements of financial position of the Company and its subsidiary companies (the “Group”) and of
the Company as of 31 December 2016, and the statements of profit or loss, statements of profit or loss
and other comprehensive income, statements of changes in equity and statements of cash flows of the
Group and of the Company for the year then ended, and notes to the financial statements, including
a summary of significant accounting policies, as set out on pages 32 to 97.
In our opinion, the accompanying financial statements give a true and fair view of the financial position
of the Group and of the Company as of 31 December 2016, and of their financial performance and
their cash flows for the year then ended in accordance with International Financial Reporting Standards
issued by the International Accounting Standards Board and the requirements of the Labuan Companies
Act, 1990 in Malaysia.
Basis for Opinion
We conducted our audit in accordance with approved standards on auditing in Malaysia and
International Standards on Auditing. Our responsibilities under those standards are further described
in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence and Other Ethical Responsibilities
We are independent of the Group and of the Company in accordance with the By-Laws (on Professional
Ethics, Conduct and Practice) of the Malaysian Institute of Accountants (“By-Laws”) and the International
Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”),
and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA
Code.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the financial statements of the Group and of the Company for the current year. These
matters were addressed in the context of our audit of the financial statements of the Group and of the
Company as a whole, and in forming our opinion thereon, and we do not provide a separate opinion
on these matters.
26
Steppe Cement Ltd. Key audit matters
How our audit addressed the key
audit matters
Impairment of property, plant and
equipment
The carrying value of property, plant and equipment
amounted to USD71.9million, representing 75%
of the total assets as of 31 December 2016.
We discussed with management the future plans
of the manufacturing entities and economic
outlook in the coming years.
During the current financial year, the directors
considered the Group’s historical performance for
two consecutive financial periods as well as the
Group’s current performance and market outlook
of the industry. Consequently, an impairment
assessment was performed to determine the
recoverable amount of the Group’s property, plant
and equipment.
The recoverable amount determined by the
directors based on a value-in-use model includes
key assumptions that are judgemental in nature
specifically in relation to the forecast cash flows,
future sales volume, discount rates and the growth
rates applied.
No impairment was recorded as the recoverable
amount calculated by the directors were in excess
of the carrying values as of 31 December 2016.
Significant judgements and inputs used in the
value-in-use model are disclosed in Note 10 to the
financial statements.
Our audit procedures
included physically
sighting the property, plant and equipment to
assess whether they are operating and in a good
condition.
We considered the appropriateness of the key
assumptions used in the value in use model
approved by the management, including those
related to forecast and to project future cash
flows, future sales volume, discount rates and
growth rates applied. In performing our audit
procedures, we validated the mathematical
accuracy of the forecasts and projections and
evaluated the pricing and volumes used in
management’s considerations taking into account
the cement market outlook in Kazakhstan. In
addition, sensitivity analysis was performed
on the key assumptions to assess the potential
impact of a range of possible outcome on the
impairment assessment.
We reviewed historical financial performance
of the subsidiaries involved in the production
and sale of cement and compared with
previous forecasts to evaluate the accuracy of
management’s budgeting process.
27
Annual Report 2016 INDEPENDENT AUDITORS’ REPORT
Key audit matters
How our audit addressed the key
audit matters
Significant debt repayment obligations
within the next 12 months
The Group manages liquidity risk, as described in
Note 26 to the financial statements by maintaining
sufficient and accessible credit lines coupled with
active monitoring of forecasts and actual cash flow
requirements. The Group’s total bank borrowings
stood at USD26.4million as of 31 December 2016
of which USD11.0million is repayable within 12
months from the year end.
The Group’s assessment of forecast cash flow
requirements include best estimates related to
future sales volume and timing of cash collections
which are uncertain. The Group continuously faces
competition among local companies in Kazakhstan,
putting pressure on its market share and selling
price.
Details of the Group’s bank borrowings and existing
credit facilities and financial risk management
objectives and policies are disclosed in Notes 20
and 26 to the financial statements respectively.
We reviewed documented evidence of new
loans and re-negotiated credit facilities during
the current financial year and reviewed the
financial covenants required by the credit
facilities.
Our audit procedures included considering
the appropriateness of key assumptions in the
manufacturing entities’ cash flows forecast and
projections for the next 5 years (including sales
volume, foreign exchange, and the availability
of borrowing facilities) and compared to past
collection trend and historical information.
We validated the mathematical accuracy of
the forecast and projections and compared
against the borrowing facilities available to the
manufacturing entities taking into account all
working capital financing agreements entered
with financial institutions at the end of the
reporting period.
We extended our audit procedures, covering
the period from the financial year end to
the date of our report, to ascertain whether
there any default in the repayment of the
matured borrowings and whether any adverse
operational events have occurred which may
hinder the ability of the Group to meet its
maturing loan commitments.
28
Steppe Cement Ltd. Information Other than the Financial Statements and Auditors’ Report Thereon
The directors of the Company are responsible for the other information. The other information comprises
the information included in the Annual Report but does not include the financial statements of the Group
and of the Company and our auditors’ report thereon.
Our opinion on the financial statements of the Group and of the Company does not cover the other
information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements of the Group and of the Company, our responsibility
is to read the other information identified when it becomes available and, in doing so, consider whether the
other information is materially inconsistent with the financial statements of the Group and of the Company
or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Statements
The directors of the Company are responsible for the preparation of financial statements of the Group and
of the Company that give a true and fair view in accordance with International Financial Reporting Standards
and the requirements of the Labuan Companies Act, 1990 in Malaysia. The directors are also responsible for
such internal control as the directors determine is necessary to enable the preparation of financial statements
of the Group and of the Company that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements of the Group and of the Company, the directors are responsible for
assessing the Group’s and the Company’s ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of accounting unless the directors either
intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to
do so.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements of the Group and
of the Company as a whole are free from material misstatement, whether due to fraud or error, and to issue
an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not
a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and
International Standards on Auditing will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
29
Annual Report 2016 INDEPENDENT AUDITORS’ REPORT
As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards
on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit.
We also:
•
Identify and assess the risks of material misstatement of the financial statements of the Group and of
the Company, whether due to fraud or error, design and perform audit procedures responsive to those
risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The
risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override
of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Group’s and of the Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by the directors.
• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s or the Company’s ability to continue as a
going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our
auditors’ report to the related disclosures in the financial statements of the Group and of the Company
or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditors’ report. However, future events or conditions may
cause the Group or the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements of the Group and of
the Company, including the disclosures, and whether the financial statements of the Group and of the
Company represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the financial statements of the Group. We
are responsible for the direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify
during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
30
Steppe Cement Ltd. From the matters communicated with the directors, we determine those matters that were of most significance
in the audit of the financial statements of the Group and of the Company for the current year and are
therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that
a matter should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
Other Matters
This report is made solely to the members of the Company, as a body, in accordance with Section 117(1) of
the Labuan Companies Act, 1990 in Malaysia and for no other purpose. We do not assume responsibility to
any other person for the content of this report.
DELOITTE & TOUCHE PLT (LLP0010197-LCA)
Chartered Accountants (AAL 0011)
LIM KENG PEO
Partner - 2939/01/18(J/PH)
Chartered Accountant
Labuan
12 May 2017
31
Annual Report 2016 STATEMENTS OF PROFIT AND LOSS
FOR THE YEAR ENDED 31 DECEMBER 2016
The Group
The Company
Note
2016
USD
2015
USD
2016
USD
2015
USD
Revenue
4
52,479,370
93,632,720
100,000
100,000
Cost of sales
Gross profit
Selling expenses
General and
administrative
expenses
Interest income
Finance costs
Net foreign exchange
gain/(loss)
Other income/(loss), net
Impairment loss on
investment
Impairment loss on
property, plant and
equipment
Profit/(Loss) before
income tax
Income tax
(expense)/credit
Profit/(Loss) for the
year
Attributable to:
Shareholders of the
Company
Earnings/(Loss)
per share:
5
6
7
8
(36,870,866)
(60,383,321)
-
-
15,608,504
33,249,399
100,000
100,000
(8,368,084)
(13,082,506)
-
-
(4,759,148)
(8,037,254)
(290,771)
(383,830)
5,205
40,584
(2,783,082)
(4,215,275)
-
-
-
-
657,937
(16,376,575)
164,559
72,203
320,449
(94,795)
-
-
-
(298,397)
-
-
-
-
(4,000,001)
-
681,781
(8,814,819)
(26,212)
(4,211,628)
(505,779)
5,433,161
-
-
176,002
(3,381,658)
(26,212)
(4,211,628)
176,002
(3,381,658)
(26,212)
(4,211,628)
Basic and diluted (cents)
9
0.1
(1.5)
The accompanying notes form an integral part of the financial statements.
32
Steppe Cement Ltd. STATEMENTS OF PROFIT AND LOSS AND OTHER
COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2016
The Group
The Company
Note
2016
USD
2015
USD
2016
USD
2015
USD
Profit/(Loss) for the year
176,002
(3,381,658)
(26,212)
(4,211,628)
Other comprehensive
income/(loss):
Items that will not be
reclassified subsequently to
profit or loss:
Revaluation gain on
property, plant and
equipment, net of tax
Impairment loss on property,
plant and equipment, net of
tax
Items that may be
reclassified subsequently to
profit or loss:
Exchange differences
arising from translation of
foreign operations
Total other comprehensive
income/(loss)
Total comprehensive
income/(loss) for the year
Attributable to:
Shareholders of the
Company
-
-
124,531
(142,081)
1,138,811
(57,566,026)
1,138,811
(57,583,576)
-
-
-
-
-
-
-
-
1,314,813
(60,965,234)
(26,212)
(4,211,628)
1,314,813
(60,965,234)
(26,212)
(4,211,628)
The accompanying notes form an integral part of the financial statements.
33
Annual Report 2016
STATEMENTS OF FINANCIAL POSITION
FOR THE YEAR ENDED 31 DECEMBER 2016
The Group
The Company
Note
2016
USD
2015
USD
2016
USD
2015
USD
Assets
Non-Current Assets
Property, plant and
equipment
Investment in subsidiary
companies
Advances
Other assets
Deferred taxes
Total Non-Current
Assets
Current Assets
Inventories
Trade and other
receivables
Income tax recoverable
Loans and advances to
subsidiary companies
Advances and prepaid
expenses
Cash and cash
equivalents
10
11
16
12
13
14
15
25
16
17
71,886,844
71,787,157
-
-
-
458,619
1,439,233
47,097
-
26,500,001
26,500,001
1,270,919
2,442,499
549,669
-
-
-
-
-
-
73,831,793
76,050,244
26,500,001
26,500,001
16,162,477
13,319,832
3,168,763
505,359
2,290,736
547,232
-
-
-
-
-
-
-
-
39,710,120
39,845,904
1,076,849
1,432,447
9,128
6,582
1,023,205
2,406,309
73,636
338,124
Total Current Assets
21,936,653
19,996,556
39,792,884
40,190,610
Total Assets
95,768,446
96,046,800
66,292,885
66,690,611
34
Steppe Cement Ltd. STATEMENTS OF FINANCIAL POSITION
FOR THE YEAR ENDED 31 DECEMBER 2016
The Group
The Company
Note
2016
USD
2015
USD
2016
USD
2015
USD
Equity and Liabilities
Capital and Reserves
Share capital
Revaluation reserve
Translation reserve
Retained earnings/
(Accumulated losses)
Total Equity
Non-Current Liabilities
Borrowings
Deferred income
Provision for site
restoration
Total Non-Current
Liabilities
Current Liabilities
18
19
19
19
20
21
73,760,924
73,760,924
73,760,924
73,760,924
3,062,343
3,443,582
(106,985,770)
(108,124,581)
-
-
-
-
88,203,360
87,646,119
(8,454,098)
(8,427,886)
58,040,857
56,726,044
65,306,826
65,333,038
15,453,251
1,525,359
14,857,018
517,778
59,003
51,265
17,037,613
15,426,061
-
-
-
-
-
-
-
-
-
-
Trade and other payables
22
7,577,986
4,485,684
Accrued and other
liabilities
Borrowings
Taxes payable
Total Current
Liabilities
23
20
24
1,918,230
3,084,812
986,059
1,357,573
10,963,824
15,822,258
229,936
501,941
-
-
-
-
20,689,976
23,894,695
986,059
1,357,573
Total Liabilities
37,727,589
39,320,756
986,059
1,357,573
Total Equity and
Liabilities
95,768,446
96,046,800
66,292,885
66,690,611
The accompanying notes form an integral part of the financial statements.
35
Annual Report 2016
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2016
Non-distributable
Distributable
The Group
Share
capital
USD
Revaluation
reserve
USD
Translation reserve
USD
Retained
earnings
USD
Total*
USD
As of 1 January 2016
73,760,924
3,443,582
(108,124,581)
87,646,119
56,726,044
Profit for the year
Other comprehensive income
Total comprehensive income for the
year
Other transactions impacting equity:
Transfer of revaluation reserve
relating to property, plant and
equipment through use
-
-
-
-
-
-
-
-
1,138,811
176,002
-
176,002
1,138,811
1,138,811
176,002
1,314,813
(381,239)
-
381,239
-
As of 31 December 2016
73,760,924
3,062,343
(106,985,770)
88,203,360
58,040,857
*Attributable to the shareholders of the Company
36
Steppe Cement Ltd.Annual Report 2016 STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2016
36
Non-distributable
Distributable
The Group
Share
capital
USD
Revaluation
reserve
USD
Translation reserve
USD
Retained
earnings
USD
Total*
USD
As of 1 January 2015
73,760,924
3,986,065
(50,558,555)
90,502,844
117,691,278
Loss for the year
Other comprehensive loss
Total comprehensive loss for the year
Other transactions impacting equity:
Transfer of revaluation reserve
relating to property, plant and
equipment through use
-
-
-
-
-
(17,550)
(17,550)
-
(3,381,658)
(3,381,658)
(57,566,026)
(57,566,026)
-
(57,583,576)
(3,381,658)
(60,965,234)
(524,933)
-
524,933
-
As of 31 December 2015
73,760,924
3,443,582
(108,124,581)
87,646,119
56,726,044
*Attributable to the shareholders of the Company
37
Steppe Cement Ltd.Annual Report 2016
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2016
The Company
Share
Capital
USD
Accumulated
losses
USD
Total
USD
As of 1 January 2016
73,760,924
(8,427,886)
65,333,038
Total comprehensive loss for the year
-
(26,212)
(26,212)
As of 31 December 2016
73,760,924
(8,454,098)
65,306,826
As of 1 January 2015
73,760,924
(4,216,258)
69,544,666
Total comprehensive loss for the year
-
(4,211,628)
(4,211,628)
As of 31 December 2015
73,760,924
(8,427,886)
65,333,038
The accompanying notes form an integral part of the financial statements.
38
Steppe Cement Ltd.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2016
The Group
The Company
2016
USD
2015
USD
2016
USD
2015
USD
CASH FLOWS
FROM/(USED IN)
OPERATING ACTIVITIES
Profit/(Loss) before income tax
681,781
(8,814,819)
(26,212)
(4,211,628)
Adjustments for:
Depreciation of property, plant and
equipment
Amortisation of quarry stripping
costs
Amortisation of site restoration costs
Loss on disposal of property, plant
and equipment
Impairment loss on investment
Impairment loss on property, plant
and equipment
Interest income
Finance costs
Net foreign exchange (gain)/loss
Provision for obsolete inventories
Provision for doubtful receivables
Provision on advances paid to third
parties
Recovery of doubtful receivables
Reversal of provision on advances
paid to third parties
6,834,012
10,685,978
17,966
1,580
-
2,430
65,760
545,175
-
-
(5,205)
2,783,082
(657,937)
379,408
4,720
2,400
(252)
(31,045)
-
298,397
(40,584)
4,215,275
395,646
33,502
39,347
-
-
Reversal of accrued unused leaves
-
(6,799)
Reversal of provision of electricity
charges
(613,563)
(1,922,083)
Deferred income
(5,299)
-
-
-
-
-
-
-
-
-
-
-
-
-
4,000,001
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
16,376,575
(164,559)
(68,172)
9,457,408
21,808,040
(190,771)
(279,799)
39
Annual Report 2016 STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2016
Movement in working capital:
(Increase)/Decrease in:
Inventories
Trade and other receivables
Loans and advances to
subsidiary companies
Advances and prepaid
expenses
Increase/(Decrease) in:
Trade and other payables
Accrued and other liabilities
Cash Generated From/(Used In)
Operations
Income tax paid
Net Cash From/(Used In)
Operating Activities
CASH FLOWS
FROM/(USED IN)
INVESTING ACTIVITIES
Purchase of property, plant and
equipment
Purchase of other assets
Proceeds from disposal of
property, plant and equipment
Interest received
The Group
The Company
2016
USD
2015
USD
2016
USD
2015
USD
(2,923,072)
(2,324,878)
495,396
1,844,366
-
-
-
-
-
-
135,784
531,165
254,623
(909,535)
(2,546)
(851)
3,016,254
(655,754)
452,420
1,462,067
9,644,855
(106,731)
22,332,480
(398,712)
-
(206,955)
(264,488)
-
-
90,977
341,492
(5,480)
9,538,124
21,933,768
(264,488)
336,012
(4,810,425)
(1,831,446)
(48,749)
(26,002)
2,190
5,205
-
40,584
-
-
-
-
-
-
-
-
-
-
Net Cash Used In
Investing Activities
(4,851,779)
(1,816,864)
40
Steppe Cement Ltd. STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2016
The Group
The Company
2016
USD
2015
USD
2016
USD
2015
USD
CASH FLOWS
FROM/(USED IN)
FINANCING ACTIVITIES
Proceeds from borrowings
36,522,283
20,184,000
Repayment of borrowings
(39,840,598)
(38,853,066)
Interest paid
(2,755,206)
(4,073,196)
Net Cash Used In Financing
Activities
(6,073,521)
(22,742,262)
-
-
-
-
-
-
-
-
NET (DECREASE) /INCREASE IN
CASH AND CASH
EQUIVALENTS
EFFECTS OF FOREIGN
EXCHANGE RATE CHANGES
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS
AT END OF YEAR (Note 17)
(1,387,176)
(2,625,358)
(264,488)
336,012
4,072
(4,263,772)
-
-
2,406,309
9,295,439
338,124
2,112
1,023,205
2,406,309
73,636
338,124
The accompanying notes form an integral part of the financial statements.
41
Annual Report 2016 1. GENERAL INFORMATION
Steppe Cement Ltd (the “Company”) is a limited liability company incorporated in Malaysia. The
Company’s registered office is Brumby Centre, Lot 42, Jalan Muhibbah, 87000 Labuan FT, Malaysia.
The Company’s shares are listed on the Alternative Investment Market of the London Stock Exchange.
The Group comprises the Company and the subsidiary companies (collectively the “Group”) that are
disclosed in Note 11.
The principal place of business of the Company’s operating subsidiary companies is located at 472380,
Aktau village, Karaganda Region, the Republic of Kazakhstan.
The Company’s principal activity is investment holding. The Company’s operating subsidiary are
principally engaged in the production and sale of cement. The principal activities of the subsidiary
companies are disclosed in Note 11.
The financial statements of the Group and of the Company have been approved by the Board of
Directors and were authorised for issuance on 12 May 2017.
2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS
Basis of preparation
The financial statements of the Group and of the Company have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards
Board (“IASB”).
Application of new and amendments to International Financial Reporting Standards
(IFRSs)
New and amendments to IFRSs that are mandatorily effective for the current year
In the current year, the Group and the Company have applied a number of new and amendments to
IFRSs issued by IASB that are mandatorily effective for an accounting period that begins on or after
1 January 2016.
42
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 Amendments to
IAS 1
Amendments to
IAS 16 and
IAS 38
Amendments to
IAS 27
Amendments to
IFRS 10, 12 and
IAS 28
Amendments to
IFRSs
Disclosure Initiative
Clarification of Acceptable Methods of Depreciation and Amortisation
Equity Method in Separate Financial Statements
Investment Entities: Applying the Consolidation Exception
Annual Improvements to IFRSs 2012-2014 Cycle
The application of these new and amendments to IFRS did not result in significant changes in the
accounting policies of the Group and of the Company and have no material impact on the disclosures
in the financial statements of the Group and of the Company.
New and amendments to IFRS and IFRIC Interpretation in issue but not yet effective
IFRS 9
IFRS 15
IFRS 16
Amendments to
IAS 7
Amendments to
IAS 12
Financial Instruments2
Revenue from Contracts with Customers2
Leases3
Disclosure Initiative1
Recognition of Deferred Tax Assets for Unrealised Losses1
IFRIC Interpretation 22
Foreign Currency Transactions and Advance Consideration2
Amendments to
IFRSs
Annual Improvements to IFRSs 2014-2016 Cycle1 or 2
1 Effective for annual periods beginning on or after 1 January 2017, with earlier application permitted.
2 Effective for annual periods beginning on or after 1 January 2018, with earlier application permitted.
3 Effective for annual periods beginning on or after 1 January 2019, with earlier application permitted.
The directors anticipate that the abovementioned new and amendments to IFRS and IFRIC Interpretation
will be adopted in the financial statements of the Group and of the Company when they become
effective and that the adoption of these standards and amendments will have no material impact on
the financial statements of the Group and of the Company except for the application of IFRS 9 and
IFRS 15 which may have impact on the disclosure as described below.
43
Annual Report 2016NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016
IFRS 9 Financial Instruments
IFRS 9 issued by IASB in November 2009 introduces new requirements for the classification and
measurement of financial assets. IFRS 9 was subsequently amended in October 2010 to include the
requirements for the classification and measurement of financial liabilities and for derecognition, and
in November 2013 to include the new requirements for general hedge accounting. Another revised
version of IFRS 9 was issued in July 2014 mainly to include a) impairment requirements for financial
assets and b) limited amendments to the classification and measurement requirements by introducing
a ‘fair value through other comprehensive income’ measurement category for certain simple debt
instruments. Key requirements of IFRS 9 are described as follows:
All recognised financial assets that are within the scope of IAS 39 Financial Instruments: Recognition
and Measurement to be subsequently measured at amortised cost or at fair value. Specifically, debt
investments that are held within a business model whose objective is to collect the contractual cash
flows, and that have contractual cash flows that are solely payments of principal and interest on the
principal outstanding are generally measured at amortised cost at the end of subsequent accounting
periods. All other debt investments and equity investments are measured at their fair values at the end
of subsequent accounting periods. In addition, under IFRS 9, entities may make an irrevocable election
to present subsequent changes in fair value of equity instrument (that is not held for trading) in other
comprehensive income, with only dividend income generally recognised in profit or loss.
With regards to the measurement of financial liabilities designated as at fair value through profit or loss,
IFRS 9 requires that the amount of change in the fair value of the financial liability that is attributable
to changes in the credit risk of that liabilities, is presented in other comprehensive income, unless
the recognition of the effects of changes in the liability’s credit risk in other comprehensive income
would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to
financial liability’s credit risk are not subsequently reclassified to profit or loss. Under IAS 39, the entire
amount of the change in the fair value of the financial liability designated as at fair value through profit
or loss is presented in profit or loss.
In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as
opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires
an entity to account for expected credit losses and changes in those expected credit losses at each
reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer
necessary for credit event to have occurred before credit losses are recognised; and
The new general hedge accounting requirements retain the three types of hedge accounting
mechanisms currently available in IAS 39. Under IFRS 9, greater flexibility has been introduced to the
types of transactions eligible for hedge accounting, specifically broadening the types of instruments
that qualify for hedging instruments and the types of risk components of non-financial items that are
eligible for hedge accounting. In addition, the effectiveness test has been overhauled and replaced
with the principle of an “economic relationship”. Retrospective assessment of hedge effectiveness
is also no longer required. Enhanced disclosure requirements about any entity’s risk management
activities have also been introduced.
The directors of the Company anticipate that the application of IFRS 9 in the future may have a
material impact on amounts reported in respect of the Group’s and of the Company’s financial assets
and financial liabilities. However, it is not practicable to provide a reasonable estimate of the effect of
IFRS 9 until the Group and the Company complete a detailed review.
44
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 IFRS 15 Revenue from Contracts with Customers
In May 2014, IFRS 15 was issued which establishes a single comprehensive model for entities to use
in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current
revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the
related Interpretations when it becomes effective. The core principle of IFRS 15 is that an entity should
recognise revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. Specifically, the Standard introduces a 5-step approach to revenue recognition:
• Step 1: Identify the contract(s) with a customer.
• Step 2: Identify the performance obligations in the contract.
• Step 3: Determine the transaction price.
• Step 4: Allocate the transaction price to the performance obligations in the contract.
• Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation.
Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e.
when ‘control’ of the goods or services underlying the particular performance obligation is transferred
to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific
scenarios. Furthermore, extensive disclosures are required by IFRS 15.
The directors of the Company anticipate that the application of IFRS 15 in the future may have a
material impact on the amounts reported and disclosures made in the financial statements of the
Group. However, it is not practicable to provide a reasonable estimate of the effect of IFRS 15 until the
Group performs a detailed review.
3. SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The financial statements of the Group and of the Company have been prepared under the historical
cost convention except for the revaluation of land and building made in accordance with IAS 16
Property, Plant and Equipment (Note 10) and financial assets and financial liabilities that are recognised
at amortised cost.
Historical cost is generally based on the fair value of the consideration given in exchange for goods
and services.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date, regardless of whether that price
is directly observable or estimated using another valuation technique. In estimating the fair value of
an asset or a liability, the Group and the Company take into account the characteristics of the asset or
liability if market participants would take those characteristics into account when pricing the asset or
liability at the measurement date. Fair value for the measurement and/or disclosure purposes in these
financial statements is determined on such basis.
45
Annual Report 2016NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2
or 3 based on the degree to which the inputs to the fair value measurements are observable and the
significance of the inputs to the fair value measurement in its entirety, which are described as follows:
• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that
the entity can access at the measurement date;
• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for
the asset or liability, either directly or indirectly; and
• Level 3 inputs are unobservable inputs for the asset or liability.
The principal accounting policies are set out below.
Basis of Consolidation
The consolidated financial statements incorporate the financial statements of the Company and its
subsidiary companies. Control is achieved when the Company:
• has the power over the investee;
•
• has the ability to use its power to affect its returns.
is exposed, or has rights, to variable returns from its involvement with the investee; and
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that
there are changes to one or more of the three elements of control listed above.
When the Company has less than a majority of the voting rights of an investee, it has power over
the investee when the voting rights are sufficient to give it the practical ability to direct the relevant
activities of the investee unilaterally. The Company considers all relevant facts and circumstances in
assessing whether or not the Company’s voting rights in an investee are sufficient to give it power,
including:
•
the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of
the other vote holders;
rights arising from other contractual arrangements; and
• potential voting rights held by the Company, other vote holders or other parties;
•
• any additional facts and circumstances that indicate that the Company has, or does not have, the
current ability to direct the relevant activities at the time that decisions need to be made, including
voting patterns at previous shareholders’ meetings.
Consolidation of a subsidiary company begins when the Company obtains control over the subsidiary
company and ceases when the Company loses control of the subsidiary company. Specifically, income
and expenses and each component of the other comprehensive income of a subsidiary company are
included in the consolidated statement of profit or loss and consolidated statement of profit or loss
and other comprehensive income respectively from the date the Company gains control until the date
when the Company ceases to control the subsidiary company.
Where necessary, adjustments are made to the financial statements of subsidiary companies to bring
their accounting policies to be in line with those used by other subsidiary companies of the Group.
All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.
46
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 Changes in the Group’s ownership interests in existing subsidiary companies
Changes in the Group’s ownership interests in subsidiary companies that do not result in the Group
losing control over the subsidiary companies are accounted for as equity transactions. The carrying
amounts of the Group’s interests are adjusted to reflect the changes in their relative interests in the
subsidiary companies.
When the Group loses control of a subsidiary company, the profit or loss on disposal is calculated
as the difference between (i) the aggregate of the fair value of the consideration received and the fair
value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill),
and liabilities of the subsidiary company. All amounts previously recognised in other comprehensive
income in relation to that subsidiary company are accounted for as if the Group had directly disposed of
the related assets or liabilities of the subsidiary company (i.e. reclassified to profit or loss or transferred
directly to retained earnings as specified by applicable IFRSs). The fair value of any investment retained
in the former subsidiary company at the date when control is lost is regarded as the fair value on
initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and
Measurement or, when applicable, the cost on initial recognition of an investment in an associate or a
joint venture.
Revenue
Revenue is measured at the fair value of the consideration received or receivable. Revenue of the
Group represents sale of cement, transmission and distribution of electricity and interest income. Sale
of cement and transmission and distribution of electricity are stated at invoice value net of discounts,
rebates, commissions and returns. Revenue of the Company represents management fee.
Sale of goods
Upon shipment/delivery of goods and when the risks and rewards of ownership have passed to the
customers, revenue is recognised at gross invoiced value, net of discounts, rebates, commissions and
returns.
Transmission and distribution of electricity
Revenue is recognised upon delivery of electricity to the customers.
Interest income
Interest income is recognised on an accrual basis by reference to the principal outstanding and at the
effective interest rate applicable.
Management fee income
Management fee is recognised on a straight-line basis over the period of the agreement as the services
are provided.
47
Annual Report 2016NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 Government Grants
Government grants are not recognised until there is reasonable assurance that the Group will comply
with the conditions attaching to them and that the grants will be received.
Government grants are recognised in profit or loss on a systematic basis over the periods in which
the Group recognises as expenses the related costs for which the grants are intended to compensate.
Specifically, government grants whose primary condition is that the Group should purchase, construct
or otherwise acquire non-current assets are recognised as deferred revenue in the consolidated
statement of financial position and transferred to profit or loss on a systematic and rational basis over
the useful lives of the related assets.
Government grants that are receivable as compensation for expenses or losses already incurred or
for the purpose of giving immediate financial support to the Group with no future related costs are
recognised in profit or loss in the period in which they become receivable.
The benefit of a government loan at a below-market rate of interest is treated as a government
grant, measured as the difference between proceeds received and the fair value of the loan based on
prevailing market interest rates.
Foreign Currencies
The individual financial statements of each group entity are presented in the currency of the primary
economic environment in which the entity operates (its functional currency). For the purpose of the
financial statements of the Group, the results and financial position of each entity are expressed in
United States Dollars (“USD”), which is the functional currency of the Company, and the presentation
currency for the financial statements of the Group and of the Company. The functional currency of
the principal subsidiary companies, Karcement JSC and Central Asia Cement JSC (“CAC JSC”), is the
Kazakhstan Tenge (“KZT”).
In preparing the financial statements of the individual entities, transactions in currencies other
than the entity’s functional currency are recorded at the rates of exchange prevailing on the dates
of the transactions. At each reporting date, monetary items denominated in foreign currencies are
retranslated at the rates prevailing on the reporting date. Non-monetary items carried at fair value that
are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair
value was determined. Non-monetary items that are measured in terms of historical cost in a foreign
currency are not retranslated.
Exchange differences arising on the settlement of monetary item and on the retranslation of monetary
items are included in the statement of profit or loss for the year. Exchange differences arising on the
retranslation of non-monetary items carried at fair value are included in the statement of profit or loss
for the year except for differences arising on the retranslation of non-monetary item in respect of which
gains and losses are recognised in other comprehensive income. For such non-monetary items, any
exchange component of that gain or loss is also recognised in other comprehensive income.
48
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 For the purposes of presenting financial statements, the assets and liabilities of the Group’s foreign
operation (including comparatives) are expressed in USD using exchange rates prevailing on the
reporting date. Income and expense items (including comparatives) are translated at the average rates at
the dates of the transactions. Exchange differences arising, if any, are recorded in other comprehensive
income and accumulated in the Group’s translation reserve. Such translation differences are recognised
in the statement of profit or loss in the year in which the foreign operation is disposed of.
Goodwill (if any) and fair value adjustments arising on the acquisition of foreign operations are treated
as assets and liabilities of the foreign operation and translated at the closing rate.
The principal closing rates used in translation of foreign currency amounts are as follows:
1 Sterling Pound (“GBP”)
1 Euro (“EUR”)
1 Ringgit Malaysia (“MYR”)
1 Russian Ruble (“RUB”)
1 USD
Retirement Benefit Costs
2016
USD
1.2340
1.0517
0.2229
0.0162
KZT
333.29
2015
USD
1.4736
1.0862
0.2329
0.0138
KZT
339.47
In accordance with the requirements of the legislation of the country in which the Group operates, the
Group withholds amounts of pension contributions (a defined contribution plan) equivalent to 10%
of each employee’s wage, but not more than USD514 per month per employee (2015: USD440) from
employee salaries and pays them to the state pension fund. In addition, such pension system provides
for calculation of current payments by the employer as a percentage of current total disbursements
to staff. Such expenses are charged to statements of profit or loss in the period the related salaries
are earned. Upon retirement, all retirement benefit payments are made by pension funds selected by
the employees. The Group does not have any pension arrangements separate from the state pension
system of the countries where its subsidiary companies operate. In addition, the Group has no post-
retirement benefits or other significant compensation benefits requiring accrual.
49
Annual Report 2016NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax and is calculated
in accordance with tax legislation applicable to the respective jurisdiction and based on the operating
results for the year after adjustments for amounts which are non-taxable or non-deductible for tax
purposes.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as
reported in the statement of profit or loss because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items that are not taxable or deductible.
The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively
enacted by the reporting date.
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in
the financial statements and the corresponding tax bases used in the computation of taxable profit,
and are accounted for using the liability method. Deferred tax liabilities are generally recognised
for all taxable temporary differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible temporary differences can be
utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill
or from the initial recognition (other than in a business combination) of other assets and liabilities in a
transaction that affects neither the taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced
to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or
part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period
when the liability is settled or the asset is realised, based on the tax rates (and tax laws) that have been
enacted or substantively enacted by the end of the reporting period. The measurement of deferred
tax liabilities and assets reflects the tax consequences that would follow from the manner in which the
entity expects, at the end of the reporting period, to recover or to settle the carrying amount of its
assets and liabilities. Deferred tax is charged or is credited to the statement of profit or loss, except
when it is related to items that are recognised outside profit or loss (whether in other comprehensive
income or charged or credited directly to equity), in which case the deferred tax is also dealt with
outside profit or loss, or where they arise from the initial accounting for a business combination, the
tax effect is included in the accounting for the business combination.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments
in subsidiary companies, except where the Group is able to control the reversal of the temporary
difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current
tax assets against current tax liabilities and when they relate to income taxes levied by the same
taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
50
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016
Property, Plant and Equipment
Property, plant and equipment except for land and buildings and construction in
progress
Property, plant and equipment except for land and buildings are carried at historical cost less
accumulated depreciation and any recognised impairment loss. The initial cost of property, plant and
equipment consists of its purchase price, including import duties, taxes and any directly attributable
cost to bring the property, plant and equipment to its working condition and location for its intended
use.
Land and buildings
Land and buildings held for use in the production or supply of goods or services, or for administrative
purposes, are stated at their revalued amounts in the statement of financial position, being the fair
value at the date of revaluation, less any subsequent accumulated depreciation and subsequent
accumulated impairment losses, if any. Revaluations are performed with sufficient regularity such that
the carrying amounts do not differ materially from those that would be determined using fair values at
the end of each reporting period.
Any revaluation increase arising on revaluation of such land and buildings is recognised in other
comprehensive income and revaluation reserve in equity, except to the extent that it reverses a
revaluation decrease for the same asset previously recognised in the statement of profit or loss, in
which case, the increase is credited to the statement of profit or loss to the extent of the decrease
previously expensed. A decrease in the carrying amount arising on revaluation of such land and
buildings is recognised in the statement of profit or loss to the extent that it exceeds the balance, if
any, held in the revaluation reserve relating to a previous revaluation of that asset.
Revaluation surplus is transferred directly to retained earnings as and when the revalued asset is
used by the Group. The amount of the surplus transferred is calculated as the difference between
depreciation calculated based on the revalued carrying amount of the asset and depreciation based
on the asset’s original cost.
Construction in Progress
Assets in the course of construction for production, supply or administrative purposes are carried at
cost, less any recognised impaired loss. Cost includes professional fees and, for qualifying assets,
borrowing costs capitalised in accordance with the Group’s accounting policy. Such assets will be
presented in the appropriate categories of property, plant and equipment when they are completed
and ready for intended use.
Depreciation
Depreciation of property, plant and equipment commences when the assets are ready for their
intended use.
51
Annual Report 2016NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 Depreciation on revalued buildings is recognised in the statement of profit or loss. On the subsequent
sale or retirement of revalued assets, their remaining revaluation surplus recorded in the revaluation
reserve is transferred directly to retained earnings.
Freehold land and land improvement are not depreciated.
Depreciation is recognised so as to write off the cost or valuation of assets (other than freehold land
and construction in progress) less their residual values over their useful lives using the straight-line
method. The estimated useful lives are as follows:
Buildings
Machinery and equipment
Railway wagons
25 years
14 years
20 years
Stand-by equipment, major spare parts and other assets
5 - 10 years
The estimated useful lives, residual values and depreciation method of assets are reviewed at the end
of each reporting period with the effect of any changes in estimate accounted for on a prospective
basis.
Derecognition
An item of property, plant and equipment is derecognised upon disposal or when no future economic
benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the
disposal or retirement of an item of property, plant and equipment is determined as the difference
between the sale proceeds and the carrying amount of the asset and is recognised in the statement
of profit or loss.
Mining assets
Mining assets comprise quarry stripping costs and site restoration costs relating to quarry used by the
Group.
(i) Quarry stripping costs
The cost of removal of the overburden from the quarry is deferred until the commencement of physical
extraction of limestone from the site. Such costs are amortised over the expected life of the quarry
from the date of commencement of extraction.
(ii) Site restoration costs
Site restoration provisions are made in respect of the estimated discounted costs of closure and
restoration, and for environmental rehabilitation costs (which include the dismantling and demolition
of infrastructure, removal of residual material and remediation of disturbed areas). Over time, the
discounted obligation is increased for the change in present value based on the discount rates that
reflect current market assessments of the time value of money and the risks specific to the liability.
A corresponding asset is capitalised where it gives rise to a future benefit and depreciated over the
52
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 remaining life of the quarry to which it relates on a straight-line basis. The provision is reviewed on
an annual basis for changes in cost estimates, discount rates or life of operations. Any change in
restoration costs or assumption will be recognised as additions or charges to the corresponding asset
and provision when they occur.
Impairment of tangible assets
At the end of each reporting period, the Group reviews the carrying amounts of its tangible assets to
determine whether there is any indication that those assets have suffered an impairment loss. If any
such indication exists, the recoverable amount of the asset is estimated in order to determine the
extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of
an individual asset, the Group estimates the recoverable amount of the cash-generating unit (“CGU”)
to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified,
corporate assets are also allocated to individual CGUs, or otherwise they are allocated to the smallest
group of CGUs for which a reasonable and consistent allocation basis can be identified.
Recoverable amount is the higher of the fair value less costs to sell and the value in use. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that management believes reflects the current market assessments of the time value of
money and the risks specific to the asset.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying
amount of the asset is reduced to its recoverable amount. An impairment loss is recognised immediately
in the statement of profit or loss unless the relevant asset is carried at a revalued amount in which case
the impairment loss is treated as a revaluation decrease (see accounting policy on property, plant and
equipment above).
Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is
increased to the revised estimate of its recoverable amount, but so that the increased carrying amount
does not exceed the carrying amount that would have been determined had no impairment loss
been recognised for the asset (or CGU) in prior years. A reversal of an impairment loss is recognised
immediately in statement of profit or loss unless the relevant asset is carried at a revalued amount in
which case the reversal of the impairment loss is treated as a revaluation increase.
Inventories
Inventories are stated at the lower of cost and net realisable value. Costs comprise direct materials
and, where applicable, direct labour costs and those overheads that have been incurred in bringing
the inventories to their present location and condition. Cost is calculated using the weighted average
method. Net realisable value represents the estimated selling price less all estimated costs of
completion and the estimated costs necessary to make the sale.
At each reporting date, the Group evaluates its inventory balances for excess quantities and
obsolescence and, if necessary, records a provision to reduce inventory for obsolete, slow-moving raw
materials and spare parts. Provision is determined based on inventory ageing as follows:
Not moving more than 1 year
Not moving more than 2 years
Not moving more than 3 years
33.3%
66.7%
100.0%
53
Annual Report 2016NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of
a past event, and it is probable that the Group will be required to settle that obligation and a reliable
estimate can be made of the amount of the obligation. Provisions are measured at the directors’ best
estimate of the expenditure required to settle the obligation at the reporting date, and are discounted
to present value where the effect is material.
The amount recognised as a provision is the best estimate of the consideration required to settle the
present obligation at the end of the reporting period, taking into account the risks and uncertainties
surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the
present obligation, its carrying amount is the present value of those cash flows (where the effect of the
time value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be recovered
from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will
be received and the amount of the receivable can be measured reliably.
Equity
Ordinary shares are classified as equity. Distributions to holders of ordinary shares are debited directly
to equity and dividend declared on or before the end of the reporting period is recognised as liability.
Costs directly attributable to equity transactions are accounted for as a deduction, net of tax, from
equity.
Contingent Liabilities
Contingent liabilities are not recognised in the statement of financial position but are disclosed unless
the possibility of any outflow in settlement is remote.
Financial Instruments
Financial assets and financial liabilities are recognised in the statement of financial position when the
Group becomes a party to the contractual provisions of the financial instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are
directly attributable to the acquisition or issue of financial assets and financial liabilities (other than
financial assets and financial liabilities at fair value through profit or loss) are added or deducted
from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair
value through profit or loss are recognised immediately in the statement of profit or loss.
Effective Interest Method
The effective interest method is a method of calculating the amortised cost of a financial asset or
financial liability and of allocating interest income or expense over the relevant period. The effective
interest rate is the rate that exactly discounts estimated future cash receipts or payments (including all
fees, paid or received, which comprise an integral part of the effective interest rate, transaction costs
and other premiums or discounts) through the expected life of the financial asset or financial liability,
or, where appropriate, a shorter period.
54
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 Financial Assets
Financial assets are classified into the following specified categories: financial assets at fair value
through profit or loss (“FVTPL”), held-to-maturity investments, available-for-sale (“AFS”) financial
assets and loans and receivables. The classification depends on the nature and purpose of the financial
assets and is determined at the time of initial recognition.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. Loans and receivables (including cash and cash equivalents, short-
term investments, trade and other receivables and loans and advances to subsidiary companies) are
measured at amortised cost using the effective interest method, less any impairment. Interest income
is recognised by applying the effective interest rate, except for short-term receivables where the
recognition of interest would be immaterial.
The Group does not have financial assets designated as at FVTPL, held-to-maturity investments or AFS
financial assets.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly
liquid investments with initial maturity period of up to three months that are readily convertible to a
known amount of cash and are subject to an insignificant risk of changes in value. When cash and cash
equivalents are restricted from use, they are disclosed in the notes to the financial statements.
Short-term Investments
Short-term investments represent fixed short-term deposits in banks with original maturity of more
than three months.
Trade and Other Receivables
Trade and other receivables are recognised and carried at fair value upon initial recognition. After
initial measurement, such financial assets are subsequently measured at amortised cost using the
effective interest method, less impairment.
Impairment of Financial Assets
The Group provides an allowance for impairment of financial assets when there is an objective evidence
of impairment of a financial asset. Financial assets are assessed on individual basis. The allowance for
impairment of financial assets represents a difference between the carrying value of the assets and
present value of estimated future cash inflows, discounted using the original effective interest rate on
the financial instrument, which is reflected at amortised value. If in a subsequent period the value of
the financial asset increases, and such an increase can be objectively connected with an event which
happen after recognition of the impairment then the previously recognised impairment loss is reversed
with an adjustment of the allowance account.
The changes in impairment allowances are charged to the statement of profit or loss and the assets are
reduced by the amount of the impairment allowances. The factors evaluated in determining whether
the evidence of impairment is objective includes information on liquidity of borrowers, solvency and
exposure to financial risks, insolvency trends regarding similar financial assets, general economic
condition and fair value of security and guarantees.
55
Annual Report 2016NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 Financial Liabilities and Equity Instruments Issued by the Group
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with
the substance of the contractual arrangement. An equity instrument is any contract that evidences a
residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments are
recorded at the proceeds received, net of direct issue costs.
Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities.
Other financial liabilities (including accrued and other financial liabilities, borrowings and trade and
other payables) are subsequently measured at amortised cost using the effective interest method.
The Group does not have financial liabilities designated as FVTPL.
Offset of Financial Assets and Financial Liabilities
Financial assets and financial liabilities are offset and recorded on a net basis in the statement of
financial position when the Group is legally entitled to offset certain amounts and the Group intends
to either record on a net basis or receive assets and offset liabilities simultaneously.
Derecognition of Financial Liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are
discharged, cancelled or they expire. The difference between the carrying amount of the financial
liability derecognised and the consideration paid and payable is recognised in the statement of profit
or loss.
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets,
which are assets that necessarily take a substantial period of time to get ready for their intended use or
sale, are added to the cost of those assets until such time as the assets are substantially ready for their
intended use or sale. Investment income earned on the temporary investment of specific borrowings
pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for
capitalisation.
All other borrowing costs are recognised in the statement of profit or loss in the period in which they
are incurred.
Statements of Cash Flows
The Group and the Company adopt the indirect method in the preparation of the statements of cash
flows.
Critical Accounting Judgements and Key Sources of Estimation Uncertainty
The preparation of financial statements in conformity with IFRS requires the directors to make
judgements, estimates and assumptions that affect the reported amounts of assets and liabilities,
revenues and expenses and the disclosure of liabilities. Due to the inherent uncertainty in making those
56
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016
judgements and estimates, actual results reported in future periods could differ from such estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the revision affects only that
period, or in the period of the revision and future periods if the revision affects both current and future
periods.
Revaluation of Property, Plant and Equipment
As stated in Note 10, land and buildings of the Group are measured at fair value at the date of
revaluation less accumulated depreciation and impairment losses recognised. The carrying amount of
the land and buildings was determined by professional valuers on 31 August 2015. Valuation techniques
used by the professional valuers are subjective and involve the use of professional judgement in the
estimation of, amongst others, the Group’s future cash flows from operations and appropriate discount
factors and in the application of relevant market information.
As of 31 December 2016, the directors consider that the carrying amount of the land and buildings is
reflective of the fair values of these assets.
Impairment of Property, Plant and Equipment
The Group assesses at each reporting date whether there is any indication that an asset may be
impaired. If any such indication exists, or when annual impairment testing for an asset is required, the
Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the
higher of an asset’s or CGU’s fair value less costs to sell and its value in use and is determined for an
individual asset. Where the carrying amount of an asset exceeds its recoverable amount, the asset is
considered impaired and is written down to its recoverable amount.
The determination of impairment of property, plant and equipment involves the use of estimates
that include, but are not limited to, the cause, timing and amount of the impairment. Impairment is
determined based on a large number of factors, such as expected growth in the industry, changes
in the future availability of financing, technological obsolescence, discontinuance of service, current
replacement costs and other changes in circumstances that indicate an impairment exists. The
recoverable amount and the fair value are typically determined using a discounted cash flow method
which incorporates reasonable market participant assumptions. The identification of impairment
indicators, the estimation of future cash flows and the determination of fair values for assets (or group
of assets) requires management to make significant judgments concerning the identification and
validation of impairment indicators, expected cash flows, applicable discount rates, useful lives and
residual values. The determination of the recoverable amount of a CGU involves the use of estimates
by management. These estimates can have a material impact on the fair value and ultimately the
amount of any property, plant and equipment impairment.
On 31 August 2015, the Group performed a revaluation of land and buildings based on independent
revaluation. As a result of the revaluation, the Group recognised a net loss on revaluation of USD95,551,
of which USD251,216 was recognised as impairment loss in profit or loss, while a net revaluation gain
of USD124,531 was recognised in revaluation reserve, net of deferred tax of USD31,134.
On 31 August 2015, several buildings which were no longer in use as a result of operational streamlining
were identified as unlikely to be re-used. As such, those buildings were subject to full impairment loss
on that date. The Group recognised an impairment loss of USD224,780 of which USD47,181 was
recognised in profit or loss and USD142,081 was charged to revaluation reserve, net of deferred tax
of USD35,518.
57
Annual Report 2016NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 Useful Lives of Property, Plant and Equipment
The estimated useful lives and residual values of property, plant and equipment and depreciation
method are reviewed at each year end. The useful lives and residual values are estimated based on
normal life expectancies and industry factors. Changes in expected level of usage could impact the
economic useful lives and the residual values of these assets, hence future depreciation charges on
such assets could be revised.
Provisions for Doubtful Receivables, Advances paid to Third Parties and Inventories
The Group makes provisions for doubtful receivables and advances paid to third parties. Significant
judgement is used to estimate doubtful receivables. In estimating doubtful receivables, historical and
anticipated customer performances are considered. Changes in the economy or specific customer
conditions may require adjustments to the provision for doubtful receivables and advances paid to
third parties.
As of 31 December 2016, provision for doubtful trade receivables amounted to USD23,960 (2015:
USD40,171) (Note 15) and on advances paid to third parties amounted to USD38,984 (2015: USD86,888)
(Note 16).
The Group makes provision for obsolete and slow-moving inventories based on information obtained
from annual stock count and the results of inventory turnover analysis based upon past experience
and the level of write-offs in previous years. As of 31 December 2016, provision for obsolete and slow
moving inventories amounted to USD3,223,677 (2015: USD2,805,285) (Note 14).
Provision for Site Restoration
The Company’s subsidiary company, CAC JSC, engaged professional consultants with geology and
environmental protection expertise to estimate site restoration obligation which may arise from its
limestone and clay quarries in accordance with Subsurface Use Contracts and relevant legislations. In
arriving at the present value of site restoration obligation, a pre-tax discount rate of 13% (2015:13%)
is used as it reflects current market assessment of the time value of money and the risk specific to site
restoration obligation.
4.
REVENUE
The Group
The Company
2016
USD
2015
USD
2016
USD
Sale of manufactured goods
52,467,909
93,606,443
Transmission and distribution of
electricity
Management fee receivable
from subsidiary company
11,461
26,277
-
-
100,000
-
-
Total
52,479,370
93,632,720
100,000
58
2015
USD
-
-
100,000
100,000
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 5.
FINANCE COSTS
The Group
The Company
2016
USD
2015
USD
2016
USD
2015
USD
Interest expenses on:
- Bank loans
- Bonds issued
Amortisation of discount on
bonds issued
Others
Total
2,291,345
435,981
3,407,346
713,191
41,901
13,855
61,497
33,241
2,783,082
4,215,275
-
-
-
-
-
-
-
-
-
-
6.
NET FOREIGN EXCHANGE GAIN/(LOSS)
The Group
The Company
2016
USD
2015
USD
2016
USD
2015
USD
Net foreign exchange gain/
(loss)
657,937
(16,376,575)
164,559
72,203
During the previous financial year, foreign exchange losses of the Group of USD16,505,050 arose from the
translation of the USD denominated bank loans due to significant decline in the value of KZT against USD.
These losses are presented as part of the repayment of bank loans in statement of cash flows.
59
Annual Report 2016NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 7.
PROFIT/(LOSS) BEFORE INCOME TAX
Profit/(Loss) before income tax includes the following income/(expenses):
The Group
The Company
2016
USD
2015
USD
2016
USD
2015
USD
Staff costs
(4,691,956)
(5,788,259)
Depreciation of property,
plant and equipment
Amortisation of quarry
stripping costs
Amortisation of site
restoration costs
Loss on disposal of property,
plant and equipment
Provision for obsolete
inventories
Provision for doubtful
receivables
Provision for doubtful
advances paid to third
parties
Recovery of provision on
advances paid to third party
Recovery of doubtful
receivables
Reversal of accrued unused
leaves
Reversal of provision for
electricity charges
Impairment loss on property,
plant and equipment
Impairment loss on
investment
(6,834,012)
(10,685,978)
(17,966)
-
(1,580)
(2,430)
(65,760)
(545,175)
(379,408)
(395,646)
(4,720)
(33,502)
(2,400)
(39,347)
31,045
252
-
-
-
6,799
613,563
1,922,083
-
-
298,397
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,000,001
60
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 8.
INCOME TAX (EXPENSE)/CREDIT
The Group
The Company
2016
USD
2015
USD
2016
USD
2015
USD
Current tax (expense)/credit:
- Subsidiary companies
- Overprovision in
prior years
Deferred tax
(expense)/credit (Note 13):
-
-
(433,764)
29,893
- Subsidiary companies
(505,779)
5,837,032
Total
(505,779)
5,433,161
-
-
-
-
-
-
-
-
Under the Labuan Business Activity Tax Act, 1990, the Company has to elect annually whether it is
to be charged tax at the amount of RM20,000 (USD4,826) or at a tax rate of 3% on the chargeable
profits of a Labuan company carrying on Labuan trading activities for the basis period for that year of
assessment. No tax is charged on Labuan non-trading activities.
The profits earned by the subsidiary companies incorporated in the Republic of Kazakhstan are subject
to the prevailing statutory tax rate of 20% (2015: 20%), and Malaysian and Netherland subsidiaries are
subject to statutory tax rates of 24% (2015: 25%) and 25% (2015: 25%) respectively.
A reconciliation of income tax expense/(credit) applicable to profit/(loss) before income tax at the
applicable statutory income tax rate to income tax expense/(credit) at the effective income tax rate of
the Group and of the Company is as follows:
61
Annual Report 2016NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 Profit/(Loss) before income
tax
Tax expense/ (credit)
calculated at domestic
tax rates applicable to the
respective jurisdictions
Tax effects of expenses not
deductible for tax purposes
Tax effects of income not
assessable for tax purposes
Effect of previously
unrecognised temporary
differences
Effect of unused tax losses
not recognised as deferred
tax assets
Overprovision of current tax
in prior years
The Group
The Company
2016
USD
2015
USD
2016
USD
2015
USD
681,781
(8,814,819)
(26,212)
(4,211,628)
369,981
(5,466,622)
(6,291)
(126,349)
246,028
531,774
(122,713)
(302,432)
(45,339)
(248,545)
-
-
-
120,000
-
-
57,822
82,557
6,291
6,349
-
(29,893)
-
-
-
-
Income tax expense/(credit)
505,779
(5,433,161)
The tax expense calculated at domestic tax rates represents a blend of the tax rates of the jurisdictions
in which taxable profits have arisen. The change from the prior year is due to proportion of income of
foreign subsidiaries which are subject to different statutory tax rates.
62
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 9.
EARNINGS/(LOSS) PER SHARE
Basic and diluted
The Group
2016
USD
2015
USD
Profit/(Loss) attributable to ordinary shareholders
176,002
(3,381,658)
Number of ordinary shares in issue at beginning
and end of year
2016
2015
219,000,000
219,000,000
Weighted average number of ordinary shares
in issue
219,000,000
219,000,000
Earnings/(Loss) per share, basic and diluted (cents)
2016
0.1
2015
(1.5)
The basic earnings/(loss) per share is calculated by dividing the profit/(loss) attributable to shareholders
of the Company by the weighted average number of ordinary shares in issue during the financial year.
There are no dilutive instruments outstanding for the years ended 31 December 2016 and 2015.
63
Annual Report 2016NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
10. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
The Group
Freehold
land and land
improvement
Buildings
Machinery
and equipment
Railway
wagons
Stand-by
equipment
and major
spare parts
Construction
in progress
Other assets
Total
USD
USD
USD
USD
USD
USD
USD
USD
3,412,409
42,519,704
137,831,877
15,073,249
5,399,430
722,116
14,045,516
219,004,301
Cost
At 1 January 2015
Additions
Transfers
Disposals
Reclassification to
inventories
6,313
-
35,649
-
(669,885)
1,544,643
(7,600)
(281,759)
(1,107,667)
Revaluation gain/(loss)
391,307
(235,642)
-
-
-
-
-
-
-
-
-
(1,660)
(9,836)
(816,355)
-
-
1,895,082
(1,798,277)
113,908
925,179
2,050,952
-
(3,469)
(2,334,290)
(3,744,621)
-
-
-
-
(816,355)
155,665
Exchange differences
(1,696,309)
(19,280,506)
(66,885,999)
(6,976,490)
(2,188,057)
(391,603)
(6,053,577)
(103,472,541)
At 31 December 2015
2,106,120
22,051,912
71,418,503
8,096,759
2,383,522
423,849
6,696,736
113,177,401
Additions
Transfers
Disposals
Reclassification from
inventories
2,759
-
-
-
3,350
92,966
-
-
391,429
625,483
(132,009)
-
-
-
-
-
Exchange differences
39,123
411,343
1,464,086
150,133
119,755
3,949,437
(402,896)
(507,122)
246,981
191,569
4,713,711
-
-
-
(243,398)
(375,407)
829,049
57,058
43,867
97,439
-
872,916
129,134
2,348,316
At 31 December 2016
2,148,002
22,559,571
73,767,492
8,246,892
2,986,488
4,007,470
7,021,022
120,736,937
64
Steppe Cement Ltd.Annual Report 2016
64
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
The Group
Freehold
land and land
improvement
Buildings
Machinery
and
equipment
Railway
wagons
Stand-by
equipment
and major
spare parts
Construction
in progress
Other assets
Total
USD
USD
USD
USD
USD
USD
USD
USD
Accumulated
depreciation and
impairment losses
At 1 January 2015
Charge for the year
Transfers
Disposals
Impairment losses
Exchange differences
At 31 December 2015
Charge for the year
Disposals
Exchange differences
At 31 December 2016
Net Book Value
At 31 December 2016
-
-
-
-
-
-
-
-
-
-
-
21,626,353
37,307,553
1,314,124
7,795,690
333,129
618,358
(95,253)
(228,652)
475,996
32,270
(676,787)
-
-
-
-
(10,494,204)
(19,736,716)
(367,706)
12,598,364
24,722,010
810,586
5,041,240
-
254,198
(100,638)
583,930
583,781
402,126
-
21,042
13,663,148
30,246,542
1,006,949
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8,041,749
67,308,784
957,806
10,685,978
62,983
-
(2,294,007)
(3,199,446)
-
475,996
(3,282,442)
(33,881,068)
3,486,089
41,390,244
580,060
6,834,012
(206,819)
(307,457)
74,124
933,294
3,933,454
48,850,093
2,148,002
8,896,423
43,520,950
7,239,943
2,986,488
4,007,470
3,087,568
71,886,844
At 31 December 2015
2,106,120
9,453,548
46,696,493
7,512,978
2,383,522
423,849
3,210,647
71,787,157
65
Steppe Cement Ltd.Annual Report 2016 Land and buildings were revalued on 31 August 2015 by an independent professional valuer based
on depreciated replacement cost and income approach. Valuation of buildings was arrived at by
reference to the discounted cash flows method, as the property is a production facility, which is a level
[3] measurement in the fair value hierarchy.
The following significant inputs were used in preparing the discounted cash flow:
•
the forecast period was from September 20l5 to December 2018;
• derivation of a terminal value using a constant growth model; and
• discount rate of 17.31% was applied.
Valuation of land was arrived at by reference to market evidence of transaction prices for comparable
properties, which is a level [2] measurement in the fair value hierarchy.
The carrying amount of the land and buildings, which is stated at fair value at the revaluation date
less subsequent accumulated depreciation and impairment losses, amounted to USD11,044,425 as of
31 December 2016 (2015: USD11,559,668). In the fair value assessment, the highest and best use of
the land and buildings is their current use which is production and sale of cement facility. According
to International Accounting Standard 16, Property, Plant and Equipment, for property, plant and
equipment that is accounted for under revaluation model, revaluations shall be made with sufficient
regularity to ensure that the carrying amount does not differ materially from that which would be
determined using fair value at the end of the reporting period.
The directors are of the opinion that the carrying amounts of the land and buildings as of 31 December
2016 do not differ significantly from their fair values.
If the land and buildings are measured using the cost model, the net carrying amounts would be as
follows:
Land
Buildings
The Group
2016
USD
248,624
1,564,338
2015
USD
241,317
1,761,291
During the current financial year, management of the subsidiary companies performed an impairment
test on the cement manufacturing facilities and concluded that no further impairment losses were
required to be recognised as their recoverable amounts exceed their net book values as of the end of
the reporting period.
The following significant inputs were used to determine the recoverable amount of the cement
manufacturing facilities:
the forecast period was from January 2017 to December 2021;
•
• derivation of terminal value based on nil growth beyond the 5 year forecast period with average
annual growth rate in EBITDA across the forecast period at 1.7%; and
• discount rate of 17.31% was applied.
66
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 As of 31 December 2016, property, plant and equipment of a subsidiary company (Karcement JSC)
with a cost and net book value of USD19,243,731 and USD9,777,326 respectively is pledged to secure
the loan from Halyk Bank JSC. Previously on 31 December 2015, property, plant and equipment
of a subsidiary company (Karcement JSC) with a cost and net book value of USD32,496,942 and
USD23,226,910 respectively, was pledged to secure the loan from VTB Bank (Austria) AG and VTB
Bank (France) SA.
As at 31 December 2016, property, plant and equipment of a subsidiary company (Karcement
JSC) with a cost and net book value of USD7,547,181 and USD5,997,060 (2015:USD7,442,160 and
USD6,449,527) respectively are pledged as collateral for the government-subsidised loan (Note 20).
As of 31 December 2016, the cost of property, plant and equipment that is fully depreciated amounted
to USD729,944 (2015: USD614,967).
11.
INVESTMENT IN SUBSIDIARY COMPANIES
Unquoted shares, at cost
Less: Accumulated impairment loss
The Company
2016
USD
30,500,002
(4,000,001)
2015
USD
30,500,002
(4,000,001)
Net
26,500,001
26,500,001
67
Annual Report 2016NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 The details of subsidiary companies are as follows:
Principal
activities
Place of
incorporation (or
registration) and
operation
Proportion
of ownership
interest and
voting power
held
2016
2015
%
%
Direct Subsidiary
Companies
Steppe Cement (M)
Sdn. Bhd.
Mechanical & Electrical
Consulting Services Ltd.
(“MECS Ltd”)
Indirect Subsidiary
Companies
Held through Steppe
Cement (M) Sdn. Bhd.:
Steppe Cement Holdings
B.V. (“SCH BV”)
Held through SCH BV:
Malaysia
100
100
Malaysia
100
100
Netherlands
100
100
Central Asia Cement JSC
(“CAC JSC”)
Republic of Kazakhstan
100
Karcement JSC
Republic of Kazakhstan
100
100
100
Central Asia Services LLP
(“CAS LLP”)
Republic of Kazakhstan
100
100
68
Investment
holding
company
Provision of
consultancy
services
Investment
holding
company
Sale of
cement
Production
and sale
of cement
Transmission
and
distribution
of electricity
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 12. OTHER ASSETS
The Group
The Company
2016
USD
2015
USD
2016
USD
2015
USD
VAT recoverable -
non-current
Quarry stripping costs
Site restoration costs
Site restoration fund
1,132,488
180,539
42,969
83,237
2,170,009
167,214
43,777
61,499
Total
1,439,233
2,442,499
Quarry stripping costs
-
-
-
-
-
-
-
-
-
-
Quarry stripping costs comprised of stripping cost and site restoration cost. Stripping cost represented
costs removing the overburden related to the expansion of the existing quarry. The overburden removal
work began in 2009 and continued as necessary up to 31 December 2016. Amortisation commenced
upon physical extraction of limestone and clay from this quarry.
Movement of quarry stripping costs is as follows:
The Group
The Company
At beginning of year
Exchange differences
Additions
Amortisation
2016
USD
167,214
2,643
28,648
(17,966)
2015
USD
297,412
(137,654)
7,456
-
At end of year
180,539
167,214
Site restoration costs
2016
USD
2015
USD
-
-
-
-
-
-
-
-
-
-
Site restoration cost pertains to CAC’s use of limestone and clay quarries and is calculated with
reference to the scope of rehabilitation work required under the present relevant laws. The expected
timing of economic outflow used in arriving at the site restoration provision is at the expiry of the
quarry operating agreement on 24 June 2043.
69
Annual Report 2016NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 13. DEFERRED TAXES
At beginning of year
Exchange differences
(Charged)/Credited to statement of
profit or loss (Note 8)
Credited to other comprehensive
income
At end of year
The Group
The Company
2016
USD
549,669
3,207
2015
USD
(7,399,794)
2,108,047
(505,779)
5,837,032
-
47,097
4,384
549,669
2016
USD
2015
USD
-
-
-
-
-
-
-
-
-
-
Movement in net deferred tax assets/(liabilities) of the Group is as follows:
Opening
balance
Exchange
rate
differences
Recognised in
profit or loss
Closing balance
USD
USD
USD
USD
2016
Temporary differences:
Property, plant and
equipment
Inventories
Trade receivables
Accrued unused
leaves
Tax losses
Payables
Others
Total
(7,008,236)
(138,754)
(346,535)
(7,493,525)
303,505
7,966
14,589
9,661
230
281
73,754
3,251
386,920
11,447
418
15,288
7,049,812
126,529
(164,988)
7,011,353
144,451
37,582
5,057
203
(52,259)
(19,420)
97,249
18,365
549,669
3,207
(505,779)
47,097
70
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 Opening
balance
Exchange
rate
differences
Recognised in
profit or loss
Recognised
in other
comprehensive
income
Closing
balance
USD
USD
USD
USD
USD
2015
Temporary
differences:
Property, plant and
equipment
Inventories
Trade receivables
Accrued unused
leaves
Tax losses
Payables
Others
(11,925,928)
5,653,127
(739,819)
4,384
(7,008,236)
780,697
96,365
(385,460)
(28,191)
(91,732)
(60,208)
25,502
(12,299)
1,386
3,439,709
(3,035,464)
6,645,567
183,861
-
(69,585)
(14,081)
30,175
51,663
-
-
-
-
-
-
303,505
7,966
14,589
7,049,812
144,451
37,582
Total
(7,399,794)
2,108,047
5,837,032
4,384
549,669
The loss of the Group in 2015 was due to the foreign exchange losses as a result from the devaluation of the
KZT against the USD. The Group has forecasts that it will have sufficient future taxable profits arising that
will enable the reversal of existing temporary differences from unutilised tax losses. Management expects
the KZT to recover in the future.
The tax losses for which no deferred tax assets have been recognised are as follows:
The Group
The Company
2016
USD
2015
USD
2016
USD
2015
USD
Tax losses for which no deferred tax
assets have been recognised
57,822
138,944
6,291
6,349
71
Annual Report 2016NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 14.
INVENTORIES
Spare parts
Work-in-progress
Raw materials
Finished goods
Packing materials
Fuel
Goods held for resale
Construction materials
Consumables
Others
Total
Less: Provision for
obsolete inventories
Net
The Group
The Company
2016
USD
8,164,772
6,255,668
1,840,742
367,442
4,612
-
39,011
7,393
1,993,228
713,286
2015
USD
9,234,446
4,118,685
2,335,670
52,211
61,201
12,785
35,175
13,391
-
261,553
19,386,154
16,125,117
(3,223,677)
(2,805,285)
16,162,477
13,319,832
2016
USD
2015
USD
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The movements in the provision for obsolete inventories are as follows:
The Group
The Company
2016
USD
2015
USD
2016
USD
2015
USD
At beginning of year
Add: Provision for
obsolete inventories
Exchange differences
At end of year
(2,805,285)
(4,485,879)
(379,408)
(38,984)
(395,646)
2,076,240
(3,223,677)
(2,805,285)
-
-
-
-
-
-
-
-
As of 31 December 2016, inventories amounting to USD2,974,593 (2015: USD2,778,944) are pledged
to secure the short-term loan obtained from Halyk Bank JSC (Note 20).
72
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016
15. TRADE AND OTHER RECEIVABLES
The Group
The Company
2016
USD
2015
USD
2016
USD
2015
USD
Trade receivables
1,040,430
391,708
Less: Provision for
doubtful receivables
(23,960)
(40,171)
Net
1,016,470
351,537
Other receivables:
VAT recoverable -
current
Receivables from related
party
Receivables from
employees
Others
Total
1,610,078
1,495,844
61,237
33,850
78,280
402,698
10,690
398,815
3,168,763
2,290,736
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The Company enters into sales contracts with trade customers on cash terms. Some customers with
good payment history are granted certain credit periods on their cement purchases which are secured
against bank guarantee or other credit enhancements.
Age of trade receivables that are past due but not impaired as of 31 December are as follows:
The Group
1-90 days
91-180 days
181-270 days
271-360 days
> 1 year
Total
2016
USD
157,271
27,661
345,627
456,602
29,309
1,016,470
2015
USD
207,385
78,266
10,340
16,829
38,717
351,537
73
Annual Report 2016NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 Trade receivables disclosed above include amounts that are past due at the end of the reporting period
for which the Group has not recognised a provision for doubtful trade receivables because there has
not been a significant change in credit quality and the amounts are still considered recoverable.
Age of impaired trade receivables as of 31 December are as follows:
1-2 years
> 2 years
Total
The Group
2016
USD
11,591
12,369
23,960
2015
USD
12,635
27,536
40,171
Movement in the provision for doubtful trade receivables is as follows:
The Group
The Company
At beginning of year
Exchange differences
Add: Provision for doubtful
receivables
Less: Write-off of
provision for doubtful
receivables
Recovery of doubtful
receivables
2016
USD
(40,171)
(783)
2015
USD
(481,826)
223,008
(4,720)
(33,502)
21,462
252,149
252
-
At end of year
(23,960)
(40,171)
2016
USD
2015
USD
-
-
-
-
-
-
-
-
-
-
-
-
The recoverability of trade accounts receivable depends to a large extent on the Group’s customers’
ability to meet their obligations and other factors which are beyond the Group’s control. The
recoverability of the Group’s trade accounts receivable is determined based on conditions prevailing
and information available as at reporting date.
Other receivables mainly comprise VAT recoverable and customs duties that are refundable. VAT
recoverable are value added tax credits arising from the purchase of materials, property, plant
and equipment and repair and maintenance services made or procured by a subsidiary company
74
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016
(Karcement JSC) in relation to the refurbishment of a production line. Refundable customs duties
represent customs duties levied on the import of property, plant and equipment for the refurbishment
project.
16. ADVANCES AND PREPAID EXPENSES
The Group
The Company
2016
USD
2015
USD
2016
USD
2015
USD
Advances paid to third
parties
Less: Provision on
advances paid to third
parties
Less: Non-current
portion of advances paid
to third parties
Current portion of
advances paid to third
parties
Prepaid expenses
1,103,426
2,474,060
(38,984)
1,064,442
(86,888)
2,387,172
(458,619)
(1,270,919)
605,823
471,026
1,116,253
316,194
-
-
-
-
-
9,128
Total
1,076,849
1,432,447
9,128
-
-
-
-
-
6,582
6,582
Non-current advances paid to third parties represent advances made to suppliers by subsidiary
companies for the purchase of machinery, equipment and construction work at cement production
plant, while short-term advances are mainly advance payments for materials.
75
Annual Report 2016NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016
Movement of provision on advances paid to third parties is as follows:
The Group
The Company
At beginning of year
Exchange differences
Add: Provision on
advances paid
to third parties
Less: Write-off of
provision on
advances paid to third
parties
Reversal of provision on
advances paid to third
parties
2016
USD
(86,888)
(1,612)
2015
USD
(1,107,623)
512,650
(2,400)
(39,347)
20,871
547,432
31,045
-
At end of year
(38,984)
(86,888)
17. CASH AND CASH EQUIVALENTS
2016
USD
2015
USD
-
-
-
-
-
-
-
-
-
-
-
-
Cash in hand and at banks
Short-term deposit
The Group
The Company
2016
USD
997,765
25,440
2015
USD
2,369,419
36,890
2016
USD
73,636
-
2015
USD
338,124
-
Total
1,023,205
2,406,309
73,636
338,124
As at 31 December 2016, in accordance with the Law on Labor of the Republic of Kazakhstan, a non-
interest bearing deposit of USD25,440 (2015: USD36,890) was placed with Kazkommertsbank JSC as
part of work permit requirements for non-resident employees of the Republic of Kazakhstan which
include annual renewal of work permit.
76
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016
18
SHARE CAPITAL
The Group and
the Company
2016
USD
2015
USD
Issued and fully paid:
219,000,000 ordinary shares of no par value each:
At beginning and end of year
73,760,924
73,760,924
19. RESERVES
Revaluation reserve
Revaluation reserve represents the reserve arising from the revaluation of land and buildings of subsidiary
companies (CAC JSC and Karcement JSC) performed by an independent valuation appraiser.
Translation reserve
Exchange differences arising from the translation of assets and liabilities of foreign subsidiary companies
are recognised in other comprehensive income and accumulated in the translation reserve.
On 20 August 2015, the National Bank of Kazakhstan adopted the floating rate regime for the
Kazakhstan Tenge (“KZT”).With the floating rate mechanism, the exchange rate of the KZT is based on
its market demand and supply driven by both internal and external economic factors.
As at 31 December 2015, the KZT closed at 339.47 (2014: 182.35) to the USD. The sharp decline
caused a significant loss of USD57,566,026 recorded in the translation reserve due to re-translation of
the financial statements of the foreign subsidiaries’ financial statements whose functional currency is
the KZT.
Retained earnings
Any dividend distributions to be made by foreign subsidiary companies are subject to dividend
withholding tax ranging from 15% to 25% which may be reduced to 5% or waived subject to
compliance with the relevant tax treaties requirements. Deferred taxation has not been provided for in
the consolidated financial statements in respect of temporary differences attributable to accumulated
profits of these subsidiary companies as the Group is able to control the timing of the reversal of the
temporary differences and it is probable that the temporary differences will not be reversed in the
foreseeable future.
Under the Malaysian tax law, any dividend income received by Malaysian subsidiary companies will be
credited into an exempt income account from which tax-exempt dividends can be distributed. There
is no withholding tax on dividends distributed by Malaysian subsidiary companies.
77
Annual Report 2016NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016
Under the Labuan Business Activity Tax Act, 1990, any dividends received by the Company from
Steppe Cement (M) Sdn. Bhd., a subsidiary company incorporated in Malaysia, will be exempted from
tax. There is no withholding tax on dividends distributed to its shareholders.
20. BORROWINGS
Unsecured - at amortised cost
Bonds issued at price of:
96.2458%
Discount on bonds issued
Accrued interest
Secured - at amortised cost
Bank loans
Total
Current portion:
Bonds
Bank loans
Non-current portion:
Bonds
Bank loans
Total
The Group
2016
USD
2015
USD
4,470,581
(42,281)
48,858
4,389,195
(83,695)
47,969
4,477,158
4,353,469
21,939,917
26,325,807
26,417,075
30,679,276
4,477,158
6,486,666
47,969
15,774,289
10,963,824
15,822,258
-
15,453,251
4,305,500
10,551,518
15,453,251
14,857,018
26,417,075
30,679,276
The 5-year KZT1.49 billion bonds issued by CAC JSC in 2012 at a coupon rate of 10% per annum matures
in November 2017. The bond coupon is payable semi-annually and the principal is payable on 5 November
2017. The bonds are listed on the Kazakhstan Stock Exchange and all amounts due in relation to the bonds
issued are guaranteed by the Company and its subsidiary company (Karcement JSC).
78
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 Details of bank loans are as follows:
Halyk Bank JSC:
Facility A
Halyk Bank JSC:
Facility B
Halyk Bank JSC
government subsidised
facility for capital
expenditure
Halyk Bank JSC
government subsidised
facility for working capital
VTB Bank (Austria)
AG and VTB Bank
(France) SA
VTB Bank (Austria)
AG and VTB Bank
(France) SA
Currency
Maturity
date
Interest
rate
The Group
2016
USD
2015
USD
USD
USD
KZT
KZT
15 November
2018
12 November
2021
6% p.a.
5,500,000
6.5% p.a.
9,672,252
-
-
June 2025
6% p.a.
781,695
89,410
September to
November 2025
6% p.a.
2,656,170
1,014,560
KZT
January 2017
6% p.a.
1,500,195
Halyk Bank JSC for
working capital
USD
April to November
2017
6% p.a.
1,798,908
-
-
USD
15 November
2016
6.20%
p.a.
USD
11 March 2019
7.20%
p.a.
7.50%
p.a.
Altyn Bank JSC
USD
9 April 2016
Accrued interest
Total outstanding
-
-
-
10,970,424
11,729,549
2,420,500
30,697
101,364
21,939,917
26,325,807
79
Annual Report 2016NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016
Halyk Bank JSC facilities
Full repayment of VTB Bank (Austria) AG and VTB Bank (France) SA loan facilities
with facility provided by Halyk Bank JSC
On 11 November 2016, both CAC JSC and Karcement JSC entered into a USD16 million credit facility
with Halyk Bank JSC. The facility consists of USD5.5 million facility A and USD10.5 million facility B.
On 14 November 2016 and 23 November 2016, the Karcement JSC drawn a total of USD15.3 million
under facility A and B, which was used for repaying all loan principal and interest outstanding amounts
to VTB Bank (Austria) AG and VTB Bank (France) SA.
Facility A carries an interest rate of 6% per annum. The principal is repayable in 3 instalments; USD1.5
million in July 2017, USD2 million in July 2018 and the final principal of USD2 million in November
2018. Interest is payable monthly from 14 December 2016 until maturity.
Facility B carries an interest rate of 6.5% per annum. The principal is repayable over a 5- year period
in 60 equal monthly instalments commencing from 23 December 2016 until the maturity in November
2021. Interest is payable monthly from 23 December 2016 until maturity.
As at 31 December 2016, no further amounts were available for drawdown from this facility.
Halyk Bank JSC government-subsidised facility
On 19 June 2015, both CAC JSC and Karcement JSC signed a loan agreement with Halyk Bank
JSC on terms subsidised under government programs. The loan of KZT2.19 billion (or equivalent
of USD6,570,854) carries a subsidised fixed interest rate of 6% per annum. The loan is used for the
following purpose:
• KZT1.69 billion, approximately USD5,070,659, for capital expenditure with maturity period of 10
years and was available for drawdown until 19 June 2016. KZT1.19 billion (or USD3,570,464) and
KZT500 million (or USD1,500,195) loan comes with a 2 year grace period and no grace period with
monthly principal repayment, respectively; and
• KZT500 million, approximately USD1,500,195, for 5 years working capital requirement on a
revolving basis with interest payable monthly.
This government-subsidised loan is initially recognised at fair value at interest rate of 14% per annum,
and subsequently carried at amortised cost effective interest method (Note 21).
As at 31 December 2016, no further amounts were available for drawdown from this facility.
80
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 Halyk Bank JSC
On 2 February 2016, CAC JSC signed an agreement with Halyk Bank JSC to extend the existing KZT3
billion (or equivalent of USD9 million) working capital credit line from 23 January 2016 to 23 February
2018. The loan from the Halyk Bank JSC is secured by inventories of both CAC JSC and Karcement
JSC with a carrying amount of USD2,974,593 (2015: USD2,778,944) (Note 14).
Included in this facility limit of KZT3 billion is the sub-limit of KZT500 million for working capital
requirements under the government-subsidised facility.
As of 31 December 2016, CAC JSC’s short-term loan of USD5.7 million with Halyk Bank JSC was
available for drawdown.
Altyn Bank JSC facility
On 9 April 2015, Karcement JSC signed a credit line agreement for working capital with Altyn Bank
JSC with a limit of KZT750 million (or equivalent of USD2.2 million) which matured on 9 April 2016. The
line carried an interest rate of 7.5% per annum, subject to discretion of Altyn Bank JSC on prevailing
market interest rate.
The facility expired on 9 April 2016. Subsequent to financial year end, the facility was extended in
January 2017 until June 2017 with facility limit increased to USD2.7 million at an interest rate of 6%
per annum (Note 30).
21. DEFERRED INCOME
The Group
The Company
At beginning of year
Exchange differences
Additions
2016
USD
517,778
9,466
1,003,414
2015
USD
-
-
517,778
Credited to statement of profit
or loss
(5,299)
-
At end of year
1,525,359
517,778
2016
USD
2015
USD
-
-
-
-
-
-
-
-
-
-
Deferred income represents government grant in the form of interest rate lower than market interest
rates on government-subsidised loan for capital investment from Halyk Bank JSC (Note 20). It represents
the difference between the initial carrying amount of the loan measured at fair value using interest rate
of 14% per annum and the proceeds received, and is amortised to the statement of profit or loss as
other income over the useful lives of the related assets.
81
Annual Report 2016NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 Pursuant to the government-subsidised loan agreement, CAC JSC and Karcement JSC have jointly
drawn a total of USD3,437,865 for capital expenditure. The facility expired on 19 June 2016 and no
further amounts were available for drawdown from this facility.
As at 31 December 2016, the related assets in the amount of USD838,849 were put into use (2015:
Nil). During financial year, the Group recognised USD5,299 in the statement of profit or loss as other
income on a straight-line basis over the useful lives of the related assets.
22. TRADE AND OTHER PAYABLES
Trade payables
Others
Total
The Group
The Company
2016
USD
2015
USD
2016
USD
2015
USD
7,558,408
4,484,161
19,578
1,523
7,577,986
4,485,684
-
-
-
-
-
-
The credit period granted by creditors ranges from 1 to 30 days (2015: 1 to 30 days).
23. ACCRUED AND OTHER LIABILITIES
Provision for electricity
charges
Accrued directors’ fees
Advances from customers
Accrued salaries
Accrued unused leaves
Others
Total
The Group
The Company
2016
USD
-
957,287
525,920
197,396
76,438
161,189
2015
USD
617,698
1,324,200
665,959
197,028
72,937
206,990
2016
USD
2015
USD
-
-
957,287
1,324,200
-
-
-
-
-
-
28,772
33,373
1,918,230
3,084,812
986,059
1,357,573
82
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 The movement in the provision for electricity charges is as follows:
The Group
The Company
At beginning of year
Exchange differences
Less: Reversal of
provision for electricity
charges
At end of year
2016
USD
617,698
(4,135)
3,492,586
(952,805)
(613,563)
(1,922,083)
-
617,698
2015
USD
2016
USD
2015
USD
-
-
-
-
-
-
-
-
During the year, the management reversed provision for electricity transportation services of
USD613,563 for services provided in the year 2013. This is due to the expiry of the permissible period
of 3 years for filing of appeal by Karaganda Zharyk LLP against CAC JSC.
24. TAXES PAYABLE
The Group
The Company
Corporate income tax
Other taxes:
VAT payable
Emission taxes
Pension fund
Personal income tax
Social
Other taxes
2016
USD
-
22,852
165,351
9,389
17,252
15,092
-
2015
USD
27,873
230,880
159,917
20,809
27,334
23,601
11,527
Total
229,936
501,941
2016
USD
2015
USD
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
83
Annual Report 2016NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 25. RELATED PARTIES
Related parties include shareholders, directors, affiliates and entities under common ownership (which
the Group has the ability to exercise a significant influence).
Other related parties include entities which are controlled by a director, which a director of the Group
has ownership interests and exercises significant influence.
Receivable from/(payable to) related parties and other related parties, which arose mainly from trade
transactions and expenses paid on behalf, is unsecured, interest-free and is repayable on demand.
Balances and transactions between the Company and its subsidiary companies, which are related
parties of the Company, have been eliminated on consolidation.
Loans and advances to subsidiary companies of the Company are unsecured, interest-free and are
repayable on demand.
The transactions between related parties and the Group included in the statement of profit or loss and
statement of financial position are as follows:
Purchase of services
2016
USD
2015
USD
10,683
16,427
Receivable from/(Payable to)
related parties
2016
USD
-
61,237
2015
USD
(804)
33,850
Other related party
Opera Holding LLP
Other related parties
Opera Holding LLP
Others
84
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016
The following transactions and balances of the Company with subsidiary companies are included in
the statement of profit or loss and statement of financial position of the Company:
Subsidiary companies
Nature of
transactions
Revenue from services
performed
2016
USD
2015
USD
MECS Ltd.
Management fees
100,000
100,000
Subsidiary companies
Nature of
transactions
Receivable from subsidiary
companies
2016
USD
2015
USD
Karcement JSC
Intercompany loans
30,220,000
31,920,000
MECS Ltd.
Advances and
management fees
Steppe Cement (M) Sdn. Bhd.
Advances
6,722,064
2,768,056
5,302,886
2,623,018
Total
39,710,120
39,845,904
Compensation of key management personnel
The remuneration of directors and other members of key management are as follows:
Remuneration
Short-term benefits
The Group
The Company
2016
USD
605,691
127,664
2015
USD
701,191
123,586
2016
USD
2015
USD
100,000
142,341
-
-
Total
733,355
824,777
100,000
142,341
The remuneration of directors and key executives is determined by the remuneration committees of
the Company and subsidiary companies having regard to the performance of individuals and market
trends.
85
Annual Report 2016NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 The directors’ remuneration in the Company is as follows:
Director fees
Executive director:
Javier del Ser Perez
Non-executive directors:
Paul Rodzianko
Xavier Blutel
Malcolm Brown (resigned on 28 May 2015)
The Company
2016
USD
2015
USD
30,000
59,667
40,000
30,000
-
37,510
15,288
29,876
Total
100,000
142,341
26. FINANCIAL INSTRUMENTS
Capital Risk Management
The Group’s capital risk management objectives are to maximise value to shareholders and to ensure
that the Group’s subsidiary companies will continue to operate as a going concern through optimisation
of debt and equity balance.
The Group’s capital structure consists of net debt (which comprise of borrowings as detailed in Note 20
offset by cash and cash equivalents) and equity attributable to the shareholders of the Group. Equity
attributable to the shareholders of the Group includes share capital, reserves and retained earnings.
The Group monitors and reviews its capital structure based on its business and operating requirements.
86
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016
Financial Risk Management Objectives and Policies
Financial risk management is an essential element of the Group’s operations. The Group monitors
and manages financial risks relating to the Group’s operations through internal reports on risks which
analyse the exposure to risk by the degree and size of the risks. The operations of the Group are
subject to various financial risks which include foreign currency risk, credit risk, liquidity risk and interest
rate risk.
The Group continuously manages its exposures to risks and/or costs associated with the financing,
investing and operating activities of the Group.
(i)
Foreign Currency Risk
The Group undertakes trade and non-trade transactions with its trade customers and suppliers which
are denominated in foreign currencies. As a result, the amount outstanding is exposed to currency
translation risks.
Besides maximising cash at bank in US Dollars, the Group monitors the fluctuations in exchange rate of
foreign currencies to limit currency risk. The Group does not use derivative instruments for the purpose
of currency risk management.
87
Annual Report 2016NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
Foreign currency sensitivity analysis
The carrying amounts of the Group’s and of the Company’s financial assets and financial liabilities in foreign currencies as of 31 December are presented below:
The Group
2016
Financial Assets
Cash and cash equivalents
Financial Liabilities
Trade and other payables
Accrued and other liabilities
Borrowings
2015
Financial Assets
Cash and cash equivalents
Financial Liabilities
Trade and other payables
Accrued and other liabilities
Borrowings
GBP
EUR
MYR
RUB
USD
Total
-
-
842,168
-
GBP
-
-
1,274,320
-
65,164
688,518
26,068
-
EUR
48,980
651,996
28,253
-
-
-
27,124
-
MYR
-
-
31,564
-
22,644
30,520
118,328
193,834
839,467
1,721,819
-
-
-
895,360
17,001,857
17,001,857
RUB
USD
Total
-
71,889
120,869
19,100
969,983
1,641,079
1,334,137
-
-
-
25,221,837
25,221,837
88
Steppe Cement Ltd.Annual Report 2016 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
The Company
2016
Financial Assets
Cash and cash equivalents
Financial Liabilities
Accrued and other liabilities
GBP
EUR
MYR
-
123
-
Total
123
842,168
-
27,124
869,292
2015
GBP
EUR
MYR
-
123
-
Total
123
Financial Assets
Cash and cash equivalents
Financial Liabilities
Accrued and other liabilities
1,274,320
1,234
31,564
1,307,118
88
89
Steppe Cement Ltd.Annual Report 2016 The following table displays the Group’s and the Company’s sensitivity to a 20% increase and
decrease of the functional currency of each subsidiary company and the Company against
the relevant foreign currencies. A benchmark sensitivity rate of 20% is used to report foreign
currency risk internally to key management and represents management’s assessment of the
reasonably possible changes in foreign exchange rates. The sensitivity analysis includes only
outstanding foreign currency denominated monetary items and adjusts their translation at the
year end for a 20% change in foreign currency rates. The sensitivity analysis below indicates
the changes in financial assets and liabilities of the effect of a 20% increase in value of the
functional currency of each subsidiary company and the Company against the relevant foreign
currencies respectively. The positive figure indicates an increase in profit before tax (2015:
decrease in loss before tax) for the reporting period. In the case of 20% decrease in value of
the functional currency of each subsidiary company and the Company against the relevant
foreign currencies, respectively, there would be an equal but opposite impact on the Group’s
and the Company’s profit/(loss) before tax.
Impact on profit/(loss)
before tax
2016
2015
3,562,161
168,434
129,884
5,425
34,238
168,434
(25)
5,425
5,223,986
254,864
126,254
6,313
3,820
254,864
222
6,313
The Group
USD
GBP
EUR
MYR
RUB
The Company
GBP
EUR
MYR
90
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016
(ii) Credit Risk
Credit risk arises when the counterparty defaults on its contractual obligation resulting in financial
loss to the Group. The Group adopts a policy of trading only with creditworthy counterparties to
mitigate risk of financial loss from defaults. The requirement of cash upfront for sales with major
customers limits the credit risk of the Group. The maximum exposure to credit risk equals the
carrying amount of each financial asset.
Concentration of credit risk can arise when several debts are due from one customer or group
of customers with similar borrowing terms for which there is a basis to expect that changes in
economic terms or other circumstances can equally affect their capacity to meet their obligations.
Concentration of credit risk on trade receivables is limited as sales to major customers are based
on cash prepayment terms before the actual delivery of cement. The Group does not have
significant credit risk exposure to any single counterparty.
The Group maintains a stringent credit control policy which includes dealing only with customers
with adequate credit history and monitoring of outstanding trade receivables to ensure that
customers do not exceed their respective credit limits.
The Group maintains cash balances only with internationally reputable banks and domestic banks
of high credit standing.
(iii)
Liquidity Risk
Ultimate responsibility for liquidity risk management rests with the board of directors, which
has established an appropriate liquidity risk management framework for the management of
the Group’s short, medium and long-term funding and liquidity management requirements.
The Group manages liquidity risk by maintaining adequate reserves, bank loans and accessible
credit lines. The Group actively monitors its forecasts, actual cash flows, availability of short-term
funding and matches the maturity profiles of financial assets and financial liabilities to determine
suitable funding to meet any shortfall in cash requirements.
As of 31 December 2016, CAC JSC’s short-term loan of USD5.7 million with Halyk Bank JSC is
available for drawdown.
91
Annual Report 2016 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
Tables on Liquidity Risk
The following table reflects contractual terms of the financial liabilities of the Group and of the Company. The table is prepared based on the undiscounted
cash flows on financial liabilities on the basis of the earliest date at which the Group and the Company can be required to pay. The table includes both interest
and principal cash flows.
The Group
2016
Interest bearing
Borrowings
Bonds
Bank loans
Non-interest bearing
Trade and other payables
Accrued and other liabilities
2015
Interest bearing
Borrowings
Bonds
Bank loans
Weighted
average
interest rate
Less than
1 month
1-3 months
3 months
- 1 year
1-5 years
Greater
than
5 years
Total
11.15%
6.21%
-
-
4,917,639
-
-
4,917,639
174,749
2,172,561
4,839,920
17,326,901
2,351,602
26,865,733
-
-
3,418,950
4,159,036
-
820,423
54,460
1,043,347
-
-
-
-
7,577,986
1,918,230
4,414,122
6,386,057
10,800,906
17,326,901
2,351,602
41,279,588
11.15%
7.26%
-
-
438,919
4,828,114
-
5,267,033
270,015
3,186,058
13,852,491
11,867,452
959,614
30,135,630
92
Steppe Cement Ltd.Annual Report 2016 92
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
Weighted
average
interest rate
Less than
1 month
1-3 months
3 months
- 1 year
1-5 years
Greater
than
5 years
Total
Non-interest bearing
Trade and other payables
Accrued and other liabilities
The Company
2016
Non-interest bearing
Accrued and other liabilities
2015
Non-interest bearing
Accrued and other liabilities
-
-
-
-
1,382,803
3,102,884
-
373,679
663,224
1,382,225
-
-
-
-
4,485,687
2,419,128
2,026,497
6,952,166
15,673,635
16,695,566
959,614
42,307,478
4,275
867
980,917
6,327
1,808
1,349,438
-
-
-
-
986,059
1,357,573
The amounts included above for borrowings represent amounts the Group and the Company expect to repay according to repayment terms in loan agreements.
As at financial year end, the Group and the Company are in compliance with the financial covenants of the loan agreements.
93
Steppe Cement Ltd.Annual Report 2016
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
The following table reflects expected maturities of non-derivative financial assets of the Group and of the Company. The table was prepared based on
undiscounted contractual terms of financial assets, including interest received on these assets, except when the Group and the Company expect the cash flow
in a different period.
The Group
2016
Non-interest bearing
Cash and cash equivalents
Trade and other receivables
2015
Non-interest bearing
Cash and cash equivalents
Trade and other receivables
The Company
2016
Non-interest bearing
Cash and cash equivalents
2015
Non-interest bearing
Cash and cash equivalents
Weighted
average
interest rate
Less than
1 month
1-3 months
3 months
- 1 year
1-5 years
Greater
than
5 years
-
-
-
-
-
-
1,023,205
-
-
-
141,270
143,821
1,166,198
53,131
1,164,475
143,821
1,166,198
53,131
2,406,309
-
-
-
286,122
207,730
188,343
78,888
2,692,431
207,730
188,343
78,888
73,636
338,124
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
1,023,205
1,504,420
2,527,625
2,406,309
761,083
3,167,392
73,636
338,124
94
Steppe Cement Ltd.Annual Report 2016 4
9
(iv)
Interest rate risk
Interest rate risk is the risk that changes in floating interest rates will adversely impact the financial
results of the Group. The Group does not use derivative instruments for the purpose of interest rate
risk management.
As at 31 December 2016 and 2015, the Group does not have any exposure to floating interest rates as
the interest rates of the Group’s loans are fixed and therefore, the Group is not exposed to variability
in cash flows due to interest rate risk.
Fair Values of Financial Assets and Financial Liabilities
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction in the principal (or most advantageous) market at the measurement date
under current market condition regardless of whether that price is directly observable or estimated
using another valuation technique. As no readily available market exists for a large part of the Group’s
financial instruments, judgement is necessary in arriving at fair value, based on current economic
conditions and specific risks attributable to the instrument. The fair value of the instruments presented
herein is not necessarily indicative of the amounts the Group could realise in a market exchange from
the sale of its full holdings of a particular instrument.
The following methods and assumptions were used by the Group to estimate the fair value of financial
instruments that are not measured at fair value on a recurring basis (but fair value disclosures are
required):
Cash and cash equivalents
The carrying value of cash and cash equivalents approximates their fair value due to the short maturity
of these financial instruments.
Trade and other receivables, trade and other payables and accrued and other
liabilities
For financial assets and financial liabilities with maturity less than twelve months, the carrying value
approximates fair value due to the short maturity of these financial instruments.
95
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 Annual Report 2016 Borrowings
The fair values of the borrowings are estimated by discounting expected future cash flows at market
interest rates prevailing at the end of the relevant year with similar maturities adjusted by credit risk.
As of 31 December 2016 and 2015, the fair values of borrowings approximate their carrying values,
except for the following:
Carrying amount
Fair Value
2016
USD
2015
USD
2016
USD
2015
USD
Borrowings
16,276,090
22,890,747
15,984,644
23,291,372
The fair values of the borrowings with Halyk Bank JSC (2015: VTB Bank (Austria) AG and VTB Bank
(France) SA) were included in the Level 2 of fair value hierarchy, as the fair values had been determined
in accordance with generally accepted pricing models based on a discounted cash flow analysis with
the most significant inputs being the discount rate that reflects the credit risk of counterparties. The
discount rate used in the fair value calculation was 6.9% per annum (2015: 6.5% and 7.1% per annum).
27. CONTINGENCIES
Commercial legislation of the Kazakhstan where the Group operates, including tax legislation, may
allow more than one interpretation. In addition, there is a risk of tax authorities making arbitrary
judgments of business activities. If a particular treatment, based on management’s judgment of the
Group’s business activities, was to be challenged by the tax authorities, the Group may be assessed
additional taxes, penalties and interest. Such uncertainty may relate to the valuation of provision for
taxation and the market pricing of transactions. The management of the Group believes that it has
accrued all tax amounts due and therefore no additional allowance has been made in the financial
statements of the Group.
96
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 28. COMMITMENTS
The Group has outstanding amount of contractual commitments for the acquisition of property, plant
and equipment of USD40,175 as at 31 December 2016 (2015: USD3,121,419).
29. SEGMENTAL REPORTING
No industry and geographical segmental reporting are presented as the Group’s primary business is
the production and sale of cement which is located in Karaganda region, the Republic of Kazakhstan.
30. SUBSEQUENT EVENTS
In January and February 2017, Karcement JSC entered into various loan agreements with Altyn Bank
JSC to provide USD2.7 million at an interest rate of 6% per annum to finance its working capital
requirements. The facility matures on 10 June 2017.
On 31 March 2017, Karcement JSC and CAC JSC entered into a short term credit line with VTB Bank
JSC for working capital, maturing on 29 September 2017, for KZT1 billion, or approximately USD3
million, with an interest rate up to 12.5% per annum.
97
Annual Report 2016 STATEMENT BY A DIRECTOR
STEPPE CEMENT LTD
(Incorporated in Labuan FT, Malaysia under the Labuan Companies Act, 1990)
AND ITS SUBSIDIARY COMPANIES
I, JAVIER DEL SER PEREZ, on behalf of the directors of STEPPE CEMENT LTD, state that, in the opinion
of the directors, the accompanying statements of financial position and the related statements of
income, changes in equity and cash flows are drawn up in accordance with International Financial
Reporting Standards so as to give a true and fair view of the state of affairs of the Group and of the
Company as of 31 December 2016 and of their financial performance and cash flows for the year
ended on that date.
Signed in accordance with a
resolution of the Directors,
______________________________
JAVIER DEL SER PEREZ
Labuan
12 May 2017
98
Steppe Cement Ltd. NOTICE OF THE 2017 AGM
NOTICE IS HEREBY GIVEN that the 2017 ANNUAL GENERAL MEETING of the Company will be held
at the office of Steppe Cement Ltd, Suite 10.1, 10th Floor, West Wing, Rohas Perkasa, 8 Jalan Perak,
Kuala Lumpur, Malaysia on Wednesday, 14 June 2017 at 2.30 p.m. for the purpose of considering and
if thought fit, passing the following Resolutions:
ORDINARY RESOLUTIONS
1.
2.
ADOPTION OF AUDITED FINANCIAL STATEMENTS
To receive and adopt the audited financial statements for year
ended 31 December 2016
RESOLUTION 1
RE-ELECTION OF DIRECTORS
To re-elect the following Directors who offered themselves for
re-election:
2.1 Javier Del Ser Perez
2.2 Xavier Blutel
RESOLUTION 2
3.
To transact any other business of which due notice shall have
been given in accordance with the Labuan Companies Act, 1990.
BY ORDER OF THE BOARD
TMF Secretaries Limited
(f.k.a. Equity Trust Secretaries Ltd.)
Corporate Secretary
Labuan F.T., Malaysia
99
Annual Report 2016
Notes:
1. A member of the Company entitled to attend and vote at this meeting is entitled to appoint a
proxy to appoint and vote instead of him.
2. The instrument appointing a proxy shall be produced at the place appointed for the meeting
before the time for holding the meeting at which the person named in such instrument proposes
to vote.
3. The instrument appointing a proxy shall be in writing under the hand of the appointer, unless
the appointer, is a corporation or other form of legal entity other than one or more individuals
holding as joint owners, in which case the instrument appointing a proxy shall be in writing
under the hand of an individual duly authorised by such corporation or legal entity to execute
the same.
4. Copies of the proxy form and form of instruction are available at the UK Registrar Computershare
Investor Services PLC, The Pavilions, Bridgwater Road BS13 8AE.
100
Steppe Cement Ltd. 101
Annual Report 2016 STEPPE CEMENT LTD
(Corporate Office)
Suite 10.1, 10th Floor
Rohas Perkasa, West Wing
No.8, Jalan Perak
50450 Kuala Lumpur
Malaysia
Tel: +(603) 2166 0361
Fax: +(603) 2166 0362
www.steppecement.com