Steppe Cement Ltd
Annual Report 2017

Plain-text annual report

ANNUAL REPORT 2017 Plant Location In Kazakhstan 2 Steppe Cement Ltd.04 - Financial Highlights 15 - Board Of Directors 05 - Operational and Market Data 16 - Senior Management Karcement JSC & CAC JSC 06 - Financial Ratios 07 - Corporate Information 08 - Chairman’s Statement 10 - CEO’s Statement 14 - Group Structure 18 - Corporate Governance Statement 24 - Financial Statements 96 - Statement by a Director 97 - Notice of Annual General Meeting 3 Annual Report 2017Financial Highlights 2017 2016 2015 2014 2013 65.8 52.4 93.6 116.6 Revenue (USD Million) 128.0 2017 2016 2015 2014 2013 11.6 9.7 22.7 17.4 28.7 EBITDA* (USD Million) * excluding foreign exchange gain/ losses arising on devaluation of the Tenge. 2017 1.2 3.4 7.9 2016 0.2 2015 2014 2013 Profit/Loss after Tax (USD Million) 2017 2016 2015 2014 2013 10.5 59.5 58 56.7 117.6 154.6 Shareholders Fund (USD Million) 4 Steppe Cement Ltd.Operational and Market Data 2017 2016 2015 2014 2013 2017 2016 2015 2014 2013 2017 2016 2015 2014 2013 2017 2016 2015 2014 2013 10.8 9.6 10.2 10.8 12.1 Ex-factory price (KZT’000) 1.63 1.57 1.64 1.61 1.37 Sales volume (million tonnes) 17 17 17 17 19 Market Share (%) 326 342 222 180 152 Average exchange rates (USD/KZT) 2017 2016 2015 2014 2013 2017 2016 2015 2014 2013 2017 2016 2015 2014 2013 33 28 49 60 79 Ex-factory price (USD) 9.0 9.0 9.6 8.5 8.1 Market Size (million tonnes) 76 82 80 86 86 Capacity utilisation (%) 5 Annual Report 2017Financial Ratios Ratios 2013 2014 2015 2016 2017 Gross profit margin (%) 42 31 Profit / (Loss) after tax margin (%) Net earnings / (Loss) per share (cents) Return on shareholders funds (%) 8 5 7 (7) (4) (7) NTA Per Share (cents per share) 71 54 36 (4) (2) (6) 26 30 30 0 0 0 2 0.6 2 27 27 Shares data Number of shares issued (million) 219 219 219 219 219 6 Steppe Cement Ltd.CORPORATE INFORMATION Listing Nominated Advisor 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 RFC Ambrian Limited 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 Federal Territory of Labuan, Malaysia UK Registrar 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 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 2017Chairman’s Statement “ The demand is stable at 9 Mt, which is a record historical level second only to 2015 with 9.5Mt. It is, and will remain, significantly impacted by infrastructure projects dependant on central and regional decisions, but also justified by foreign investors’ direct investments” Year 2017 has been a transition year both for Steppe Cement and for Kazakhstan. Domestic competition reached higher levels with the long-expected start- up of Kokshe Cement in the North, primary market of the company. This, together with the completion in 2016 of two additional clinker and cement lines, in the South with Standard Cement second kiln, and in the distant West by Heidelberg Group, triggered aggressive pricing which was mostly felt during the first and last quarters of 2017. With a combined production capacity in excess of 10 Mt and domestic demand expected to remain reasonably at or above 9 Mt, and in the absence of new entrants, a decent capacity utilization rate can be ensured for every producer, as long as the import/export balance remains favourable. Reality denies this statement, essentially because some producers try to gain some short-term advantages, usually to face urgent cash requirements or to establish their position if they are new entrants. In fact, in 2017 some 9.2 mt were produced in Kazakhstan, the ability to grind enough clinker into cement being the common limiting factor for most producers. From these 9.2 mt, 8.2 mt were sold in Kazakhstan and an unprecedented volume of 0.88 mt in exports, primarily to Siberia, then Kyrgyzstan and Uzbekistan. Imports came mostly from Russia. At country level, this level of consumption remains driven directly or indirectly by State funds and, at an average of 500 kg per capita, it compares favourably with most Western countries having reached a much more advanced economic stage - but not in prices which, at 34 $/tonne ex-factory, are among the lowest in the world and can hardly provide a decent return on the high capital investment required for an efficient factory. The demand is stable at 9 Mt, which is a record historical level second only to 2015 with 9.5Mt. It is, and will remain, significantly impacted by infrastructure projects dependant on central and regional decisions, but also justified by foreign investors’ direct investments: China with the “One Belt, One Road” Initiative, mineral extraction groups and oil producers are the most noticeable players in this respect. However, a necessary increase in demand should arise in the future with the advent of investments in private housing and commercial construction, which are still at a very early stage of development. For the housing sector the subsidized loans proposed by the Government are not sufficiently attractive yet to create a substantial and stable demand in this segment. A new mortgage scheme (‘7-20-25’) has been announced in March 2018 by the President and may bring changes in this respect in a country where the population keeps growing and expects higher standards of living. 8 Steppe Cement Ltd.on the packaging, handling, storage and distribution sectors are enabling the factory to sell all the clinker and cement it can produce, with special attention to the summer peak demand. A new situation created by the unavailability of wagons from Ukraine and Russian regulations forcing the stoppage of wagons of 26 years of age or more made it vital to keep under our control the 300 additional wagons CAC needs in summer, and the company has taken the necessary decision to rent them all over the full year. The commercial strategy was first to aim at realizing the highest possible price with this reduced production. Faced with a substantial loss of market share, the company then decided to match competitors’ prices and managed to recover part of its losses. The technical team is now well familiar with the technical modifications made and is focusing its attention on ensuring smooth and stable operations, with the benefits of reducing maintenance and energy costs. A new improvement, consisting of introducing a fraction of the coal consumed in the preheater tower and thereby creating a sort of mini- precalcination, is giving very positive results and, after a very careful period of testing, this may allow the company to reach 2 million tonnes per year of cement. If financial costs are factored into the cement production cash cost, the Karaganda plant is today the lowest cost producer in Kazakhstan with the highest production capacity compared to any other single facility. Steppe Cement was able to meet all its financial commitments and finished the year with USD 16m of net debt. The USD 12m EBITDA, negatively affected by the technical problems and by the tense competitive pressure already mentioned, should comfortably be beaten in 2018 and recoup in the following years the levels achieved at the beginning of the decade, a significant achievement which would offset the negative effects of the sharp devaluation of the Tenge. This is made possible as a result of the investment and commercial strategies chosen and of the continuously increased efficiency and effectiveness of the Management and the Employees. No major industrial investment being envisaged, a very strong financial and industrial position should be enjoyed in the coming years, enabling the Company to protect its market share under increased competition as well as to take advantage of any increase in demand, and to propose paying dividends again to reward its shareholders. Xavier Blutel Non-Executive Chairman 9 With GDP and Gross Fixed Investment growing at a 4% annual rate in 2017, the economy rediscovered the 2014 level after two sluggish years of growth at around 1%. The outlook is even brighter with the current recovery in oil prices. Inflation at 7% is on a downward trend. All indicators seem to point in the right direction, the main area of uncertainty being the foreign exchange rate under the current volatile international environment. The Company lost volumes to competition during the first half of 2017 due to some trials to push production on line 6 at 3000 tonnes per day, far beyond historical levels, a performance thought to be achievable after the substantial modifications made in 2016. This created damages on refractories with long stoppages, losses of production and the costs associated to the necessary repairs. The upgraded line has now found its reasonable level of production, which meets the original expectations. The investments made, or under completion, in 2018 Annual Report 2017CEO’s Statement “Our expectations are that overall market demand in 2018 will increase by 4 to 7%. We expect the demand to grow stronger in the south/west regions and in the smaller cities.” In 2017, Steppe Cement posted a net profit of USD 1.2 million. Steppe Cement’s EBITDA increased to USD 11.6 million from USD 9.7 million in 2016 mostly due to higher prices and volumes. The overall domestic cement market was stable at 9 million tonnes and our sales volume increased by 4%, while the price in KZT increased by 14%. The continued weakness of the KZT against the surrounding currencies has allowed the company to increase exports significantly. In 2017 we produced exclusively from the dry lines and our cost of production per tonne in KZT increased by 15%, partly explained by higher coal prices, maintenance and the allocation of some of the annual maintenance cost of late 2016 to the early months of 2017. Steppe Cement operated Line 5 at 95% of its current capacity (1.1 million tonnes) and Line 6 at 74% of capacity (0.8 million tonnes) as we continue the improvements to increase its reliability for 2018. Shareholders’ funds increased marginally to USD59.5 million from USD58 million. Due to the historical devaluation of the local currency over the years since the key investments were made, the replacement cost of the company’s assets is many times higher than their current book value. The overall market volume was stable in 2017 and we expect it to improve in 2018 The Kazakh cement market in 2017 was 9 million tonnes, the same as in 2016. Imports into Kazakshtan increased by 43% to 0.67 million tonnes or 7% of the total. Exports from local producers increased by 120% to 0.9 million tonnes generating a small net outflow of cement from the country for the first time. 10 Steppe Cement Ltd. Key financials Year ended 31-Dec-2017 Year ended 31-Dec-2016 Inc/ (Dec)% Sales (tonnes of cement) 1,630,230 1,570,140 Consolidated turnover (KZT million) 21,443 17,941 Consolidated turnover (USD million) Consolidated profit before tax (USD million) Consolidated profit after tax (USD million) Profit per share (US cents) Shareholders’ funds (USD million) Average exchange rate (USD/KZT) Exchange rate as at year end (USD/KZT) 65.9 1.9 1.2 0.6 59.5 326 332 52.5 0.7 0.2 0.1 58.0 342 333 4 20 25 184 602 602 3 (5) 0 Our expectations are that overall market demand in 2018 will increase by 4 to 7%. We expect the demand to grow stronger in the south / west regions and in the smaller cities. Kazakhstan’s population has reached 18 million, implying that cement consumption per capita is now 500 kg per annum. Improving exports helped local companies to increase slightly their overall volumes. The companies that benefited most were the ones in the south with new commissioned dry kilns in 2016. In the north a new competitor has started operating and will increase its production steadily during the year. Line 5 produced 1,050,183 tonnes of cement while Line 6 produced 580,047 tonnes as we continue to make changes to increase production in 2018 that are already having an effect in the first half. We expect Line 6 to contribute additional 150,000 tons in 2018. Line 5’s current capacity is 1.1 million tonnes of cement and Line 6 is 0.8 million tonnes and we expect them to operate at least at 90% capacity in 2018. Capital investment in 2017 was limited to the new packing line financed at subsidised rates In 2018, the local cement factories should maintain these trends with greater exports to Uzbekistan helped as well by the local environment, as currency restrictions were lifted. Imports into Kazakhstan should remain contained to regions near the Russian border. During 2017, capital investment was reduced to USD1.6 million from USD4.8 million in 2016. Most of the capex in 2017 was directed to packing and logistics, including a new 90 tonnes per hour packing plant and the increase of the big bag facility to 100 tonnes per hour. Steppe Cement’s average cement selling prices increased by 15% in KZT and by 21% in USD, to USD 40.4 per tonne delivered. 11 Annual Report 2017Cost increased more than inflation due to coal and maintenance Financial position: Continuous debt reduction The average cash production cost of cement increased to USD24/tonne from USD21/tonne in 2016, but is expected to be contained or reduced in 2018 as production and sales increase. Selling expenses, reflecting mostly cement delivery costs, increased to USD7/tonne from USD5/tonne in 2016, due to higher transportation tarifs, less truck deliveries and increased shipments to more distant markets. General and administrative expenses General and administrative expenses decreased by 11% to USD4.2 million from USD4.8 million in 2016, due mostly to management efforts. The labour count stood at 735 on 31 March 2018 compared with 724 on 31 March 2017. In 2017, we signed a new long term subsidized loan to build the new packing plant for KZT 580 million (equivalent to USD1.8 million) for 5 years at 6%. During the year, our long term loans were reduced from USD15.4 million to USD 9.8 million. We repaid: • The outstanding KZT1.5 billion bond • USD 3.5 million in principal to Halyk Bank for wagons and governement subsidised loans • And we drew KZT225 million from the new subsidised loan for the packing plant. The effective interest rate in the long term loans in USD and KZT was maintained at 6.2%. Our short term loans and current part of the long term loans were reduced to USD10 million in 2017 from USD11 million in 2016, while the cash position increased to USD3 million from USD1 million. We 12 Steppe Cement Ltd. consider the risk of further devaluation is now much lower and therefore we have chosen to borrow short term mostly in USD from December 2017 as the interest differential was 6 to 8%, although we borrowed opportunistically at 10% in KZT when the banks offered it. All covenants under the various credit lines have been met comfortably. Depreciation increased to USD7.3 million in 2017, from USD6.8 million in 2016, due to the capex made in previous years and the exchange rate. We maintain three short term credit lines available as stand by: The statutory corporate income tax rate remains at 20% in Kazakhstan. • KZT 3 billion from Halyk Bank at 6% in USD or 12% in KZT which includes a government subsidized program of KZT0.5 billion in KZT at 6%. • KZT 0.9 billion from Altyn Bank at 10% in KZT. • KZT 3 billion from VTB Bank Kazakhstan at 11.5% signed in March 2018. In 2017, finance costs decreased to USD2.2 million from USD2.8 million in 2016 due to the continuous repayment of loan principals. Javier del Ser Chief Executive Officer 13 Annual Report 2017 GROUP STRUCTURE 100% 100% Steppe Cement (M) Sdn Bhd (Malaysia) Mechanical and Electrical Consulting Services Ltd (Malaysia) 100% Steppe Cement Holdings B.V. (Netherlands) 100% 100% 100% Central Asia Services LLP (Kazakhstan) Central Asia Cement JSC (Kazakhstan) Karcement JSC (Kazakhstan) 14 Steppe Cement Ltd.  Board of Directors Xavier Blutel (Non-Executive Chairman) Xavier Blutel, 64, 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. Javier Del Ser Perez (Chief Executive Officer) Javier del Ser Perez, 52, 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. Rupert Wood (Non-Executive Director) Rupert Wood, 47, has been involved in Emerging Market Equities since the mid-1990s, predominantly in Central and Eastern Europe. Starting his career at NatWest Markets in 1996 covering Emerging Europe as an analyst and then in equity sales, he worked at CA-IB/Bank Austria and then at ING, where he managed distribution of Emerging Market Equities to institutional investors as Head of EMEA Equity Sales. He then joined Wood & Co as Head of Sales, before becoming Head of Equities and subsequently Senior Advisor. His wide capital markets experience has spanned the broader EMEA region including Central Asia, Turkey, the Gulf, South Africa, as well as Latin America. He holds degrees from the University of Oxford and the School of Slavonic and East European Studies (SSEES), now a part of University College London (UCL). 15 Annual Report 2017Senior Management MANAGEMENT OF KARCEMENT JSC General Director: Gan Chee Leong Gan is a Chartered Accountant from England and Wales. He started work in Kuala Lumpur as a senior auditor with a well-known international firm. He has about 25 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. Operation Director: George Ramesh 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. Legal Department Chief: Veronica Kuznetsova 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. Head Quality Assurance: Gottapu Nageswara Rao A Chemist by profession with a Bachelor Degree in Chemistry from India. He has about 34 years of vast experience in Dry process cement industry in India and abroad, handled Raw mix preparation, Product development, Product quality control, Alternative Fuels and Raw Materials planning and ISO systems. Before joining Kar Cement in April 2017, he worked as Chief Chemist for Lafarge Holcim (Malaysia)for 17 years in quality and optimization department in various positions and projects. Prior to that, with Cheran Cements as project and Plant Manager for grinding unit. Chief Accountant: Tkachenko Yulia Vladislavovna 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 JSC since October, 2014 and as the chief accountant since August 2016. Yulia is a certified professional accountant since January 2016. 16 Steppe Cement Ltd.Senior Management MANAGEMENT AND STAFF OF CENTRAL ASIA CEMENT JSC General Director : Peter Durnev A graduate of Academy Marketing Moscow. He has worked in CAC for about 20 years rising from marketing executive to his present position. He also holds the position of Marketing Director. Finance Director: Derek Kuan Boon San 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 and 3 years in Singapore. His expertise encompasses audit, financial reporting, internal control procedures, corporate finance and investment evaluation. Chief Accountant : Zilya Khasanova 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 Personnel Manager : Irina Poluychik An economist by qualification. She specializes in human resources matters. She has been with CAC for 32 years. 17 Annual Report 2017Corporate Governance is (“Board”) The Board of Directors fully committed and strives to take the necessary measures to uphold the best principles and practices of corporate governance in the Group. Good corporate 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. 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. Independent non-executive directors – at least two independent non-executive directors, one of whom may be the Chairman. • • 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. • 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. 18 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; • approval of the Group’s financial statements, • annual report and announcements; • 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. 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 COMPOSITION 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 Steppe Cement Ltd. fully discharges Chairman and Chief Executive Officer. The Chairman is responsible for leadership and management of the Board and ensures that it operates effectively and its responsibilities. The Board has delegated responsibility for the day- today 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. Performance evaluation regular evaluates its The Board conducts 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. Independence Re-election of directors 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. 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. 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. 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. Remuneration policy to 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 the Remuneration Committee. The purpose of the policy is to ensure reflects the 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. remuneration package properly Independence 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. 19 Annual Report 2017 Corporate Governance Directors Xavier Blutel (Non-Executive Chairman) Javier Del Ser Perez (Chief Executive Officer) Rupert Wood* (Non-Executive Director * Appointed on 12 October 2017 Board Audit Committee Remuneration Committee Nomination Committee 4 4 1 4 4 N/A N/A 1 1 4 4 1 Committee meetings are held concurrently with the board meetings. Board Meetings The functions of the Nomination Committee include: During the year ended 31 December 2017, 4 board meetings were held. The following is the attendance record of the directors: Nomination Committee • • Review annually the structure, size and composition of the Board taking into account the Group’s strategies; Identify and nominate the potential candidates to the Board for approval; 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. • Monitor the appointment process of directors; • Recommend to the Board for approval on the re-appointment of directors; • Oversee the succession planning of directors into consideration of the Group’s taking strategies; The Nomination Committee’s members comprises of: • Report and make recommendations to the Board on the Committee’s activities; and 1. 2. 3. Rupert Wood (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 and recruitment of the potential candidates for directorship shall include qualifications of individual, experience, knowledge and the achievements, credibility and background and ability of the candidates to contribute effectively to the Board and Group. • Review and update the Terms of Reference at least once a year. 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 20 Steppe Cement Ltd. and competitively set to attract, retain and motivate people of the highest quality. nomination and re-appointment of the external auditors; The functions of the Remuneration Committee include: • Determine and review the broad remuneration policy of the Chairman, Chief Executive Officer, Executive Directors and Senior Executives; • eview 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 • 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 relationship with the external auditors, including the engagement of auditors, remuneration and the audit scope, plan, 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: The Remuneration Committee’s members comprises of: 1. 2. Rupert Wood (Chairman) Xavier Blutel 1. 2. Xavier Blutel (Chairman) Rupert Wood Audit Committee 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: • Review the Group’s financial statements, the relating to regulatory announcements Group’s results; • Review the Group’s significant accounting policies and practices; • Review compliance with international financial reporting standards, regulatory and other legal requirements; • Review and advise the Board on the appointment, 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 to act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the Group. 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. 21 Annual Report 2017 Corporate Governance INVESTOR RELATIONS Key elements The Board recognises and values the importance of managing its relationship with the investing community. The Board is committed and communicates regularly with shareholders on 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. 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. INTERNAL CONTROL The Board places importance on the maintenance of a strong internal control system in the Group, risk management including compliance and practices to ensure good corporate governance. The Board regularly evaluates and monitors the effectiveness of the internal control system. Purpose The Group’s internal control system is designed to safeguard the Group’s assets and enhance the shareholders investments. The Group’s internal control system is designed to manage rather than fully eliminate the risk of failure to achieve business objectives. Therefore, the internal control system can only provide reasonable but not absolute assurance against material misstatement or loss. 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 to financial information and capital expenditure. respect • 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, 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. 22 Steppe Cement Ltd.23 Annual Report 2017FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (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 - 29 30 31 32 - 33 34 - 36 37 - 39 40 - 95 96 25 Annual Report 2017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 2017, 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 40 to 95. 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 2017, 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 USD67.4million, representing 73% of the total assets as of 31 December 2017. 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 impairment of the assessment was performed to determine the recoverable amount of the Group’s property, plant and equipment. industry. Consequently, an The the recoverable amount determined by 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 during the current financial year as the recoverable amounts of the property, plant and equipment calculated by the directors were in excess of their carrying values as of 31 December 2017. 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 subsidiary companies involved in the production and sale of cement and compared with previous forecasts to evaluate the accuracy of management’s budgeting process. There was no key audit matter identified for the Company. 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. The other information is expected to be made available to us after the date of the auditors’ report. 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. 27 Annual Report 2017INDEPENDENT AUDITORS’ REPORT When we read the other information, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance. 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. 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 28 Steppe Cement Ltd.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. 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 - 2939/01/2020 J Chartered Accountant Labuan 21 May 2018 29 Annual Report 2017STATEMENTS OF PROFIT AND LOSS FOR THE YEAR ENDED 31 DECEMBER 2017 The Group The Company Note 2017 USD 2016 USD 2017 USD 2016 USD 4 65,855,137 52,479,370 3,535,005 100,000 (46,215,796) (36,870,866) - - 5 6 7 8 19,639,341 15,608,504 3,535,005 100,000 (11,819,521) (8,368,084) - - (4,241,309) (4,759,148) (270,136) (290,771) 61,449 5,205 (2,236,516) (2,783,082) 39 - - - (205,610) 736,727 657,937 320,449 (81,355) 164,559 - - 1,934,561 681,781 3,183,553 (26,212) (703,091) (505,779) (4,941) - 1,231,470 176,002 3,178,612 (26,212) 1,231,470 176,002 3,178,612 (26,212) Revenue Cost of sales Gross profit Selling expenses General and administrative expenses Interest income Finance costs Net foreign exchange (loss)/gain Other income, net Profit/(Loss) before income tax Income tax expense Profit/(Loss) for the year Attributable to: Shareholders of the Company Earnings per share: Basic and diluted (cents) 9 0.6 0.1 The accompanying notes form an integral part of the financial statements. 30 Steppe Cement Ltd. STATEMENTS OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2017 The Group The Company 2017 USD 2016 USD 2017 USD 2016 USD Profit/(Loss) for the year 1,231,470 176,002 3,178,612 (26,212) Other comprehensive income: Items that may be reclassified subsequently to profit or loss: Exchange differences arising from translation of foreign operations Total other comprehensive income Total comprehensive income/(loss) for the year Attributable to: Shareholders of the Company 244,646 1,138,811 244,646 1,138,811 - - - - 1,476,116 1,314,813 3,178,612 (26,212) 1,476,116 1,314,813 3,178,612 (26,212) The accompanying notes form an integral part of the financial statements. 31 Annual Report 2017 STATEMENTS OF FINANCIAL POSITION FOR THE YEAR ENDED 31 DECEMBER 2017 The Group The Company Note 2017 USD 2016 USD 2017 USD 2016 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 15 12 20 13 14 25 15 16 67,358,584 71,886,844 - - - - 26,500,001 26,500,001 508,555 458,619 1,247,835 1,439,233 - 47,097 - - - - - - 69,114,974 73,831,793 26,500,001 26,500,001 13,013,642 14,169,249 - 3,101,667 3,168,763 3,435,005 127,208 505,359 - - - - - - 39,605,291 39,710,120 3,477,179 3,070,077 6,579 9,128 3,045,336 1,023,205 12,985 73,636 Total Current Assets 22,765,032 21,936,653 43,059,860 39,792,884 Total Assets 91,880,006 95,768,446 69,559,861 66,292,885 32 Steppe Cement Ltd.STATEMENTS OF FINANCIAL POSITION FOR THE YEAR ENDED 31 DECEMBER 2017 The Group The Company Note 2017 USD 2016 USD 2017 USD 2016 USD 17 18 18 18 19 20 21 22 23 19 24 Equity and Liabilities Capital and Reserves Share capital Revaluation reserve Translation reserve Retained earnings/ (Accumulated losses) Total Equity Non-Current Liabilities Borrowings Deferred taxes Deferred income Provision for site restoration Total Non-Current Liabilities Current Liabilities Trade and other payables Accrued and other liabilities Borrowings Taxes payable Total Current Liabilities Total Liabilities Total Equity and Liabilities 73,760,924 73,760,924 73,760,924 73,760,924 2,680,003 3,062,343 (106,741,124) (106,985,770) - - - - 89,817,170 88,203,360 (5,275,486) (8,454,098) 59,516,973 58,040,857 68,485,438 65,306,826 9,834,719 15,453,251 637,777 - 1,519,487 1,525,359 66,861 59,003 12,058,844 17,037,613 7,684,371 7,577,986 - - - - - - - - - - - - 2,229,254 1,918,230 1,069,482 986,059 10,194,584 10,963,824 195,980 229,936 - 4,941 - - 20,304,189 20,689,976 1,074,423 986,059 32,363,033 37,727,589 1,074,423 986,059 91,880,006 95,768,446 69,559,861 66,292,885 The accompanying notes form an integral part of the financial statements. 33 Annual Report 2017 4 3 7 5 8 , 0 4 0 , 8 5 0 6 3 , 3 0 2 , 8 8 ) 0 7 7 , 5 8 9 , 6 0 1 ( 3 4 3 , 2 6 0 , 3 4 2 9 , 0 6 7 , 3 7 7 1 0 2 y r a u n a J 1 f o s A 0 7 4 , 1 3 2 , 1 6 4 6 , 4 4 2 6 1 1 , 6 7 4 , 1 0 7 4 , 1 3 2 , 1 - 0 7 4 , 1 3 2 , 1 - 6 4 6 , 4 4 2 6 4 6 , 4 4 2 - - - - 0 4 3 , 2 8 3 - ) 0 4 3 , 2 8 3 ( - - - - r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T e m o c n i e v i s n e h e r p m o c r e h t O r a e y e h t r o f t fi o r P : y t i u q e g n i t c a p m i s n o i t c a s n a r t r e h t O d n a t n a p l , y t r e p o r p o t g n i t a e r l e v r e s e r n o i t a u a v e r l f o r e f s n a r T e s u h g u o r h t t n e m p u q e i 3 7 9 , 6 1 5 , 9 5 0 7 1 , 7 1 8 , 9 8 ) 4 2 1 , 1 4 7 , 6 0 1 ( 3 0 0 , 0 8 6 , 2 4 2 9 , 0 6 7 , 3 7 7 1 0 2 r e b m e c e D 1 3 f o s A y n a p m o C e h t f l o s r e d o h e r a h s e h t o t l e b a t u b i r t t A * * t e N D S U D S U D S U D S U D S U i s g n n r a e d e n a t e R i e v r e s e r n o i t a l s n a r T e v r e s e r n o i t a u a v e R l l a t i p a c e r a h S p u o r G e h T l e b a t u b i r t s i D l e b a t u b i r t s i d - n o N Y T I U Q E N I S E G N A H C F O S T N E M E T A T S 7 1 0 2 R E B M E C E D 1 3 D E D N E R A E Y E H T R O F Annual Report 2017Steppe Cement Ltd. 5 3 4 4 0 , 6 2 7 , 6 5 9 1 1 , 6 4 6 , 7 8 ) 1 8 5 , 4 2 1 , 8 0 1 ( 2 8 5 , 3 4 4 , 3 4 2 9 , 0 6 7 , 3 7 6 1 0 2 y r a u n a J 1 f o s A 2 0 0 , 6 7 1 1 1 8 , 8 3 1 , 1 3 1 8 , 4 1 3 , 1 2 0 0 , 6 7 1 - - 2 0 0 , 6 7 1 1 1 8 , 8 3 1 , 1 1 1 8 , 8 3 1 , 1 - - - - 9 3 2 , 1 8 3 - ) 9 3 2 , 1 8 3 ( - - - - r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T e m o c n i e v i s n e h e r p m o c r e h t O r a e y e h t r o f t fi o r P : y t i u q e g n i t c a p m i s n o i t c a s n a r t r e h t O d n a t n a p l , y t r e p o r p o t g n i t a e r l e v r e s e r n o i t a u a v e r l f o r e f s n a r T e s u h g u o r h t t n e m p u q e i 7 5 8 , 0 4 0 , 8 5 0 6 3 , 3 0 2 , 8 8 ) 0 7 7 , 5 8 9 , 6 0 1 ( 3 4 3 , 2 6 0 , 3 4 2 9 , 0 6 7 , 3 7 6 1 0 2 r e b m e c e D 1 3 f o s A y n a p m o C e h t f l o s r e d o h e r a h s e h t o t l e b a t u b i r t t A * * t e N D S U D S U D S U D S U D S U i s g n n r a e d e n a t e R i e v r e s e r n o i t a l s n a r T e v r e s e r n o i t a u a v e R l l a t i p a c e r a h S p u o r G e h T l e b a t u b i r t s i D l e b a t u b i r t s i d - n o N Y T I U Q E N I S E G N A H C F O S T N E M E T A T S 7 1 0 2 R E B M E C E D 1 3 D E D N E R A E Y E H T R O F Annual Report 2017Steppe Cement Ltd. STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2017 The Company Share Capital Accumulated losses USD USD Total USD As of 1 January 2017 73,760,924 (8,454,098) 65,306,826 Total comprehensive income for the year - 3,178,612 3,178,612 As of 31 December 2017 73,760,924 (5,275,486) 68,485,438 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 The accompanying notes form an integral part of the financial statements. 36 Steppe Cement Ltd. STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2017 The Group The Company 2017 USD 2016 USD 2017 USD 2016 USD CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES Profit/(Loss) before income tax 1,934,561 681,781 3,183,553 (26,212) Adjustments for: Depreciation of property, plant and equipment Amortisation of quarry stripping costs Amortisation of site restoration costs Dividend income Loss on disposal of property, plant and equipment Interest income Finance costs Net foreign exchange loss/ (gain) Provision for obsolete inventories Provision for doubtful receivables Provision on advances paid to third parties Reversal of provision for obsolete inventories Deferred income Reversal of doubtful receivables Reversal of provision on advances paid to third parties Write-off of inventories Reversal of provision of electricity charges 7,265,935 6,834,012 30,398 17,966 1,656 - 72,728 (61,449) 1,580 65,760 (5,205) 2,236,516 2,783,082 - (3,435,005) - - - - - - - - - - - - - 205,610 (657,937) 79,897 (164,559) 33,175 379,408 25,532 43,782 (356,280) (49,096) 4,720 2,400 - (5,299) (138) (252) - (31,045) 46,820 - - (613,563) - - - - - - - - - - - - - - - - - - 11,429,750 9,457,408 (171,555) (190,771) 37 Annual Report 2017STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2017 The Group The Company 2017 USD 2016 USD 2017 USD 2016 USD 2,606,085 430,552 (929,844) 495,396 - - - - - - 104,828 135,784 (2,682,456) (1,738,605) 2,549 (2,546) Movement in working capital: Decrease/(Increase) in: Inventories Trade and other receivables Loans and advances to subsidiary companies Advances and prepaid expenses (Decrease)/Increase in: Trade and other payables (140,863) 3,016,254 - - Accrued and other liabilities 570,636 (655,754) 3,527 (206,955) 12,213,704 9,644,855 (60,651) (264,488) - (106,731) - - 12,213,704 9,538,124 (60,651) (264,488) 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 (2,104,293) (4,810,425) Purchase of other assets (68,273) (48,749) Proceeds from disposal of property, plant and equipment Interest received 476,689 61,449 2,190 5,205 Net Cash Used In Investing Activities (1,634,428) (4,851,779) 38 - - - - - - - - - - Steppe Cement Ltd.STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2017 The Group The Company 2017 USD 2016 USD 2017 USD 2016 USD CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES Redemption of bonds (Note 19) Proceeds from borrowings (Note 19) Repayment of borrowings (Note 19) Interest paid (4,483,495) - 18,201,873 36,522,283 (20,045,342) (39,840,598) (2,235,965) (2,755,206) Net Cash Used In Financing Activities (8,562,929) (6,073,521) - - - - - - - - - - NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 2,016,347 (1,387,176) (60,651) (264,488) EFFECTS OF FOREIGN EXCHANGE RATE CHANGES 5,784 4,072 - - CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,023,205 2,406,309 73,636 338,124 CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 16) 3,045,336 1,023,205 12,985 73,636 The accompanying notes form an integral part of the financial statements. 39 Annual Report 2017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 Ex- change. 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 com- panies 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 21 May 2018. 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 Stan- dards Board (“IASB”). Application of new and amendments to International Financial Reporting Standards (IFRS) New and amendments to IFRS 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 IFRS issued by IASB that are mandatorily effective for an accounting period that begins on or after 1 January 2017. Amendments to IAS 7 Amendments to IAS 12 Amendments to IFRSs Disclosure Initiative Recognition of Deferred Tax Assets for Unrealised Losses Annual Improvements to IFRSs 2014-2016 Cycle 40 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 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 disclo- sures in the financial statements of the Group and of the Company other than the disclosure made on the reconciliation of liabilities arising from financing activities required by amendments to IAS 7 as demonstrated in Note 19. New and amendments to IFRS and IFRIC Interpretation in issue but not yet effective IFRS 9 IFRS 15 IFRS 16 Amendments to IFRSs Amendments to IFRSs Financial Instruments1 Revenue from Contracts with Customers1 Leases2 Annual Improvements to IFRSs 2014 - 2016 Cycle1 Annual Improvements to IFRSs 2015 - 2017 Cycle2 Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions1 IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration1 IFRIC Interpretation 23 Uncertainty Over Income Tax Treatments2 1 Effective for annual periods beginning on or after 1 January 2018, with earlier application permitted. 2 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 Inter- pretation will be adopted in the financial statements of the Group and of the Company when they become effective and that the adoption of these new and amendments to IFRS 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. 41 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 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’ (“FVTOCI”) measurement category for certain simple debt instruments. Key requirements of IFRS 9 are described as follows: • Classification and measurement of financial assets. 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. • Classification and measurement of financial liabilities. 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 those 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. • Impairment. In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an incurred 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 the end of each reporting period 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. • Hedge accounting. 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. 42 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 The directors of the Company have done an impact assessment on the amounts reported in respect of the Group’s and the Company’s financial assets and financial liabilities upon application of IFRS 9 as follows: (a) Classification of financial assets Based on its assessment, the financial assets held by the Group and the Company as of 31 December 2017 will be reclassified from loans and receivables to amortised cost: Financial assets Trade and other receivables Loans and advances to subsidiary companies Advances Cash and cash equivalents (b) Impairment of financial assets The Group The Company USD 3,030,235 USD - - 39,605,291 1,514,868 3,045,336 7,590,439 - 12,985 39,618,276 IFRS 9 replaces the “incurred loss” model in IAS 39 with a forward-looking “expected credit loss” (“ECL”) model. This will require considerable judgement about how changes in economic factors affect ECLs, which will be determined on a profitability-weighted basis. The directors expect changes in the loss allowance methodology and is in the process of performing a detailed assessment to determine the extent. The directors are reviewing the Group’s debt and equity arrangements, processes for calculating impairment of receivables and cash and cash equivalents and evaluating the disclosure requirements of the new guidance. 43 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 The new impairment model will apply to financial assets measured at amortised cost or FVTOCI, except for investments in equity instruments. (c) Classification of financial liabilities IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities. The Groups’ and the Company’s assessment did not indicate any material impact regarding the classification of financial liabilities as of 1 January 2018. 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. In April 2016, the IASB issued Clarifications to IFRS 15 in relation to the identification of performance obligations, principal versus agent considerations, as well as licensing application guidance. The directors of the Group and of the Company anticipates that the application of this standard may have an impact to the Group’s financial statements. The directors are reviewing the Group’s revenue agreements and revaluating the disclosure requirements of the new guidance. The Group and the Company will elect for the modified retrospective approach upon adoption of IFRS 15 with all financial impact, if any, adjusted at the transition date, 1 January 2018. 44 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 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. 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. 45 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 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; • potential voting rights held by the Company, other vote holders or other parties; • • rights arising from other contractual arrangements; and 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. 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 trans- ferred 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. 46 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 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. Dividend income Dividend from an equity instrument is recognised when the Company’s right, as a shareholder of the investee is established, which is the date the dividend is appropriately authorised. 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. 47 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 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. 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 48 2017 USD 1.3513 1.2005 0.2471 0.0173 KZT 332.33 2016 USD 1.2340 1.0517 0.2229 0.0162 KZT 333.29 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 Retirement Benefit Costs 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 USD552 per month per employee (2016: USD514) 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 dis- bursements to staff. Such expenses are charged to statements of profit or loss in the period the relat- ed 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. 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. 49 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 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. 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. 50 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 Depreciation Depreciation of property, plant and equipment commences when the assets are ready for their intended use. 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. 51 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 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 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). 52 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 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 the 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% 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 set- tle 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. 53 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 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. 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. 54 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 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. 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. 55 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 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 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 2017, 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 56 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 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. 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 2017, provision for doubtful trade receivables amounted to USD45,563 (2016: USD23,960) (Note 14) and on advances paid to third parties amounted to USD82,878 (2016: USD38,984) (Note 15). 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 2017, provision for obsolete and slow moving inventories amounted to USD2,907,854 (2016: USD3,223,677) (Note 13). 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% (2016:13%) is used as it reflects current market assessment of the time value of money and the risk specific to site restoration obligation. 57 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 4. REVENUE The Group The Company 2017 USD 2016 USD Sale of manufactured goods 65,844,532 52,467,909 Transmission and distribution of electricity Dividend income Management fee receivable from subsidiary company 10,605 11,461 - - - - 2017 USD - - 3,435,005 2016 USD - - - 100,000 100,000 Total 65,855,137 52,479,370 3,535,005 100,000 5. FINANCE COSTS The Group The Company 2017 USD 2016 USD 2017 USD 2016 USD Interest expenses on: - Bank loans - Bonds issued Amortisation of discount on bonds issued Others Total 1,771,554 2,291,345 407,006 435,981 43,217 14,739 41,901 13,855 2,236,516 2,783,082 - - - - - - - - - - 6. NET FOREIGN EXCHANGE(LOSS)/GAIN The Group The Company 2017 USD 2016 USD 2017 USD 2016 USD Net foreign exchange (loss)/gain (205,610) 657,937 (81,355) 164,559 58 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 7. PROFIT/(LOSS) BEFORE INCOME TAX Profit/(Loss) before income tax includes the following income/(expenses): The Group The Company 2017 USD 2016 USD 2017 USD 2016 USD Staff costs (4,670,553) (4,691,956) Depreciation of property, plant and equipment Amortisation of quarry stripping costs Amortisation of site restoration costs (7,265,935) (6,834,012) (30,398) (17,966) (1,656) (1,580) Loss on disposal of property, plant and equipment (72,728) (65,760) Reversal of provision for obsolete inventories 356,280 - Provision for obsolete inventories (33,175) (379,408) Provision for doubtful receivables (25,532) (4,720) Provision for doubtful advances paid to third parties (43,782) (2,400) Recovery of provision on advances paid to third party - 31,045 Reversal of doubtful receivables 138 252 Reversal of provision for electricity charges - 613,563 Write-off of inventories (46,820) - - - - - - - - - - - - - - - - - - - - - - - - - - - 59 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 8. INCOME TAX EXPENSE Income tax - current year Deferred tax (Note 20) - subsidiary companies Total The Group The Company 2017 USD 4,941 2016 USD - 698,150 703,091 505,779 505,779 2017 USD 4,941 - 4,941 2016 USD - - - 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 (approximately USD4,941) 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% (2016: 20%), and Malaysian and Netherland subsidiaries are subject to statutory tax rates of 24% (2016: 24%) and 25% (2016: 25%) respectively. A reconciliation of income tax expense applicable to profit/(loss) before income tax at the applicable statutory income tax rate to income tax expense at the effective income tax rate of the Group and of the Company is as follows: The Group The Company 2017 USD 2016 USD 2017 USD 2016 USD Profit/(Loss) before income tax 1,934,561 681,781 3,183,553 (26,212) 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 Income tax expense 60 496,899 369,981 4,941 (786) 146,839 246,028 - (122,713) (40,868) (45,339) 100,221 703,091 57,822 505,779 4,941 - - - - - - - 786 - Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 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 changes from the prior year are due to proportion of income of foreign subsidiaries which are subject to different statutory tax rates, higher unrecognised deferred tax assets and the impact of reduced level of certain non-deductible expenses. 9. EARNINGS PER SHARE Basic and diluted The Group 2017 USD 2016 USD Profit attributable to ordinary shareholders 1,231,470 176,002 2017 2016 Number of ordinary shares in issue at beginning and end of year 219,000,000 219,000,000 Weighted average number of ordinary shares in issue 219,000,000 219,000,000 2017 2016 Earnings per share, basic and diluted (cents) 0.6 0.1 The basic earnings per share is calculated by dividing the profit 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 2017 and 2016. 61 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 D S U D S U D S U D S U D S U D S U D S U D S U l a t o T r e h t O s t e s s a n o i t c u r t s n o C t n e m p u q e i s s e r g o r p n i j r o a m d n a s t r a p e r a p s y a w l i a R s n o g a w - y b d n a t S i y r e n h c a M d n a t n e m p u q e i s g n d i l i u B l d o h e e r F d n a l d n a d n a l t n e m e v o r p m i p u o r G e h T t s o C 1 0 4 , 7 7 1 , 3 1 1 6 3 7 , 6 9 6 , 6 9 4 8 , 3 2 4 2 2 5 , 3 8 3 , 2 9 5 7 , 6 9 0 , 8 3 0 5 , 8 1 4 , 1 7 2 1 9 , 1 5 0 , 2 2 0 2 1 , 6 0 1 , 2 6 1 0 2 y r a u n a J 1 t A ) 7 0 4 , 5 7 3 ( ) 8 9 3 , 3 4 2 ( - - 1 1 7 , 3 1 7 , 4 1 8 9 , 6 4 2 7 3 4 , 9 4 9 , 3 5 5 7 , 9 1 1 - 9 6 5 , 1 9 1 ) 2 2 1 , 7 0 5 ( ) 6 9 8 , 2 0 4 ( 6 1 9 , 2 7 8 - 6 1 3 , 8 4 3 , 2 4 3 1 , 9 2 1 7 6 8 , 3 4 9 3 4 , 7 9 9 4 0 , 9 2 8 8 5 0 , 7 5 - - - - - 9 2 4 , 1 9 3 3 8 4 , 5 2 6 ) 9 0 0 , 2 3 1 ( - - 0 5 3 , 3 6 6 9 , 2 9 - - - 9 5 7 , 2 m o r f n o i t a c fi i s s a c e R l s e i r o t n e v n i s n o i t i d d A s r e f s n a r T s l a s o p s i D 3 3 1 , 0 5 1 6 8 0 , 4 6 4 , 1 3 4 3 , 1 1 4 3 2 1 9 3 , s e c n e r e f f i d e g n a h c x E : i g n w o l l o f e h t f o s t s i s n o c i t n e m p u q e d n a t n a p l , y t r e p o r P I T N E M P U Q E D N A T N A L P , Y T R E P O R P . 0 1 2 6 3 9 2 , 4 0 1 , 2 2 3 9 , 8 3 2 7 9 , 2 6 0 , 2 - 4 2 7 , 5 6 8 5 1 2 , 9 2 3 5 2 5 , 4 2 1 5 0 9 , 0 2 9 1 2 , 4 3 5 8 6 , 7 ) 8 4 5 , 8 5 9 ( ) 9 4 3 , 2 7 3 ( - - 9 5 7 , 5 7 1 ) 3 7 9 , 1 8 8 , 1 ( ) 1 9 4 , 2 6 ( ) 5 9 6 , 4 5 ( ) 9 6 7 , 1 ( 0 0 5 , 1 6 6 - - - - 0 8 4 , 5 4 - 7 9 7 , 1 4 7 1 , 8 1 6 , 1 ) 8 7 8 , 9 1 5 ( - ) 5 9 1 , 5 ( 1 3 5 , 0 5 1 3 2 8 , 3 2 2 2 8 , 9 0 2 4 3 4 , 2 6 7 3 9 , 6 3 7 , 0 2 1 2 2 0 , 1 2 0 , 7 0 7 4 , 7 0 0 , 4 8 8 4 , 6 8 9 , 2 2 9 8 , 6 4 2 , 8 2 9 4 , 7 6 7 , 3 7 1 7 5 , 9 5 5 , 2 2 1 2 6 , 7 7 0 , 3 2 1 4 9 7 , 8 0 0 , 7 3 7 3 , 0 3 2 , 4 3 3 0 , 9 2 5 , 3 5 1 7 , 0 7 2 , 8 7 8 8 , 2 2 1 , 5 7 1 4 3 , 7 6 7 , 2 2 - 2 9 5 , 2 0 0 8 4 1 2 , ) 1 3 4 6 , ( - 5 1 3 , 6 , 8 7 4 8 4 1 2 , 6 1 0 2 r e b m e c e D 1 3 t A m o r f n o i t a c fi i s s a c e R l s e i r o t n e v n i s e c n e r e f f i d e g n a h c x E 7 1 0 2 r e b m e c e D 1 3 t A s n o i t i d d A s r e f s n a r T s l a s o p s i D Annual Report 2017Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 2 6 l a t o T D S U r e h t O s t e s s a D S U D S U D S U D S U D S U D S U D S U - y b d n a t S n o i t c u r t s n o C t n e m p u q e i s s e r g o r p n i j r o a m d n a s t r a p e r a p s y a w l i a R s n o g a w t n e m p u q e i i y r e n h c a M d n a s g n d i l i u B l d o h e e r F d n a l d n a d n a l t n e m e v o r p m i p u o r G e h T 4 4 2 , 0 9 3 , 1 4 9 8 0 , 6 8 4 , 3 2 1 0 , 4 3 8 , 6 0 6 0 , 0 8 5 ) 7 5 4 , 7 0 3 ( ) 9 1 8 , 6 0 2 ( 4 9 2 , 3 3 9 4 2 1 , 4 7 0 4 1 , 2 1 0 6 8 , 2 3 9 0 , 0 5 8 , 8 4 4 5 4 , 3 3 9 , 3 5 3 9 , 5 6 2 , 7 5 8 5 , 2 1 6 ) 1 3 1 , 9 0 4 ( ) 2 4 6 , 0 6 1 ( 7 3 0 , 9 1 7 , 5 5 7 5 2 , 8 8 3 , 4 - - - - - - - - - - - - - - - - - - - ) 8 3 6 , 0 0 1 ( - 2 4 0 , 1 2 0 3 9 , 3 8 5 8 9 1 , 4 5 2 6 2 1 , 2 0 4 0 4 2 , 1 4 0 , 5 6 8 5 , 0 1 8 1 8 7 , 3 8 5 0 1 0 , 2 2 7 , 4 2 4 6 3 , 8 9 5 , 2 1 3 6 4 , 1 2 4 7 1 4 , 2 2 4 , 5 0 7 4 , 9 0 8 ) 9 0 0 , 5 ( ) 5 5 9 , 9 ( - ) 5 8 3 , 8 4 2 ( ) 4 0 1 ( 4 4 2 , 4 2 9 4 9 , 6 0 0 , 1 2 4 5 , 6 4 2 , 0 3 8 4 1 , 3 6 6 , 3 1 3 0 4 , 3 2 4 , 1 9 1 6 , 0 1 4 , 5 3 8 5 7 , 6 9 4 , 4 1 - - - - - - - - - s e s s o l t n e m r i a p m i d n a n o i t a c e r p e d i l d e t a u m u c c A 6 1 0 2 y r a u n a J 1 t A r a e y e h t r o f e g r a h C s l a s o p s i D s e c n e r e f f i d e g n a h c x E 6 1 0 2 r e b m e c e D 1 3 t A r a e y e h t r o f e g r a h C s e c n e r e f f i d e g n a h c x E s l a s o p s i D 7 1 0 2 r e b m e c e D 1 3 t A l e u a V k o o B t e N 3 6 4 8 5 , 8 5 3 , 7 6 7 3 5 , 0 2 6 , 2 3 7 3 , 0 3 2 , 4 3 3 0 , 9 2 5 , 3 2 1 3 , 7 4 8 , 6 8 6 2 , 2 1 7 , 9 3 3 8 5 , 0 7 2 , 8 8 7 4 , 8 4 1 , 2 7 1 0 2 r e b m e c e D 1 3 t A 4 4 8 , 6 8 8 , 1 7 8 6 5 , 7 8 0 , 3 0 7 4 , 7 0 0 , 4 8 8 4 , 6 8 9 , 2 3 4 9 , 9 3 2 , 7 0 5 9 , 0 2 5 , 3 4 3 2 4 , 6 9 8 , 8 2 0 0 , 8 4 1 , 2 6 1 0 2 r e b m e c e D 1 3 t A Steppe Cement Ltd.Annual Report 2017Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 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 USD10,419,061 as of 31 December 2017 (2016: USD11,044,425). 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 2017 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 2017 USD 2016 USD 244,197 248,624 1,402,167 1,564,338 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 2018 to December 2022; • • 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. 64 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 As of 31 December 2017, property, plant and equipment of a subsidiary company (Karcement JSC) with a cost and net book value of USD28,559,050 and USD16,108,227 (2016: USD19,243,731 and USD9,777,326) respectively is pledged to secure the loan from Halyk Bank JSC. As at 31 December 2017, property, plant and equipment of a subsidiary company (Karcement JSC) with a cost and net book value of USD7,568,983 and USD5,577,005 (2016: USD7,547,181 and USD5,997,060) respectively are pledged as collateral for the government-subsidised loan (Note 19). As of 31 December 2017, the cost of property, plant and equipment that is fully depreciated amounted to USD897,533 (2016: USD729,944). 11. INVESTMENT IN SUBSIDIARY COMPANIES Unquoted shares, at cost Less: Accumulated impairment loss The Company 2017 USD 30,500,002 (4,000,001) 2016 USD 30,500,002 (4,000,001) Net 26,500,001 26,500,001 65 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 The details of subsidiary companies are as follows: Place of incorporation (or registration) and operation Proportion of ownership interest and voting power held Principal activities 2017 % 2016 % 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 100 100 Karcement JSC Republic of Kazakhstan 100 100 Central Asia Services LLP (“CAS LLP”) Republic of Kazakhstan 100 100 66 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 2017 12. OTHER ASSETS The Group The Company VAT recoverable -non-current Quarry stripping costs Site restoration costs Site restoration fund 2017 USD 884,687 219,508 41,468 102,172 1,132,488 180,539 42,969 83,237 Total 1,247,835 1,439,233 Quarry stripping costs 2016 USD 2017 USD 2016 USD - - - - - - - - - - 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 2017. 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 2017 USD 180,539 1,094 68,273 (30,398) 2016 USD 167,214 2,643 28,648 (17,966) At end of year 219,508 180,539 Site restoration costs 2017 USD 2016 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. 67 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 13. INVENTORIES The Group The Company Finished goods Work-in-progress Spare parts Raw materials Packing materials Construction materials Goods held for resale Fuel Others Total 2017 USD 6,354,592 389,277 6,417,829 1,590,768 147,104 17,633 38,985 54 2016 USD 367,442 6,255,668 8,164,772 1,840,742 4,612 7,393 39,011 - 965,254 713,286 15,921,496 17,392,926 Less: Provision for obsolete inventories (2,907,854) (3,223,677) Net 13,013,642 14,169,249 The movements in the provision for obsolete inventories are as follows: 2017 USD 2016 USD - - - - - - - - - - - - - - - - - - - - - - - - The Group The Company 2017 USD 2016 USD 2017 USD 2016 USD At beginning of year (3,223,677) (2,805,285) Add: Provision for obsolete inventories (33,175) (379,408) Reversal of provision for obsolete inventories Exchange differences 356,280 (7,282) - (38,984) At end of year (2,907,854) (3,223,677) - - - - - - - - - - As of 31 December 2017, inventories amounting to USD7,628,008 (2016: USD2,974,593) are pledged to secure the short-term loan obtained from Halyk Bank JSC (Note 19). 68 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 14. TRADE AND OTHER RECEIVABLES The Group The Company 2017 USD 2016 USD 2017 USD 2016 USD Trade receivables 2,820,750 1,040,430 Less: Provision for doubtful receivables (45,563) (23,960) Net 2,775,187 1,016,470 Other receivables: VAT recoverable - current Receivables from related party Receivables from employees Others 71,432 1,610,078 44,251 61,237 99,206 78,280 111,591 402,698 - - - - - - - Dividend receivable - - 3,435,005 Total 3,101,667 3,168,763 3,435,005 - - - - - - - - - The Group 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: 91-180 days 181-270 days 271-360 days > 1 year Total The Group 2017 USD 731,550 825,523 729,973 59,895 2,346,941 2016 USD 27,661 345,627 456,602 29,309 859,199 69 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 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 2017 USD 25,122 20,441 45,563 2016 USD 11,591 12,369 23,960 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 Less: Reversal of doubtful receivables 2017 USD 2016 USD (23,960) (40,171) (70) (783) (25,532) (4,720) 3,861 21,462 138 252 At end of year (45,563) (23,960) 2017 USD 2016 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 (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. 70 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 15. ADVANCES AND PREPAID EXPENSES The Group The Company 2017 USD 2016 USD 2017 USD 2016 USD Advances paid to third parties Less: Provision on advances paid to third parties 2,106,301 1,103,426 (82,878) (38,984) Less: Non-current portion of advances paid to third parties (508,555) (458,619) 2,023,423 1,064,442 Current portion of advances paid to third parties 1,514,868 605,823 - - - - - - - - - - Prepaid and deferred expenses 1,962,311 2,464,254 6,579 9,128 Total 3,477,179 3,070,077 6,579 9,128 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. Included in deferred expenses are consumables, such as refractory bricks and bag filters, which are designed to withstand high heat during the production of the Group’s clinkers stock in the kilns and to suppress dust emission from polluting the environment in compliance with the statutory ecology requirement, respectively. The management uses its judgement to defer the expenses based on the useful life of the refractory bricks and bag filters when consumed. The balance of the deferred expenses will be amortised over the next 6 to 8 months of production. 71 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 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 2017 USD (38,984) (112) 2016 USD (86,888) (1,612) (43,782) (2,400) - - 20,871 31,045 At end of year (82,878) (38,984) 16. CASH AND CASH EQUIVALENTS 2017 USD 2016 USD - - - - - - - - - - - - The Group The Company 2017 USD 427,456 2,617,880 2016 USD 997,765 25,440 2017 USD 12,985 - 2016 USD 73,636 - Cash in hand and at banks Short-term deposit Total 3,045,336 1,023,205 12,985 73,636 72 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 17. SHARE CAPITAL The Group and the Company 2017 USD 2016 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 18. 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. 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. 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. 73 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 19. BORROWINGS Unsecured - at amortised cost Bonds issued at price of: 96.2458% Exchange differences Discount on bonds issued Accrued interest Redemption on maturity Secured - at amortised cost Bank loans Total Current portion: Bonds Bank loans Non-current portion Bank loans The Group 2017 USD 2016 USD 8,001,718 (3,475,006) (43,217) - (4,483,495) 8,001,718 (3,531,137) (42,281) 48,858 - - 4,477,158 20,029,303 21,939,917 20,029,303 26,417,075 - 10,194,584 4,477,158 6,486,666 10,194,584 10,963,824 9,834,719 15,453,251 Total 20,029,303 26,417,075 74 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 In November 2017, CAC JSC redeemed the 5-year 10% per annum KZT1.49 billion bonds issued in 2012. Details of bank loans are as follows: Currency Maturity date Interest rate The Group 2017 USD 2016 USD USD USD 15 November 2018 12 November 2021 6% p.a. 4,000,000 5,500,000 6.5% p.a. 7,949,496 9,672,252 KZT October 2022 6% p.a. 677,038 - KZT June 2025 6% p.a. 740,637 781,695 KZT September to November 2025 6% p.a. 2,426,392 2,656,170 KZT May 2018 6% p.a. 1,503,710 1,500,195 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 Halyk Bank JSC for working capital USD April to November 2017 6% p.a. - 1,798,908 Altyn Bank JSC for working capital Accrued interest Total outstanding KZT June 2018 10% p.a. 2,711,161 - 20,869 30,697 20,029,303 21,939,917 75 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 Halyk Bank JSC facilities Full repayment of VTB Bank (Austria) AG and VTB Bank (France) SA loan facilities with facility pro- vided by Halyk Bank JSC The USD16 million credit facility with Halyk Bank JSC consists of USD5.5 million facility A and USD10.5 million facility B. The facility was fully drawn to repay all loan principal and interest outstanding amounts to VTB Bank (Austria) AG and VTB Bank (France) SA in 2015. 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 Novem- ber 2021. Interest is payable monthly from 23 December 2016 until maturity. As at 31 December 2017, no further amounts were available for drawdown from this facility. Halyk Bank JSC government-subsidised facility The government-subsidised loan of KZT1.69 billion (equivalent of USD5,085,306) carries a subsidised fixed interest rate of 6% per annum. The loan is used for capital expenditure with maturity period of 10 years and was fully drawn in the previous financial year. KZT1.19 billion (equivalent to USD3,580,778) and KZT500 million (equivalent to USD1,504,529) loans come with 2-years grace period and no grace period with monthly principal repayment respectively. On 17 July 2017, CAC JSC signed a loan agreement with Halyk Bank JSC on terms subsidised under government programs. The loan of KZT580 million (or equivalent of USD1,745,253) carries a subsidised fixed interest rate of 6% per annum. The loan is used for capital expenditure with maturity period of 5 years and is available for drawdown until 17 July 2018. It also comes with a 1-year grace period with monthly principal repayment. The government-subsidised loans are 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 2017, KZT355 million (equivalent to USD1.1 million) is available for drawdown from this facility. Halyk Bank JSC working capital facilities The KZT3 billion (equivalent of USD9 million) working capital credit line matures on 31 May 2018. The loan from the Halyk Bank JSC is secured by inventories of both CAC JSC and Karcement JSC with a carrying amount of USD7,628,008 (2016: USD2,974,593) (Note 13). Included in this facility limit of KZT3 billion is the sub-limit of KZT500 million for working capital re- quirements under the above government-subsidised facility. On 30 November 2017, Karcement JSC and CAC JSC signed a KZT500 million (equivalent of USD1.5 million) credit line agreement for working capital requirements under the government-subsidised facility. The facility carries a fixed interest rate of 6% per annum and matures on 29 May 2018. 76 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 As of 31 December 2017, the facility was fully drawn. As of 31 December 2017, CAC JSC’s short-term loan of USD7.5 million with Halyk Bank JSC was available for drawdown. Altyn Bank JSC working capital facilities In the previous financial year, Karcement JSC obtained a USD short-term loans denominated in USD from Altyn Bank JSC. These loans were fully repaid as at 31 December 2017. On 28 December 2017, Karcement JSC signed a KZT900 million (equivalent of USD2.7 million) credit line agreement with Altyn Bank JSC for working capital financing. The facility carries a fixed interest rate of 10% per annum and matures on 28 June 2018. As of 31 December 2017, the Altyn Bank JSC working capital facility loan was fully drawn. The following table shows the reconciliation in the Group’s liabilities arising from financing activities: Opening balance Financing cash flows Non-cash movements* Closing balance USD USD USD USD 4,477,158 21,939,917 (4,483,495) (1,843,469) 6,337 - (67,145) 20,029,303 2017 Bonds Borrowings Total 26,417,075 (6,326,964) (60,808) 20,029,303 *Non-cash movements primarily relates to foreign currency exchange differences and amortisation of discount on bonds redeemed during the year. 77 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 20. DEFERRED TAXES The Group The Company At beginning of year Exchange differences Recognised in profit or loss (Note 8) 2017 USD 47,097 13,276 2016 USD 549,669 3,207 (698,150) (505,779) At end of year (637,777) 47,097 2017 USD 2016 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 2017 Temporary differences: Property, plant and equipment Inventories Trade receivables Accrued unused leaves Tax losses Payables Others (7,493,525) (20,473) (62,371) (7,576,369) 386,920 11,447 15,288 7,011,353 97,249 18,365 1,327 26 169 31,559 424 244 6,765 353 395,012 11,826 (6,652) 8,805 (606,661) 6,436,251 (19,455) (10,129) 78,218 8,480 Total 47,097 13,276 (698,150) (637,777) 78 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 Opening balance Exchange rate differences Recognised in profit or loss Closing balance USD USD USD USD (7,008,236) (138,754) (346,535) (7,493,525) 303,505 7,966 14,589 7,049,812 144,451 37,582 9,661 230 281 126,529 5,057 203 73,754 3,251 386,920 11,447 418 15,288 (164,988) 7,011,353 (52,259) (19,420) 97,249 18,365 2016 Temporary differences: Property, plant and equipment Inventories Trade receivables Accrued unused leaves Tax losses Payables Others Total 549,669 3,207 (505,779) 47,097 The tax losses for which no deferred tax assets have been recognised are as follows: The Group The Company 2017 USD 2016 USD 2017 USD 2016 USD Tax losses for which no deferred tax assets have been recognised 100,221 57,822 - 6,291 79 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 21. DEFERRED INCOME The Group The Company 2017 USD 2016 USD 2017 USD 2016 USD At beginning of year Exchange differences Additions 1,525,359 517,778 5,331 9,466 37,893 1,003,414 Recognised in profit or loss (49,096) (5,299) At end of year 1,519,487 1,525,359 - - - - - - - - - - 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 19). 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. Pursuant to the government-subsidised loan agreement on 19 June 2015, 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. Pursuant to the government-subsidised loan agreement on 17 July 2017, CAC JSC is entitled to undrawn loan amount of USD1,068,215 for capital expenditure. The undrawn amount is available until 17 July 2018. As at 31 December 2017, the related assets in the amount of USD1,822,697 were put into use (2016: USD1,017,230). During financial year, the Group recognised USD49,096 (2016: 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 The Group The Company 2017 USD 2016 USD 2017 USD 2016 USD Trade payables 7,650,549 7,558,408 Amount due to related parties Others Total 2,612 31,210 - 19,578 7,684,371 7,577,986 - - - - The credit period granted by creditors ranges from 1 to 30 days (2016: 1 to 30 days). - - - - 80 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 23. ACCRUED AND OTHER LIABILITIES The Group The Company 2017 USD 2016 USD 2017 USD 2016 USD Accrued directors’ fees 1,036,061 957,287 1,036,061 957,287 Advances from customers Accrued salaries Accrued unused leave Others Total 666,118 240,029 44,026 243,020 525,920 197,396 76,438 161,189 - - - - - - 33,421 28,772 2,229,254 1,918,230 1,069,482 986,059 24. TAXES PAYABLE Corporate income tax Other taxes: VAT payable Emission taxes Pension fund Personal income tax Property tax Social The Group The Company 2017 USD 6,801 20,221 107,484 22,439 20,925 894 17,216 2016 USD - 22,852 165,351 9,389 17,252 - 15,092 2017 USD 4,941 - - - - - - Total 195,980 229,936 4,941 2016 USD - - - - - - - - 81 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 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: Other related party Opera Holding LLP Other related parties Opera Holding LLP Others Purchase of services 2017 USD 2016 USD 17,158 10,683 (Payable to)/Receivable from related parties 2017 USD (2,612) 44,251 2016 USD - 61,237 82 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 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 2017 USD 2016 USD Steppe Cement (M) Sdn. Bhd. Dividend income 3,435,005 - MECS Ltd. Management fees receivable 100,000 100,000 Subsidiary companies Nature of transactions Receivable from subsidiary companies 2017 USD 2016 USD Karcement JSC Intercompany loans 30,220,000 30,220,000 MECS Ltd. Advances and management fees 6,580,968 6,722,064 Steppe Cement (M) Sdn. Bhd. Advances 2,804,323 2,768,056 Total 39,605,291 39,710,120 83 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 Compensation of key management personnel The remuneration of directors and other members of key management are as follows: The Group The Company 2017 USD 504,247 198,829 2016 USD 605,691 127,664 2017 USD 2016 USD 86,959 100,000 - - Remuneration Short-term benefits Total 703,076 733,355 86,959 100,000 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. The directors’ remuneration in the Company is as follows: Director fees Executive director: Javier del Ser Perez Non-executive directors: Xavier Blutel Rupert Wood (appointed on 12 October 2017) Paul Rodzianko (resigned on 14 June 2017) The Company 2017 USD 2016 USD 30,000 30,000 32,219 6,658 18,082 30,000 - 40,000 Total 86,959 100,000 84 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 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 19 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. 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. 85 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 9 0 7 , 5 1 - 6 2 6 , 5 1 : l w o e b d e t n e s e r p e r a r e b m e c e D 1 3 f i o s a s e c n e r r u c n g e r o i f n i s e i t i l i b a i l l i a c n a n fi d n a s t e s s a l i a c n a n fi s ’ y n a p m o C e h t f o d n a s ’ p u o r G e h t f o s t n u o m a g n y r r a c e h T i s i s y a n a l y t i v i t i s n e s y c n e r r u c i n g e r o F l a t o T D S U B U R R Y M R U E P B G p u o r G e h T 7 1 0 2 t e s s A l i a c n a n F i - - 8 2 3 , 8 1 1 0 2 5 , 0 3 4 4 6 , 2 2 6 8 7 5 8 , 1 0 0 , 7 1 7 5 8 , 1 0 0 , 7 1 9 1 8 , 1 2 7 , 1 0 6 3 , 5 9 8 7 6 4 , 9 3 8 4 3 8 , 3 9 1 - - 4 2 1 , 7 2 - 5 6 3 , 0 7 9 , 1 1 5 6 3 , 0 7 9 , 1 1 3 5 1 , 6 0 4 , 1 0 1 7 , 5 5 9 7 2 6 , 1 4 8 5 8 4 , 0 3 2 - - 3 9 2 , 5 3 - l a t o T D S U B U R R Y M R U E P B G - - - - 3 8 1 4 0 , 4 3 3 - - - - 7 1 4 , 0 2 9 - 4 6 1 , 5 6 8 1 5 , 8 8 6 8 6 0 , 6 2 - - - 8 6 1 , 2 4 8 - l s t n e a v u q e i h s a c d n a h s a C s e i t i l i b a i l r e h t o d n a d e u r c c A l s e b a y a p r e h t o d n a e d a r T i s g n w o r r o B 6 1 0 2 t e s s A l i a c n a n F i s e i t i l i b a L i l i a c n a n F i l s t n e a v u q e i h s a c d n a h s a C s e i t i l i b a i l r e h t o d n a d e u r c c A l s e b a y a p r e h t o d n a e d a r T i s g n w o r r o B s e i t i l i b a L i l i a c n a n F i Annual Report 2017Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 6 8 The Company 2017 GBP EUR MYR Total Financial Asset Cash and cash equivalents Financial Liability Accrued and other liabilities - 82 - 82 920,417 - 31,622 952,039 2016 GBP EUR MYR Total Financial Asset Cash and cash equivalents Financial Liability Accrued and other liabilities - 123 - 123 842,168 - 27,124 869,292 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 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. 87 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 The Group 2017 2016 Impact on profit/(loss) before tax USD GBP EUR MYR RUB 2,562,398 184,083 66,792 7,059 42,972 3,562,161 168,434 129,884 5,425 34,238 Impact on profit/(loss) before tax The Company 2017 2016 GBP EUR MYR (ii) Credit Risk 184,083 (16) 6,324 168,434 (25) 5,425 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. 88 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017  (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 2017, CAC JSC’s short-term loan of USD7.5 million with Halyk Bank JSC is available for drawdown. 89 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 e h t n o d e s a b d e r a p e r p s i l e b a t e h T . y n a p m o C e h t f o d n a p u o r G e h t f o s e i t i l i b a i l l i a c n a n fi e v i t a v i r e d - n o n e h t f o s m r e t l a u t c a r t n o c s t c e fl e r l e b a t g n w o i l l o f e h T . y a p o t d e r i u q e r e b n a c y n a p m o C e h t d n a p u o r G e h t i h c h w t a e t a d t s e i l r a e e h t f o s i s a b e h t n o s e i t i l i b a i l l i a c n a n fi e v i t a v i r e d - n o n n o s w o fl h s a c d e t n u o c s i d n u k s i R y t i d u q L i i n o s e b a T l 6 3 2 , 0 9 0 , 4 2 2 8 9 , 5 3 6 , 1 1 5 5 , 5 4 6 , 0 1 2 5 2 , 2 6 8 , 0 1 6 6 4 , 2 2 6 5 8 9 , 3 2 3 % 5 7 . 8 1 6 8 , 3 0 0 , 4 3 2 8 9 , 5 3 6 , 1 3 1 6 , 1 8 6 , 1 1 5 0 9 , 9 8 8 , 4 1 8 6 8 , 8 2 8 , 2 3 9 4 , 7 6 9 , 2 1 7 3 , 4 8 6 , 7 4 5 2 , 9 2 2 , 2 - - 2 6 0 , 6 3 0 , 1 1 6 7 , 3 7 4 0 5 , 1 2 - 2 9 8 , 3 5 9 , 3 8 9 8 , 4 8 1 , 2 1 8 5 , 5 4 5 , 1 7 2 9 , 7 9 0 , 1 - - 0 9 2 7 3 , 3 8 7 , 1 3 2 0 6 , 1 5 3 , 2 1 0 9 , 6 2 3 , 7 1 9 5 5 , 7 5 7 , 9 1 6 5 , 2 7 1 , 2 9 4 7 , 4 7 1 3 3 7 , 5 6 8 , 6 2 2 0 6 , 1 5 3 , 2 1 0 9 , 6 2 3 , 7 1 0 2 9 , 9 3 8 , 4 1 6 5 , 2 7 1 , 2 9 4 7 , 4 7 1 % 1 2 . 6 9 3 6 , 7 1 9 , 4 - - 9 3 6 , 7 1 9 , 4 - - % 5 1 . 1 1 n a h t r e t a e r G l a t o T s r a e y 5 s r a e y 5 - 1 s h t n o m 3 r a e y 1 - s h t n o m 3 - 1 n a h t s s e L h t n o m 1 d e t h g e W i e g a r e v a e t a r t s e r e t n i . s w o fl h s a c l i a p c n i r p d n a t s e r e t n i h t o b s e d u c n l i l e b a t e h T s e i t i l i b a i l r e h t o d n a d e u r c c A l s e b a y a p r e h t o d n a e d a r T g n i r a e b t s e r e t n i - n o N g n i r a e b t s e r e t n I s n a o l k n a B i g n w o r r o B p u o r G e h T 7 1 0 2 g n i r a e b t s e r e t n I i s g n w o r r o B s n a o l k n a B s d n o B 6 1 0 2 Annual Report 2017Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 0 9 1 9 l a t o T r e t a e r G n a h t s r a e y 5 s r a e y 5 - 1 s h t n o m 3 r a e y 1 - s h t n o m 3 - 1 n a h t s s e L h t n o m 1 d e t h g e W i e g a r e v a e t a r t s e r e t n i 6 8 9 , 7 7 5 , 7 0 3 2 , 8 1 9 , 1 - - - - 7 4 3 , 3 4 0 , 1 0 6 4 , 4 5 3 2 4 , 0 2 8 - 6 3 0 , 9 5 1 , 4 0 5 9 , 8 1 4 , 3 8 8 5 , 9 7 2 , 1 4 2 0 6 , 1 5 3 , 2 1 0 9 , 6 2 3 , 7 1 6 0 9 , 0 0 8 , 0 1 7 5 0 , 6 8 3 , 6 2 2 1 , 4 1 4 , 4 2 8 4 , 9 6 0 , 1 9 5 0 , 6 8 9 - - - - 2 2 5 , 6 3 0 , 1 8 9 8 2 6 0 , 5 7 1 9 , 0 8 9 7 6 8 5 7 2 , 4 - - - - s e i t i l i b a i l r e h t o d n a d e u r c c A l s e b a y a p r e h t o d n a e d a r T g n i r a e b t s e r e t n i - n o N s e i t i l i b a i l r e h t o d n a d e u r c c A g n i r a e b t s e r e t n i - n o N s e i t i l i b a i l r e h t o d n a d e u r c c A g n i r a e b t s e r e t n i - n o N 6 1 0 2 y n a p m o C e h T 7 1 0 2 . s t n e m e e r g a n a o l n i s m r e t t n e m y a p e r o t g n d r o c c a y a p e r o t i t c e p x e y n a p m o C e h t d n a p u o r G e h t s t n u o m a t n e s e r p e r s g n w o r r o b r o i f e v o b a d e d u c n l i s t n u o m a e h T . s t n e m e e r g a n a o l e h t f o s t n a n e v o c l i a c n a n fi e h t h t i w e c n a i l p m o c n i e r a y n a p m o C e h t d n a p u o r G e h t , d n e r a e y l i a c n a n fi t a s A Steppe Cement Ltd.Annual Report 2017Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 n o d e s a b d e r a p e r p s a w l e b a t e h T . y n a p m o C e h t f o d n a p u o r G e h t f o s t e s s a l i a c n a n fi e v i t a v i r e d - n o n f o s e i t i r u t a m d e t c e p x e s t c e fl e r l e b a t i g n w o l l o f e h T w o fl h s a c e h t t c e p x e y n a p m o C e h t d n a p u o r G e h t n e h w t p e c x e , s t e s s a e s e h t n o d e v e c e r i t s e r e t n i i g n d u c n l i , s t e s s a l i a c n a n fi f o s m r e t l a u t c a r t n o c d e t n u o c s i d n u . d o i r e p t n e r e f f i d a n i l a t o T r e t a e r G n a h t s r a e y 5 s r a e y 5 - 1 s h t n o m 3 r a e y 1 - s h t n o m 3 - 1 n a h t s s e L h t n o m 1 d e t h g e W i e g a r e v a e t a r t s e r e t n i g n i r a e b t s e r e t n I p u o r G e h T 7 1 0 2 8 7 1 , 9 3 8 5 1 , 6 0 0 , 3 7 4 5 , 1 3 0 , 3 3 8 8 , 6 7 0 , 6 5 0 2 , 3 2 0 , 1 0 2 4 , 4 0 5 , 1 5 2 6 , 7 2 5 , 2 2 9 - - - - - - - - - - - - - 7 0 5 , 2 3 1 5 8 9 , 2 0 4 , 2 8 6 4 , 3 8 2 7 8 5 , 2 1 2 7 0 5 , 2 3 1 5 8 9 , 2 0 4 , 2 8 6 4 , 3 8 2 3 2 9 , 7 5 2 , 3 - - - 1 3 1 , 3 5 8 9 1 , 6 6 1 , 1 1 2 8 , 3 4 1 5 0 2 , 3 2 0 , 1 0 7 2 , 1 4 1 1 3 1 , 3 5 8 9 1 , 6 6 1 , 1 1 2 8 , 3 4 1 5 7 4 , 4 6 1 , 1 8 5 1 , 6 0 0 , 3 8 7 1 , 9 3 % 0 2 . 1 l s t n e a v u q e i h s a c d n a h s a C g n i r a e b t s e r e t n i - n o N - - - - l s e b a v e c e r i r e h t o d n a e d a r T l s t n e a v u q e i h s a c d n a h s a C g n i r a e b t s e r e t n i - n o N 6 1 0 2 l s t n e a v u q e i h s a c d n a h s a C l s e b a v e c e r i r e h t o d n a e d a r T Annual Report 2017Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 r e t a e r G n a h t s r a e y 5 l a t o T s r a e y 5 - 1 s h t n o m 3 - 1 s h t n o m 3 r a e y 1 - n a h t s s e L h t n o m 1 d e t h g i e W e g a r e v a e t a r t s e r e t n i n o d e s a b d e r a p e r p s a w e l b a t e h T . y n a p m o C e h t f o d n a p u o r G e h t f o s t e s s a l a i c n a n fi e v i t a v i r e d - n o n f o s e i t i r u t a m d e t c e p x e s t c e fl e r e l b a t g n i w o l l o f e h T w o fl h s a c e h t t c e p x e y n a p m o C e h t d n a p u o r G e h t n e h w t p e c x e , s t e s s a e s e h t n o d e v i e c e r t s e r e t n i g n i d u l c n i , s t e s s a l a i c n a n fi f o s m r e t l a u t c a r t n o c d e t n u o c s i d n u . d o i r e p t n e r e f f i d a n i 8 7 1 , 9 3 8 5 1 , 6 0 0 , 3 7 4 5 , 1 3 0 , 3 3 8 8 , 6 7 0 , 6 5 0 2 , 3 2 0 , 1 0 2 4 , 4 0 5 , 1 5 2 6 , 7 2 5 , 2 2 9 - - - - - - - - - - - - - - - - 7 0 5 , 2 3 1 5 8 9 , 2 0 4 , 2 8 6 4 , 3 8 2 7 8 5 , 2 1 2 8 5 1 , 6 0 0 , 3 7 0 5 , 2 3 1 5 8 9 , 2 0 4 , 2 8 6 4 , 3 8 2 3 2 9 , 7 5 2 , 3 1 3 1 , 3 5 8 9 1 , 6 6 1 , 1 1 2 8 , 3 4 1 5 0 2 , 3 2 0 , 1 0 7 2 , 1 4 1 1 3 1 , 3 5 8 9 1 , 6 6 1 , 1 1 2 8 , 3 4 1 5 7 4 , 4 6 1 , 1 8 7 1 , 9 3 % 0 2 . 1 s t n e l a v i u q e h s a c d n a h s a C g n i r a e b t s e r e t n I p u o r G e h T 7 1 0 2 - - - - s t n e l a v i u q e h s a c d n a h s a C g n i r a e b t s e r e t n i - n o N s e l b a v i e c e r r e h t o d n a e d a r T s t n e l a v i u q e h s a c d n a h s a C g n i r a e b t s e r e t n i - n o N s e l b a v i e c e r r e h t o d n a e d a r T 6 1 0 2 3 9 l a t o T r e t a e r G n a h t s r a e y 5 s r a e y 5 - 1 s h t n o m 3 r a e y 1 - s h t n o m 3 - 1 n a h t s s e L h t n o m 1 d e t h g e W i e g a r e v a e t a r t s e r e t n i 0 0 5 , 2 1 5 8 4 5 8 9 , 2 1 6 3 6 , 3 7 - - - - - - - - - - - - - - - - 5 8 4 5 8 9 , 2 1 6 3 6 , 3 7 - 0 0 5 , 2 1 % 0 2 1 . l s t n e a v u q e i h s a c d n a h s a C y n a p m o C e h T g n i r a e b t s e r e t n I 7 1 0 2 g n i r a e b t s e r e t n i - n o N l s t n e a v u q e i h s a c d n a h s a C g n i r a e b t s e r e t n i - n o N 6 1 0 2 l s t n e a v u q e i h s a c d n a h s a C Steppe Cement Ltd.Annual Report 2017Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 (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 2017 and 2016, 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. 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. 94 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 As of 31 December 2017 and 2016, the fair values of borrowings approximate their carrying values, except for the following: Fair value Carrying amount 2017 USD 2016 USD 2017 USD 2016 USD Borrowings 12,947,691 16,276,090 12,711,002 15,984,644 The fair values of the borrowings with Halyk Bank JSC were included in the Level 2 of fair value hier- archy, 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 6.1% per annum (2016: 6.9% and 7.1% per annum). 27. COMMITMENTS The Group has outstanding amount of contractual commitments for the acquisition of property, plant and equipment of USD259,736 as at 31 December 2017 (2016: USD40,175). 28. 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. 29. SUBSEQUENT EVENTS In 2018, Karcement JSC signed a short-term loan agreement with JSC VTB Bank of Kazakhstan at interest rate of 11.5% per annum and received borrowings of KZT 100million. The borrowings will mature in July 2018. On 21 May 2018, the board of directors of the Company proposed a final tax-exempt dividend of GBP0.01 per ordinary share of no par value each amounting to GBP2,190,000 in respect of the current financial year which, if approved by the shareholders of the Company at the forthcoming Annual General Meeting, will be accounted for in equity during the financial year ending 31 December 2018. 30. COMPARATIVE FIGURES Certain comparative figures in the financial statements have been restated to conform with current year’s presentation. 95 Annual Report 2017NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017 STATEMENT BY A DIRECTOR 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 profit or loss, profit or loss and other comprehensive income, changes in equity and cash flows are drawn up in accor- dance 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 2017 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 21 May 2018 96 Steppe Cement Ltd.NOTICE OF THE 2018 AGM NOTICE IS HEREBY GIVEN that the 2018 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 Thursday, 14 June 2018 at 2.30 p.m. for the purpose of considering and if thought fit, passing the following Resolutions: ORDINARY RESOLUTIONS 1. ADOPTION OF AUDITED FINANCIAL STATEMENTS To receive and adopt the audited financial statements for year ended 31 December 2017. RESOLUTION 1 2. FIRST AND FINAL TAX EXEMPT DIVIDEND FOR THE FINANCIAL YEAR ENDED 31ST DECEMBER 2017 RESOLUTION 2 To approve the payment of First and Final Tax Exempt Dividend of GBP0.01 per ordinary share of no par value each in respect of the financial year ended 31 December 2017. 3. RE-ELECTION OF DIRECTORS To re-elect the following Directors who offered themselves for re-election: RESOLUTION 3 3.1 Xavier Blutel 3.2 Javier Del Ser Perez 3.3 Rupert Wood BY ORDER OF THE BOARD TMF Secretaries Limited Corporate Secretary Labuan F.T., Malaysia Date: 97 Annual Report 2017 Notes: 1. 2. 3. 4. 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. 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. 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. 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. 98 Steppe Cement Ltd.99 Annual Report 2017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 

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