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
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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
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(5,299)
(138)
(252)
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(31,045)
46,820
-
-
(613,563)
-
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-
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-
-
-
-
-
-
-
-
-
-
-
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
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Annual Report 2017Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017
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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
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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
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Annual Report 2017Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017
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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