Plant Location In Kazakhstan
AKTOBE
ATYRAU
NUR-SULTAN
KARAGANDA
SEMEY
AKTAU
ALMATY
SHYMKENT
2
Steppe Cement Ltd. CONTENTS
04 - Financial Highlights
05 - Operational and Market Data
06 - Financial Data
07 - Corporate Information
08 - Chairman’s Statement
10 - CEO’s Statement
14 - Group Structure
15 - Board Of Directors
16 - Senior Management Karcement JSC & CAC JSC
Corporate Governance Statement
18 - Chairman Statement on Governance
20 - Corporate Governance
26 - Nomination Committee Report
27 - Audit Committee Report
32 - Financial Statements
106 - Statement by a Director
107 - Notice of Annual General Meeting
3
Annual Report 2018 Financial Highlights
6
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1
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2
Revenue (USD Million)
EBITDA* (USD Million)
*
excluding foreign exchange gain/ losses
arising on devaluation of the Tenge.
9
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8
2
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1
2
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0
6
1
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2
7
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0
2
8
1
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Profit/Loss after Tax
(USD Million)
4
1
0
2
5
1
0
2
4
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3
9
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7
4
6
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7
1
1
7
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6
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8
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9
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9
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5
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4
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0
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1
0
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1
0
2
7
1
0
2
8
1
0
2
Shareholders Funds
(USD Million)
Shareholders funds as of 31st December
2018 include USD8.9 million current
year profits, USD3 million dividends paid
and USD9.5 million fx losses charged to
Other Comprehensive Income
Steppe Cement Ltd. Operational and Market Data
3
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1
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2
8
2
6
1
0
2
3
3
7
1
0
2
9
3
8
1
0
2
Ex-factory price (KZT’000)
Ex-factory price (USD)
2
7
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1
3
6
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1
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6
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1
1
6
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1
7
5
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1
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9
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9
6
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8
4
1
0
2
5
1
0
2
6
1
0
2
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1
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2
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1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
Sales volume (million tonnes)
Market Size (million tonnes)
5
4
3
2
4
3
6
2
3
2
2
2
0
8
1
0
9
6
8
2
8
0
8
6
7
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
Average exchange rates (USD/KZT)
Capacity utilisation (%)
5
Annual Report 2018 Financial Data
Data
Gross profit margin (%)
Profit/(Loss) after tax margin (%)
Net earnings/(Loss) per share (cents)
Return on shareholders funds (%)
NTA per share (cents per share)
2014
2015
2016
2017
2018
31
(7)
(4)
(7)
54
36
(4)
(2)
(6)
26
30
30
0
0
0
2
2
27
27
43
11
16
26
0.6
4
Number of shares issued (million)
219
219
219
219
219
6
Steppe Cement Ltd.
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Listing
Nominated Advisor
London Stock Exchange AIM, London
Since 15 September 2005
RFC Ambrian Limited
Level 12, Gateway,1 Macquarie Place
Sydney NSW 2000 Australia
AIM Stock Code
STCM
Bloomberg Ticker
STCM LN
Reuters Ticker
STCM L
Country of incorporation
Federal Territory of Labuan, Malaysia
Company Registration
LL04433
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
and
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 PLT
Unit 3(I2) Main Office Tower
Financial Park Labuan
Jalan Merdeka
87000 Wilayah Persekutuan Labuan
Malaysia
UK Registrar
Computershare Investor Services PLC
PO Box 82
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
Bankers
Halyk Bank JSC
Altyn Bank JSC
VTB Bank Kazakhstan JSC
Main Country of Operation
(Operating Subsidiaries’ Address)
Solicitor
472380, Aktau Village
Karaganda Region
Republic of Kazakhstan
Company Secretary
TMF Trust Labuan Limited
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 2018
Chairman’s Statement
The fact that the Company
has successfully reached
a strong stable position
allows management to
dedicate an increased
share of their time to
develop the employee’s
skills and practices.
Continuous in-house
training has been defined
and now implemented in
early 2019.
Dear Shareholders
Following several years of dedication and drive by
the management of your Company, 2018 saw these
efforts bear fruit. Across the business, we have
continued with our wide-ranging consolidation plans
and I’m pleased to say that these are very much on
track.
GDP growth in Kazakhstan was estimated at 3.8%,
a slight decline against 2017 (4.1%). This slowdown
was reflected in the domestic cement consumption
which ended down at 8.6 million tonnes against 9.0
million in 2017.
The opening of Uzbekistan to International Trade,
combined with a solid surge in their construction
activity allowed our competitors
from South
Kazakhstan to sell a substantial part of their production
to what is logistically their natural market. It will take
several years to see the supply/demand balance
reach equilibrium, with new capacities operating
effectively in this country. Moreover, Uzbekistan
retains a high growth potential until it reaches the
per capita consumption of Kazakhstan (500 kg per
capita against 350kg in Uzbekistan now). This, as
demonstrated in 2018, should allow the utilisation
of the structural excess production capacity of
Kazakhstan in the foreseeable future.
With a stable domestic demand at 9 million tonnes,
a robust export market, limited imports, and a
progressive disappearance of obsolete producers,
the selling prices of cement stabilized at a higher
level than in the few past years. It has not yet
reached international levels and so presently does
not provide a reasonable return for investors and
lenders willing to build a new factory at today’s
construction costs. This is especially true if one is to
consider that the corresponding investment is, or
was, made in USD, with foreign technology and new
costly environmental devices required, whilst the
profits are in an undervalued currency.
Your Company is today one of the few, if not the
only one, which has almost fully repaid its debts and
completed all major industrial investments. It can
produce and sell 1.8 million tonnes per year, and
some minor debottlenecking investments could bring
this up to 1.9-2.0 million, should the market need
it. It is currently close to completing its investments
in packaging, loading and logistics: this will raise its
ability to sell some 35% of its production in bags,
thereby meeting better the needs of the market in
terms of quality, something which traders do not
often provide, but also practicality and reduction of
‘time to market ‘ on a number of construction jobs.
8
Steppe Cement Ltd. From a shareholder perspective, it will broaden
the product mix, diversify our customer base, and
increase margins despite the additional packaging
costs.
Being primarily selling in the Northern half of
Kazakhstan, the factory is subject to stronger seasonal
variations than its Southern competitors. It must
sell its production over a shorter period, and this
requires very careful manufacturing plans and stock
management. These are obviously basic industrial
practices, which your Company is pursuing very
effectively. In this respect it should be highlighted
that there is a substantially increased capacity to
load trucks and wagons during the high season. The
optimum fleet of wagons has been secured through
a proper mix of ownership and leases. Loading
stations and equipment have been reorganized and
upgraded to ensure a smoother and faster delivery
process.
in-house training has been defined and now
implemented in early 2019. Under the supervision
of the Audit Committee internal control procedures
are in continuous progress, aiming at matching best
practices in this respect. Training and clear procedures
will reduce crisis management occurrences and
further improve the staff’s dedication to ensure
proper safeguard of the business and its assets.
2019 starts on a very positive outlook, and your
Company, free of debt related to revamp of the
factory and fully geared to produce and distribute
at full capacity, is committed to take the best
advantage of more attractive price levels, robust
domestic demand and sustained export markets.
The controlled succession process in the leadership
of the country in March 2019 is reducing the level
of uncertainty which characterized the economic and
political environment of the recent years and will, I
hope, contribute to maintain or even improve the
investment climate and consumption levels.
The fact that the Company has successfully reached
a strong, stable position allows management to
dedicate an increased share of their time to develop
the employees’ skills and practices. Continuous
Xavier Blutel
Non-Executive Chairman
9
Annual Report 2018 CEO’s Statement
Our expectations are that
overall market demand in
2019 will increase by 5%
reflecting a recovering
of the market from 2018.
The Kazakh population
has reached 18 million
people and therefore
consumption represents
500 kg/person per year.
In 2018, Steppe Cement posted a net profit of USD 8.9 million. Steppe Cement’s EBITDA increased to USD
21.3 million from USD 11.6 million in 2017 mostly due to higher prices and volumes.
The overall domestic cement market decreased by 4% to 8.6 million tonnes, but our sales volume increased
by 6% mostly due to an increase of 63% in exports, helped by the continued weakness of the KZT against
the neighbouring currencies. The delivered price in USD increased by 18%.
In 2018 our cost of production per tonne in KZT increased by 6%, in line with inflation.
Steppe Cement operated both lines at 90% of their current combined capacity (which is 1.1 million tonnes
for line 5 and 0.8 million tonnes for line 6). We aim to increase their utilization and we are planning to
increase the capacity of line 6 to 0.9 million tonnes in late 2019.
Shareholders’ funds decreased to USD55.9 million from USD59.5 million after dividend distribution of
USD3 million to shareholders and due to the devaluation of the KZT. However, the replacement cost of the
Company’s assets remains many times higher than their current book value.
The Kazakh cement market decreased by 4% in 2018 but we expect it to improve in 2019
The Kazakh cement market in 2018 was 8.6 million tonnes, a decrease of 4% from 2017. Imports into
Kazakshtan decreased by 4% to 0.65 million tonnes or 8% of the total market. Exports from local producers
increased by 118% to 1.9 million tonnes.
Our expectations are that overall market demand in 2019 will increase by 5% reflecting a recovering of
the market from 2018. The Kazakh population has reached 18 million people and therefore consumption
represents 500 kg/person per year.
10
Steppe Cement Ltd.
Key financials
Year ended
31-Dec-2018
Year ended
31-Dec-2017
Inc/
(Dec)%
Sales (tonnes of cement)
1,720,629
1,630,230
Consolidated turnover (KZT million)
28,342
21,443
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)
82.2
10.7
8.9
4.1
55.9
345
384
65.9
1.9
1.2
0.6
59.5
326
332
6
32
25
> 400
> 700
> 600
(6)
6
13
Improving exports mostly
to Uzbekistan and
Kyrgyzstan helped local companies to increase
their overall volumes by 7%. The companies that
benefited most were the ones in the south. In the
west, a new competitor has started near Kyzylorda
and is expected to increase its production steadily
during the year.
In 2019, the local cement factories should maintain
these trends with similar level of exports. Imports into
Kazakhstan should remain contained to regions near
the Russian border and be subject to competition
from a new factory.
Steppe Cement’s average cement selling prices
increased by 25% in KZT and by 18% in USD, to USD
47.7 per tonne delivered.
Line 5 produced 993,850 tonnes of cement while
Line 6 produced 726,767. We continue to make
small improvements in Line 6 that we expect will
contribute to an additional 80,000 tonnes in 2019.
The new packing line for 1,800 bags per hour was
commisionned in the summer of 2018 and we have
doubled the capacity of the big bag facility to 100
tonnes per hour. Capital investment was increased
slightly to USD2.7 million from USD1.6 million in
2017.
In 2019, we will plan the following capital investments:
•
Increase the capacity of the 50 kg bags packing
line to 2,400 bags per hour, equivalent to 120
tonnes per hour.
• Commission the fully automated loading of
wagons and trucks.
•
Installation of a separator in cement mill number
four.
• Change the two preheater fans in Line 6 to
improve energy efficiency.
• Automatize the silos and loading in the wet line
Capital investment in 2018 was directed to the
improvement of packing and logistics and we will
continue to do so in 2019
mill area.
11
Annual Report 2018 Cost per tonne were maintained as volumes
increased
inventory. Cost of production for 2017 was therefore
decreased by 0.6 USD/tonne.
The average cash production cost of cement was
maintained at USD23/tonne as production and sales
increased offsetting some of inflation increases.
Some of the variable costs have been reassigned to
fixed costs in 2018 - if we compare with the same cost
base 2017 and 2018, the variable cost has increased
by around USD0.7/tonne or 3%.
Selling expenses, reflecting mostly cement delivery
costs, increased to USD9/tonne from USD7/tonne
in 2017, due to higher export volumes (+63%) and
transportation tariffs.
General and administrative expenses
General and administrative expenses increased by
19% to USD 6.2 million from USD 5.2 million in 2017.
The general expenses have been adjusted both for
2017 and 2018 and include expense previously
included in the production costs.
In 2017, we transfered USD1 million from cost of
production to general expenses of which USD0.65
million were transfers of management salaries
and USD0.35 million were provisions for obsolete
After taking into consideration these adjustments,
the general expenses in 2018 have still increased by
USD1 million. This is broken down as follows:
• USD0.28 million as transfers of maintenance and
logistic from production to general expenses.
• USD0.25 million as a provision of doubtful
receivables in accordance with changes in IFRS9.
• USD0.15 million as increased salaries, extra
half month bonus and other compensation
improved.
as company performance has
• USD0.06 million in increased bank commission
as we try to reduce the cash payments.
The balance represents an effective increase of 5%
which is on line with the increase of volumes.
On 31 March 2019 the labour count stood at 735 the
same level as last year.
12
Steppe Cement Ltd.
Financial position: Continuous debt reduction
We maintain three short term credit lines available
as stand by:
During the year, our total loans outstanding were
reduced from USD20 million to USD11.8 million.
Long term loans were reduced from USD9.8 million
to USD 6.6 million as we continued to repay principals
to Halyk Bank for the long term loan for wagons and
various government subsidised loans for capex. In
addition, due to devaluation, the KZT denominated
loans were reduced in USD.
The effective interest rate in the long term loans in
USD and KZT was maintained at 6.2% per annum
(p.a.).
Our short term loans and current part of the long
term loans were significantly reduced from USD10.2
million in 2017 to USD5.2 million in 2018, while the
cash position at the end of the year was increased
from USD3 million to USD5.7 million.
We consider the risk of a sharp devaluation is now
much lower but we have not borrowed significantly
since December 2018. We have drawn subsidized
short term loans at 6% p.a. in KZT and short term
loans at 10% p.a. in KZT when the banks offered
them.
• KZT3 billion from Halyk Bank at 6% p.a. in USD
or 12% p.a. in KZT which includes a government
subsidized program of KZT0.5 billion in KZT at
6% p.a.
• KZT0.9 billion from Altyn Bank at 10% p.a. in
KZT.
• KZT3 billion from VTB Bank Kazakhstan at 11.5%
p.a. signed in March 2018.
In 2017, finance costs decreased to USD1.6 million
from USD2.2 million in 2017 due to the continuous
repayment of loan principals.
All covenants under the various credit lines have
been met comfortably.
Depreciation stayed the same in 2018 at USD7.3
million.
The statutory corporate income tax rate remains at
20% in Kazakhstan.
Javier Del Ser Perez
Chief Executive Officer
13
Annual Report 2018
Group Structure
Steppe Cement (M) Sdn Bhd
(Malaysia)
100%
Steppe Cement Holdings B.V.
(Netherlands)
100%
14
Mechanical and Electrical
Consulting Services Ltd
(Malaysia)
100%
Central Asia Cement
JSC
(Kazakhstan)
100%
Karcement JSC
(Kazakhstan)
100%
Central Asia Services LLP
(Kazakhstan)
100%
Steppe Cement Ltd.
Board of Directors
Xavier Blutel
(Non-Executive Chairman)
Xavier Blutel, 64, is currently a member of the Strategic Committee at
Wagram Corporate Finance, President and founding partner of SAS
Baudrimont and a former 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, 53, 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, 48, 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 2018 Senior Management
General 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.
Head of Production, Processes and 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 Karcement 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.
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.
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.
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 finance director 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.
16
Steppe Cement Ltd. MANAGEMENT AND STAFF OF KARCEMENT JSC
MANAGEMENT AND STAFF OF CENTRAL ASIA CEMENT JSC
17
Annual Report 2018 Corporate Governance
Chairman’s Statement on Governance
Throughout 2018 the Company continued to
engage with stakeholders, ranging from the unions,
local authorities, suppliers, to its shareholders.
Your Company sees such engagement as critical
to the successful future of the Company, to ensure
smooth relations and continued understanding of
stakeholder interests. The Company’s role as the
major employer in Aktau is taken into consideration
whenever employee issues are being discussed.
The three half month bonuses paid by the Company
in 2018 were indicative of the Company’s desire to
remain on the best possible terms with employees
and other related stakeholders.
Health and safety is as ever of high importance
for the Company and its workforce. The training
programme being rolled out, including H&S issues,
endeavours to entrench a culture that reduces any
potential risks to employees. Within the Company,
the Board remains focused on improving the skill
sets of the workforce, with an emphasis on training
and a broadening of understanding of the key
aims and objectives of the Company, to generate
a focused and harmonious culture throughout
the business. Continued engagement of senior
management to pass knowledge on to the broader
workforce is seen as of great importance, and is
being rolled out across business lines.
investors in London, Paris and Kuala Lumpur.
Continued investor dialogue remains of high
importance for the Company.
Maintaining oversight of your Company is a
principal role of your Board, as well as its sub-
committees, and continued progress is being
made to enhance such supervisory function.
2018 saw the strengthening of Governance
within the Group with the election of several new
independent non-executive directors to both
Karcement and CAC, whilst the Audit, Nomination
and
expended
considerable energy overseeing best practice,
rigorous protocols and the implementation of
further procedures to enhance supervision and
controls within the Company.
Remuneration Committees
We continue to see Key Risks around the level of
domestic demand for cement and the domestic
cement price, combined with the same issues in
the export market especially to Uzbekistan, though
these are largely out of the Company’s control.
Sales strategy remains an important area of focus
for the Board as well as senior management, to
maximise revenue throughout the year, both in
terms of price and volume.
The CEO remains the key point of contact
investors, whether by video-conference/
with
conference call or
in person, attending two
conferences in Moscow and Prague in 2018, as
well as meeting other shareholders and potential
Whilst the Company looks to maximise revenues
in bulk export volumes, it is also aware that these
may not last into the long term and so is looking
to enhance its product offering into the “big bag”
and “small bag” market, ramping up capacity
18
Steppe Cement Ltd. to these greater added-value areas. Strategic aims
remain to have the most efficient plant possible, and
to produce and sell as much cement as the market
and environment allow, whilst keeping as tight a lid
on costs as possible.
Plant production problems remain a potential risk,
though optimisation, thorough breakdown analyses,
improved procedures and training have helped
curtail unplanned stoppages and breakdowns. Focus
has been kept on critical spares to ensure that any
unexpected breakdowns or stoppages are as short
as possible, while not carrying an unnecessarily large
inventory of expensive spares.
In terms of competition, there are new entrants to
the market on the horizon, though the Company
cannot prevent these operating in an economically
irrational fashion.
I am pleased to say that another aim for the Board
in 2018 was to ensure as much control of transport
for the Company’s cement as possible, which was
successfully achieved in 2018 with the long term
lease of 250 rail wagons (additional to the 952 that
the Company owns).
The management has seen a reduction in expatriate
employees as a greater number of roles are filled by
Kazakh nationals, in line with Company policy, while
a reduction in overall headcount has been another
target that the Company has successfully met.
Xavier Blutel, Chairman of the Board
19
Annual Report 2018 Corporate Governance
The Board’s role in Corporate Governance
is
(“Board”)
fully
The Board of Directors
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. The Board sets the tone by defining
and demonstrating the Company’s values and
standards. The Board recognises that a robust
corporate governance framework is essential to
effective delivery of the strategy of the Group and
ensure the highest standards of integrity.
Chairman’s role in Corporate Governance
is to ensure that the
The Chairman’s role
relevant and
remains
governance
structure
the Group’s
supporting
appropriate, whilst
strategy and culture and ensuring that the Board
delivers effective leadership in order to discharge
its duties responsibly and effectively to ensure the
long-term success of the Group.
Compliance with QCA code
Steppe Cement complies with the latest Quoted
Companies Alliance Corporate Governance
Code (“QCA”) guidelines published in 2018.
Nonetheless, Steppe Cement adopts the principal
requirements of the UK Combined Code of
Corporate Governance (Combined Code), as far as
practicable, to ensure high standards of corporate
governance.
Steppe Cement is not required to comply with the
Combined Code published by the UK Financial
Reporting Council. The Combined Code applies
to companies listed on the Main Board but not
AIM companies.
• Separation of Chairman and Chief Executive
Officer (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
The application of the principles of the QCA
code by Steppe Cement are published on Steppe
Cement’s website.
BOARD OF DIRECTORS
The Board’s primary objective is to protect and
enhance long-term shareholders’ value. The Board
is responsible for:
The QCA has published a set of corporate
governance guidelines for as a minimum standard
to follow for companies, such as those listed on
AIM, which adopt the QCA. The QCA guidelines
are less rigorous than the Combined Code and
recommendations, examples of which include the
following:
•
•
formulating the Group’s strategic direction and
major policies;
review performance of the Group and monitor
the achievement of management’s goals;
20
Steppe Cement Ltd. approval of the Group’s financial statements,
annual report and announcements;
Independence
•
•
•
•
•
approval of Group’s operational and capital
budgets;
approval
expenditure, acquisitions and disposals;
of major
contracts,
capital
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 Chairman and CEO. The Chairman
is
responsible for leadership and management of
the Board and ensures that it operates effectively
and fully discharges its responsibilities. The Board
has delegated responsibility for the day-to-day
management and operations of the Group in
accordance with the objectives and strategies
established by the Board to the CEO and the
senior management.
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.
Performance evaluation
The Board conducts regular evaluation of its
performance and the effectiveness of the Board
Committees. The performance of the Chairman
and individual Directors is continually assessed to
ensure that each director continues to contribute
effectively and demonstrates commitment to the
role.
21
Annual Report 2018 Corporate Governance
Re-election of Directors
Independence advice and insurance
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
Remuneration levels are competitively set to attract
and retain appropriately qualified and experienced
Directors and senior executives. The Board has
delegated the setting of broad remuneration
policy to the Remuneration Committee. The
purpose of the policy is to ensure the remuneration
package properly reflects the person’s duties and
responsibilities and level of performance, and
that remuneration is competitive in attracting,
retaining and motivating people of the highest
quality. Where necessary, independent advice on
the appropriateness of remuneration packages is
obtained.
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.
Board Meetings
During the year ended 31 December 2018, 5
board meetings were held. The following is the
attendance record of the directors:
Directors
Xavier Blutel
(Non-Executive Chairman)
Javier Del Ser Perez
(Chief Executive Officer)
Rupert Wood
(Non-Executive Director)
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
5
5
5
4
4
N/A
N/A
4
4
4
4
4
Committee meetings are held concurrently with the board meetings.
22
Steppe Cement Ltd. Nomination Committee
The Committee comprises of majority independent
Non-Executive Directors. The Terms of Reference
of the Nomination Committee was approved by
the Board. The Nomination Committee meets at
least once a year.
The Nomination Committee’s members comprises:
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 and
competitively set to attract, retain and motivate
people of the highest quality.
The functions of the Remuneration Committee
include:
• Determine and review the broad remuneration
the Chairman, CEO, Executive
policy of
Directors and senior executives;
The functions of the Nomination Committee
include:
• Review the contracts for the Chairman, CEO,
Executive Directors and the contractual terms;
• Review annually
the structure, size and
composition of the Board taking into account
the Group’s strategies;
• Obtain information on the remuneration of
other listed companies of similar size and
industry;
•
Identify and nominate the potential candidates
to the Board for approval;
• Report and make recommendations to the
Board on the Committee’s activities; and
• Monitor the appointment process of Directors;
• Recommend to the Board for approval on the
re-appointment of Directors;
• Review and update the Terms of Reference
every two (2) years, or more frequently as
required to ensure its ongoing relevance and
effectiveness.
• Oversee the succession planning of Directors
into consideration of the Group’s
taking
strategies;
Remuneration Committee’s members
The
comprises:
• Report and make recommendations to the
Board on the Committee’s activities; and
1.
2.
Xavier Blutel (Chairman)
Rupert Wood
23
Annual Report 2018
Corporate Governance
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,
regulatory announcements relating to the
Group’s results;
• 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:
1.
2.
Rupert Wood (Chairman)
Xavier Blutel
BUSINESS CONDUCT AND ETHICS
In the course of business, the Board acknowledges
the need to maintain high standards of business
and ethical conduct by all Directors, management
and employees of the Group. In this respect, the
Group has the responsibility to observe local laws,
customs and culture of each country in which it
operates in particular Kazakhstan and to adopt
the high standards of business practice, procedure
and integrity. All Directors and employees are
expected to act with the utmost integrity and
objectivity, striving at all times to enhance the
reputation and performance of the Group.
• Review the Group’s significant accounting
Conflict of interest
policies and practices;
• Review compliance with international financial
reporting standards, regulatory and other legal
requirements;
• Review and advise
the
appointment, nomination and re-appointment
of the external auditors;
the Board on
• Oversee the relationship with the external
auditors,
the engagement of
auditors, the audit scope, plan, remuneration
and objectivity;
including
• 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
24
All Directors must keep the Board advised, on
an ongoing basis, of any interest that could
potentially conflict with those of the Group. Where
the Board believes that a significant conflict exists
for a Director on a board matter, the Director
concerned does not receive the relevant board
papers and is not present at the meeting whilst
the item is considered. Directors are required to
take into consideration any potential conflicts of
interest when accepting appointments to other
Boards.
INVESTOR RELATIONS
The Board recognises and values the importance
of managing its relationship with the investing
community. The Board
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
Steppe Cement Ltd. 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 account 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
annually. The Audit Committee also deliberates on
control issues highlighted by the external auditors
during the course of statutory audits.
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,
including compliance and
risk management
practices to ensure good corporate governance.
The Board regularly evaluates and monitors the
effectiveness of the internal control system.
Purpose
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.
Key elements
The key elements of the Group’s internal control
system are:
• Control - an organisational structure is in place
with clearly defined levels of responsibility and
authority together with appropriate reporting
to
procedures, particularly with
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
25
Annual Report 2018 Corporate Governance
Nomination Committee Report 2018
Dear Shareholder,
Over the course of 2018 the Committee met four times in person and worked on several projects to
streamline governance and reduce costs in your company. The Committee held reviews of the Boards
of two subsidiary companies and elected to appoint two more independent non-executive directors to
each of these subsidiaries, which will improve governance of these subsidiary companies, whilst also
having the benefit of reducing costs incurred from the previous requirement to use international lawyers
for certain authorisations. These are now signed off by the Independent Directors of the subsidiaries.
The end of 2018 also saw the retirement from full time engagement of the General Manager, Gan
Chee Leong, after many years of service. The Committee and Board thanks him for his long years of
dedication, but have been fortunate enough to retain his engagement on a part time basis in Kuala
Lumpur, to work with Head Office, the CEO, and to assist with any shareholder issues that may arise.
Gan will continue to visit the factory periodically to consult with successor management and offer the
wisdom gleaned from his veteran service. The Committee approved this transition and will oversee the
smooth operation of this agreement.
The Committee was pleased with the smooth management transition in 2018 and the way in which senior
management have stepped up into bigger roles, and continues to monitor management composition
and performance, as well as that of the Board itself.
2019 has seen an approach to strengthen the HR function, by retaining a consultant to advise on internal
process and structure and to assist with the recruitment requirements of the Board and Company.
Yours faithfully
Rupert Wood, Nomination Committee Chairman
26
Steppe Cement Ltd. Audit Committee Report 2018
Dear Shareholder,
External Audit Process
The Audit Committee has had an active year
working to ensure your Company’s operational,
financial, compliance and audit health continues to
go from strength to strength, reviewing procedures
and protocols to ensure Best Practice wherever
possible.
The Audit Committee, a subset of the Board,
consisting of the Chairman and Xavier Blutel,
formally met four times in person throughout
2018, as well as several further times by telephone
or conference call. Most occasions of Committee
Meetings were based around Board Meetings,
for logistical purposes and in order for access
to management, at the time of Board Meetings
held twice yearly in Aktau. The Committee aims
to advise and challenge the Management of your
Company to the best of its ability, and to advise
the board on its recommendations to strengthen
governance, controls and oversight.
We have been pleased to witness the strong
performance of your Company financially, with
2018 seeing a 1p dividend paid in respect of 2017
over last summer. The Committee, alongside the
Board, monitors and evaluates the company’s
financial strength and performance on an ongoing
basis. This involves comfort with prudent leverage
ratios, monitoring the cashflow situation, whilst
monitoring risks both short term as well as medium
to long-term to mitigate these potential scenarios,
- and to optimise any such opportunity that these
situations can present.
As part of its oversight remit, the Audit Committee
held several conference call meetings with the
Auditors to approve the Auditor and set fees, set the
terms of the Audit and approve the Audit Plan, to
monitor its progress and discuss any issues arising
from the Audit process. The Audit Committee is
satisfied that the Auditor does not have a conflict
of interest, and it does not presently provide any
other consulting services to the Company which
might influence its opinion. It also discussed the
Management Letter following the 2017 Audit with
the Auditors, and followed up to ensure that all
items raised had been resolved and closed off
between the Auditor and the Company.
Risk Management
The area of risk management is one that is managed
by senior management of the Company, business
heads with the Board and Audit Committee
overseeing this work. This is an area that is under
constant monitoring and revision to ensure that the
Company is as prepared as it can be for a range of
eventualities. In the view of the Audit Committee
and Board, the overall risk level has not materially
changed over the course of 2018, but we remain
ever vigilant for signs of change.
A risk register is in the process of design in
2019 to ensure a more formal framework for this
assessment and monitoring programme.
Financial Oversight
The Audit Committee increased the time dedicated
to committee business over 2018, and continues
to work with the Board to ensure Best Practice in
your Company.
the year
the Committee, with
Throughout
the Board, oversaw and reviewed all material
announcements by the Company to shareholders
via RNS announcements on AIM, annual and
interim reports, and of the AGM.
Yours faithfully
Rupert Wood, Audit Committee Chairman
27
Annual Report 2018
Corporate Governance
Audit Committee Report 2018
The Committee, alongside the Board
itself,
spends a considerable amount of time at each
Board meeting, as well as in intervening periods,
reviewing
the company’s financial situation,
discussing this with the management and CEO of
the company.
The Committee reviewed the changes to IFRS 9
and IFRS 15 from January 2018, and established
that any changes to the company’s accounts
arising from these changes should be minor or not
material, concurring with the Finance Department
and the external Auditor.
Going forward however, IFRS 16, relating to
the difference in treatment for financial versus
operating leases, may have some impact, though
in the Committee’s opinion, such impact should be
minor in scope.
Internal Audit
The Audit Committee has dedicated an increasing
amount of time to ensure proper follow up of issues
arising from meetings and areas seen as requiring
further examination or attention. This has including
examining the need for a strengthened internal
audit function, where the Audit Committee has
recommended to the Board the recruitment of a
Head of Internal Audit.
The Committee meets with senior management
in Kazakhstan at least twice a year, from sales,
operations, maintenance, HR, legal, and finance.
Internal Audit
is presently devolved within
departments of the company, with areas of focus
in constant review, and with ad hoc investigation
when required. The Audit Committee also liaises
closely with the Company Secretary on issues
between Group Companies, including tax and
accounting.
Over 2018, several areas caught the notice of
the Audit Committee, and indeed the Board, and
received the benefit of further inspection from
Internal Audit and the Committee to review and
enhance oversight.
Such areas included:
•
•
reconciliation between
estimated
stock
output and assessed inventory, to ensure
this was performed far more frequently and
communicated more widely, including to the
Audit Committee;
truck loading, where oversight of the loading
area has been enhanced, tightening controls
regarding access to the loading area, the
weighbridge and control room, the size of
trucks entering the factory, random checks of
loaded vehicles and introducing more CCTV
and automated weighing systems, whilst
implementing a company wide card access
programme for the entire factory site;
•
all wagons going forward will be automatically
tracked;
• procurement procedures now include a double
sign off requirement to make any fraudulent
purchasing or fake invoicing far harder;
•
and critical spares, where the operations and
maintenance management now
regularly
review their wish list and their critical list, and
circulate this to the Audit Committee and Board
to ensure that any stoppage time due to broken
equipment is kept to an absolute minimum,
whilst not carrying redundant inventory of
expensive, non-critical spare parts.
The Audit Committee remains vigilant for any signs
of suspected fraud, theft or malfeasance, and will
continue to improve internal controls throughout
2018 to mitigate such risks. Financial controls,
cross checks and reconciliations will continue to
be honed going forward.
28
Steppe Cement Ltd. New QCA Code of Governance
Role and Responsibilities of the Audit Committee
The roles and responsibilites are described in
the Audit Committee section of the Corporate
Governance framework.
Compliance with legal and regulatory requirements
is a key role of the Committee, which oversaw the
implementation and adoption of the updated
requirements from the QCA Code of Governance,
adhering to its principle of comply or explain. The
Company has complied with these strictures and
the Committee remains alert to ensuring that the
Board and the Company maintain this stance. The
Chairman of your Committee pays keen attention
to corporate governance developments and
dedicates time to remaining abreast of the evolving
corporate governance environment, attending
courses and seeking peer-group insights.
Health and Safety
The Committee regularly reviewed the latest
updates on Health and Safety throughout the year,
with ongoing training of staff a key component
being a focus for the Company. The Company
has maintained a laudable record in Health and
Safety, though there were incidents recorded
with contractors. The ongoing wellbeing of the
Company’s workforce remains a key objective for
the Company.
Membership of Audit Committee
Rupert Wood Committee Chairman, since October
2017
Xavier Blutel Member since June 2015
the Audit Committee
All members of
re
independent, non-executive directors, with
backgrounds in relevant areas for Committee
purposes (see Biographies and Skill Sets section),
both deep and broad experience in the cement
industry and plant management as well as relevant
financial experience and understanding.
29
Annual Report 2018 FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(In United States Dollar)
30
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
PAGES
32 - 35
36
37
38 - 39
40 - 42
43 - 45
Notes to the financial statements
46 - 105
Statement by a director
106
31
Annual Report 2018 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 2018, 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 46 to 105.
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 2018, 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.
32
Steppe Cement Ltd. Key audit matters
Impairment of property, plant and equipment
The carrying value of property, plant and equipment
amounted to USD54.6million, representing 67% of
the total assets as of 31 December 2018.
During the current financial year, the directors
considered the Group’s historical performance for
three consecutive financial periods as well as the
Group’s current performance and market outlook
of the
impairment
assessment was performed to determine the
recoverable amount of the Group’s property, plant
and equipment.
industry. Consequently, an
the
recoverable amount determined by
The
directors based on a value-in-use model includes
key assumptions that are judgemental in nature
specifically in relation to the forecast cash flows,
future sales volume, discount rates and the growth
rates applied.
No impairment was recorded 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 2018.
Significant judgements and inputs used in the
value-in-use model are disclosed in Note 10 to the
financial statements.
How our audit addressed the key audit matters
We discussed with management the future plans of
the manufacturing entities and economic outlook in
the coming years.
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.
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 and, in doing so, consider whether the other information is materially
inconsistent with the financial statements of the Group and of the Company or our knowledge obtained in
the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
33
Annual Report 2018 INDEPENDENT AUDITORS’ REPORT
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
34
Steppe Cement Ltd. or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditors’ report. However, future events or conditions may
cause the Group or the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements of the Group and of
the Company, including the disclosures, and whether the financial statements of the Group and of the
Company represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the financial statements of the Group. We
are responsible for the direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify
during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
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 PLT (LLP0010145-LCA)
Chartered Accountants (AAL 0009)
LIM KENG PEO
Partner - 2939/01/2020 J
Chartered Accountant
Labuan
10 May 2019
35
Annual Report 2018 STATEMENTS OF PROFIT AND LOSS
FOR THE YEAR ENDED 31 DECEMBER 2018
The Group
The Company
Note
2018
USD
2017
USD
2018
USD
2017
USD
Revenue
Cost of sales
4
82,184,670
65,855,137
8,912,843
3,535,005
(46,871,195)
(45,211,517)
-
-
Gross profit
35,313,475
20,643,620
8,912,843
3,535,005
Selling expenses
General and
administrative
expenses
Interest income
Finance costs
Net foreign exchange
(loss)/gain
Other income, net
Profit before
income tax
Income tax expense
Profit for the
year
Attributable to:
Shareholders of the
Company
Earnings per share:
Basic and diluted
(cents)
(15,612,203)
(11,819,521)
-
-
(6,226,994)
(5,245,588)
(300,517)
(270,136)
42,649
61,449
(1,637,834)
(2,236,516)
(1,786,724)
576,570
(205,610)
736,727
458
-
26,141
(4,855)
39
-
(81,355)
-
10,668,939
1,934,561
8,634,070
3,183,553
(1,744,486)
(703,091)
-
(4,941)
8,924,453
1,231,470
8,634,070
3,178,612
5
6
7
8
8,924,453
1,231,470
8,634,070
3,178,612
9
4.1
0.6
The accompanying notes form an integral part of the financial statements.
36
Steppe Cement Ltd. STATEMENTS OF PROFIT AND LOSS AND OTHER
COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2018
The Group
The Company
2018
USD
2017
USD
2018
USD
2017
USD
Profit for the year
8,924,453
1,231,470
8,634,070
3,178,612
Other comprehensive
(loss)/income:
Items that may be reclassified
subsequently to profit or loss:
Exchange differences
arising from translation of
foreign operations
Total other comprehensive
(loss)/income
Total comprehensive
(loss)/income for the year
Attributable to:
(9,525,368)
244,646
(9,525,368)
244,646
-
-
-
-
(600,915)
1,476,116
8,634,070
3,178,612
Shareholders of the Company
(600,915)
1,476,116
8,634,070
3,178,612
The accompanying notes form an integral part of the financial statements.
37
Annual Report 2018
STATEMENTS OF FINANCIAL POSITION
FOR THE YEAR ENDED 31 DECEMBER 2018
The Group
The Company
Note
2018
USD
2017
USD
2018
USD
2017
USD
10
11
25
15
12
13
14
25
54,611,723
67,358,584
-
-
-
-
-
-
191,242
508,555
2,203,459
1,247,835
26,500,001
26,500,001
30,170,000
-
-
-
-
-
57,006,424
69,114,974
56,670,001
26,500,001
13,381,295
13,013,642
-
-
3,500,468
3,101,667
8,883,956
3,435,005
175,336
127,208
-
-
-
-
9,634,325
39,605,291
15
2,312,534
3,477,179
6,704
6,579
16
5,719,491
3,045,336
23,570
12,985
Assets
Non-Current Assets
Property, plant and
equipment
Investment in subsidiary
companies
Loans to subsidiary company
Advances
Other assets
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
Total Current Assets
25,089,124
22,765,032
18,548,555
43,059,860
Total Assets
82,095,548
91,880,006
75,218,556
69,559,861
38
Steppe Cement Ltd. STATEMENTS OF FINANCIAL POSITION
FOR THE YEAR ENDED 31 DECEMBER 2018
The Group
The Company
Note
2018
USD
2017
USD
2018
USD
2017
USD
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
17
18
18
18
19
20
21
73,760,924
73,760,924
73,760,924
73,760,924
2,349,282
2,680,003
(116,266,492)
(106,741,124)
-
-
-
-
96,112,997
89,817,170
399,237
(5,275,486)
55,956,711
59,516,973
74,160,161
68,485,438
6,606,910
2,054,758
1,629,508
9,834,719
637,777
1,519,487
65,354
66,861
10,356,530
12,058,844
-
-
-
-
-
-
-
-
-
-
-
-
Trade and other payables
22
6,614,604
7,684,371
Accrued and other
liabilities
Borrowings
Taxes payable
Total Current
Liabilities
Total Liabilities
Total Equity and
Liabilities
23
19
24
2,682,569
2,229,254
1,058,395
1,069,482
5,217,009
10,194,584
1,268,125
195,980
-
-
-
4,941
15,782,307
20,304,189
1,058,395
1,074,423
26,138,837
32,363,033
1,058,395
1,074,423
82,095,548
91,880,006
75,218,556
69,559,861
The accompanying notes form an integral part of the financial statements.
39
Annual Report 2018
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Annual Report 2018Steppe Cement Ltd.
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2018
The Company
Share
Capital
USD
Distributable
(Accumulated
losses)/
Retained earnings
USD
Total
USD
As of 1 January 2018
Total comprehensive income for the year
Dividends paid
73,760,924
(5,275,486)
68,485,438
-
-
8,634,070
8,634,070
(2,959,347)
(2,959,347)
As of 31 December 2018
73,760,924
399,237
74,160,161
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
The accompanying notes form an integral part of the financial statements.
42
Steppe Cement Ltd. STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2018
The Group
The Company
2018
USD
2017
USD
2018
USD
2017
USD
CASH FLOWS
FROM/(USED IN)
OPERATING ACTIVITIES
Profit before income tax
10,668,939
1,934,561
8,634,070
3,183,553
1,786,724
205,610
(50,676)
79,897
Adjustments for:
Depreciation of property, plant
and equipment
7,272,439
7,265,935
Amortisation of quarry
stripping costs
Amortisation of site restoration
costs
Dividend income
Reversal of dividend accrued
Loss on disposal of property,
plant and equipment
Interest income
Finance costs
Net foreign exchange loss/
(gain)
Provision for obsolete
inventories
Credit loss allowance for
doubtful receivables
4,654
1,566
-
-
30,925
(42,649)
30,398
1,656
-
-
72,728
(61,449)
1,637,834
2,236,516
46,562
33,175
168,365
25,532
Allowance for advances paid to
third parties
139,979
43,782
Reversal of provision for
obsolete inventories
Deferred income
Reversal of doubtful
receivables
Write-off of inventories
(346,533)
(41,192)
-
-
(356,280)
(49,096)
(138)
46,820
-
-
-
-
-
-
(8,389,233)
(3,435,005)
4,855
-
(524,068)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
43
Annual Report 2018 STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2018
The Group
The Company
2018
USD
2017
USD
2018
USD
2017
USD
21,327,613
11,429,750
(325,052)
(171,555)
Movement in working capital:
Decrease/(Increase) in:
Inventories
(2,304,350)
2,606,085
Trade and other receivables
(2,434,470)
430,552
-
(125)
-
-
Loans and advances to
subsidiary companies
Advances and prepaid
expenses
Increase/(Decrease) in:
-
-
(2,682,456)
Trade and other payables
(161,809)
(140,863)
Accrued and other liabilities
2,244,060
570,636
39,589
-
(199,034)
104,828
18,671,044
12,213,704
(484,622)
(60,651)
(151,305)
-
(4,941)
-
18,519,739
12,213,704
(489,563)
(60,651)
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
(3,138,098)
(2,104,293)
Purchase of other assets
(25,621)
(68,273)
Proceeds from disposal of
property, plant and equipment
Dividends received from subsidiary
-
-
476,689
-
3,430,150
Interest received
42,649
61,449
29,345
Net Cash (Used In)/From
Investing Activities
(3,121,070)
(1,634,428)
3,459,495
44
-
-
-
-
-
2,549
-
3,527
-
-
-
-
-
-
Steppe Cement Ltd. STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2018
The Group
The Company
2018
USD
2017
USD
2018
USD
2017
USD
-
(4,483,495)
9,363,949
18,201,873
(16,732,905)
(20,045,342)
-
-
-
(2,959,347)
(1,650,182)
-
(2,959,347)
(2,235,965)
-
(11,978,485)
(8,562,929)
(2,959,347)
-
-
-
-
-
-
3,420,184
2,016,347
10,585
(60,651)
(746,029)
5,784
-
-
3,045,336
1,023,205
12,985
73,636
CASH FLOWS
FROM/(USED IN)
FINANCING ACTIVITIES
Redemption of bonds
(Note 19)
Proceeds from borrowings
(Note 19)
Repayment of borrowings
(Note 19)
Dividends paid
Interest paid
Net Cash Used In Financing
Activities
NET INCREASE/(DECREASE)
IN CASH AND CASH
EQUIVALENTS
EFFECTS OF FOREIGN
EXCHANGE RATE
CHANGES
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF YEAR
CASH AND CASH
EQUIVALENTS AT
END OF YEAR (Note 16)
5,719,491
3,045,336
23,570
12,985
The accompanying notes form an integral part of the financial statements.
45
Annual Report 2018 1.
GENERAL INFORMATION
Steppe Cement Ltd (the “Company”) is a limited liability company incorporated in Malaysia. The
Company’s registered office is Brumby Centre, Lot 42, Jalan Muhibbah, 87000 Labuan FT, Malaysia.
The Company’s shares are listed on the Alternative Investment Market of the London Stock Exchange.
The Group comprises the Company and the subsidiary companies (collectively the “Group”) that are
disclosed in Note 11.
The principal place of business of the Company’s operating subsidiary companies is located at
472380, Aktau village, Karaganda Region, the Republic of Kazakhstan.
The Company’s principal activity is investment holding. The Company’s operating subsidiary
companies 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 10 May 2019.
2.
BASIS OF PREPARATION OF FINANCIAL STATEMENTS
Basis of preparation
The financial statements of the Group and of the Company have been prepared in accordance
with International Financial Reporting Standards (“IFRS”) issued by the International Accounting
Standards Board (“IASB”).
Application of new and amendments to International Financial Reporting Standards (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 2018.
IFRS 9
IFRS 15
Amendments to
IFRSs
Financial Instruments
Revenue from Contracts with Customers
Annual Improvements to IFRSs 2014 - 2016 Cycle
Amendments to
IFRS 2
Classification and Measurement of Share-based Payment
Transactions
IFRIC 22
Foreign Currency Transactions and Advance Consideration
The application of these new and amendments to IFRS did not result in significant changes in the
accounting policies of the Group and of the Company and have no material impact on the disclosures
in the financial statements of the Group and of the Company, except for the application of IFRS 9 and
IFRS 15 as described below.
IFRS 9 Financial Instruments
In the current year, the Group and the Company applied IFRS 9 Financial Instruments. IFRS 9 introduces
new requirements for 1) the classification and measurement of financial assets and financial liabilities;
and 2) impairment for financial assets.
46
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 Details of these new requirements as well as their impact on the Group’s and the Company’s financial
statements are described below.
Classification and measurement of financial assets and financial liabilities
All recognised financial assets are to be subsequently measured at amortised cost or at fair value.
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. All other debt investments and
equity investments are measured at their fair values.
The directors of the Company reviewed and assessed the Group’s and the Company’s existing
financial assets as at 1 January 2018 based on the facts and circumstances that existed at that date.
The Group and the Company intend to hold the assets to maturity to collect contractual cash flows
and these cash flows consist solely of payments of principal and interest on the principal amount
outstanding and concluded that upon initial application of IFRS 9, the financial assets held by the
Group and the Company as of 31 December 2017 will continue to be measured at amortised cost.
IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities
except for measurement of financial liabilities designated as at fair value through profit or loss in
which 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 being 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. The Group’s and
the Company’s assessment did not reveal any changes in classification of financial liabilities as of
1 January 2018. The Group’s and the Company’s financial liabilities, previously classified as other
financial liabilities will be reclassified to amortised cost.
Impairment of financial assets
IFRS 9 replaces the “incurred loss” model in IAS 39 with a forward-looking “expected credit loss”
(“ECL”) model. The expected credit loss model requires the Group and the Company to account for
expected credit losses and changes in those expected credit losses at each reporting date to reflect
changes in credit risk since initial recognition of the financial assets. It is no longer necessary for a
credit event to have occurred before credit losses are recognised.
IFRS 9 requires the Group and the Company to measure the loss allowance for applicable financial
instrument at an amount equal to the lifetime ECL if the credit risk on that financial instrument
has increased significantly since initial recognition, or if the financial instrument is a purchased or
originated credit-impaired financial asset. On the other hand, if the credit risk on a financial instrument
has not increased significantly since initial recognition (except for a purchased or originated credit-
impaired financial asset), the Group and the Company is required to measure the loss allowance for
that financial instrument at an amount equal to 12 months ECL. IFRS 9 also provides a simplified
approach for measuring the loss allowance at an amount equal to lifetime ECL for trade receivables
in certain circumstances.
47
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 As at 1 January 2018, the Group and the Company reviewed and assessed existing financial assets
for impairment using reasonable and supportable information that is available without undue cost
or effort in accordance with the requirements of IFRS 9 to determine the credit risk of the respective
items at the date they were initially recognised, and compared that to the credit risk as at 1 January
2018. The Group and the Company measure the ECL on other receivables, advances and cash and
bank balances at an amount equal to:
• 12-months ECL
For a financial asset for which there is no significant increase in credit risk since initial recognition
such as other receivables, the Group and the Company shall measure the allowance for
impairment for that financial asset at an amount based on the probability of default occurring
within the next 12 months considering the loss given default of that financial asset.
•
Lifetime ECL
For a financial asset for which there is a significant increase in credit risk since initial recognition,
a lifetime ECL for that financial asset is recognised as allowance for impairment by the Group
and the Company. If, in a subsequent period the significant increase in credit risk since initial
recognition is no longer evident, the Group and the Company shall revert the loss allowance
measurement from lifetime ECL to 12-months ECL.
The Group and the Company apply the simplified approach to measure the ECL of trade receivables.
The simplified approach requires a lifetime ECL to be recognised from initial recognition. The Group
and the Company applied IFRS 9 in accordance with the transitional provisions set out in IFRS 9 for
modified retrospective application from 1 January 2018 onwards with no restatements made to the
comparative values.
IFRS 15 Revenue from Contracts with Customers
In the current year, the Group has applied IFRS 15 Revenue from Contracts with Customers. IFRS 15
supersedes the revenue recognition guidance under IAS 18 Revenue, IAS 11 Construction Contracts
and related Interpretations. 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.
IFRS 15 introduces a 5-step approach to revenue recognition and requires an entity to recognise
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.
The Group’s and the Company’s accounting policies for its revenue streams are disclosed in detail
in Note 3. The Group applied the modified retrospective approach and apart from providing more
extensive disclosures on the Group’s and the Company’s revenue transactions, the application of
IFRS 15 has not had a material financial impact on the financial position and/or financial performance
of the Group and of the Company. There are no changes to the amounts reported in the Company’s
statement of financial position as of 1 January 2018 arising from the application of IFRS 15.
48
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 New and amendments to IFRS and IFRIC Interpretation in issue but not yet effective
IFRS 16
IFRS 17
IFRS
IFRIC 23
Amendments to
IFRS 9
Amendments to
IAS 19
Amendments to
IAS 28
Amendments to
IAS 1 and IAS 18
Amendments to
IFRS 3
Amendments to
IFRSs
Leases1
Insurance Contracts3
Conceptual Framework for Financial Reporting2
Uncertainty Over Income Tax Treatments1
Prepayment Features with Negative Compensation1
Plan Amendment, Curtailment or Settlement1
Long-term Interests in Associates and Joint Ventures1
Definition of Material2
Definition of Business2
Annual Improvements to IFRSs 2015 - 2017 Cycle1
1. Effective for annual periods beginning on or after 1 January 2019, with earlier application
permitted.
2. Effective for annual periods beginning on or after 1 January 2020, with earlier application
permitted.
3. Effective for annual periods beginning on or after 1 January 2021, with earlier application
permitted.
The directors anticipate that the abovementioned new and amendments to IFRSs and IFRIC
Interpretation will be adopted in the financial statements of the Group and of the Company when they
become effective and that the adoption of these 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 16 which may have impact on the disclosure as described below.
IFRS 16 Leases
IFRS 16 provides a single lessee accounting model, requiring lessees to recognise assets and liabilities
for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors
will continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting
substantially unchanged from its predecessor, IFRS 117.
At lease commencement, a lessee will recognise a right-of-use asset and a lease liability. The right-
of-use asset is treated similarly to other non-financial assets and depreciated accordingly and the
liability accrues interest. The lease liability is initially measured at the present value of the lease
payments payable over the lease term, discounted at the rate implicit in the lease if that can be
readily determined. If that rate cannot be readily determined, the lessees shall use their incremental
borrowing rate.
49
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
When IFRS 16 becomes effective, the Group and the Company will elect to adopt the modified
retrospective approach when applying IFRS 16 to lease commitments on January 1, 2019 and
elects to adjust the opening balance of retained earnings for any financial impact, if any.
The directors of the Group and the Company are still in the process of finalising the outcome
of the effect of adoption of IFRS 16 on the Group’s and the Company’s financial statements.
Preliminary assessment indicates that the Group will recognise the right of use asset of
USD9,498,160 and a corresponding lease liability of USD8,087,598. The impact on profit or loss
for the year ended 31 December 2018 is to decrease expenses by USD2,952,259, to increase
depreciation charges by USD2,116,089 and to increase finance costs by USD1,382,969.
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.
50
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
The principal accounting policies are set out below.
Basis of Consolidation
The consolidated financial statements incorporate the financial statements of the Company and its
subsidiary companies. Control is achieved when the Company:
• has the power over the investee;
•
• has the ability to use its power to affect its returns.
is exposed, or has rights, to variable returns from its involvement with the investee; and
The Company reassesses whether or not it controls an investee if facts and circumstances indicate
that there are changes to one or more of the three elements of control listed above.
When the Company has less than a majority of the voting rights of an investee, it has power over
the investee when the voting rights are sufficient to give it the practical ability to direct the relevant
activities of the investee unilaterally. The Company considers all relevant facts and circumstances in
assessing whether or not the Company’s voting rights in an investee are sufficient to give it power,
including:
•
the size of the Company’s holding of voting rights relative to the size and dispersion of holdings
of the other vote holders;
• 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.
51
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 When the Group loses control of a subsidiary company, the profit or loss on disposal is calculated as
the difference between (i) the aggregate of the fair value of the consideration received and the fair
value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill),
and liabilities of the subsidiary company. All amounts previously recognised in other comprehensive
income in relation to that subsidiary company are accounted for as if the Group had directly disposed of
the related assets or liabilities of the subsidiary company (i.e. reclassified to profit or loss or transferred
directly to retained earnings as specified by applicable IFRSs). The fair value of any investment retained
in the former subsidiary company at the date when control is lost is regarded as the fair value on initial
recognition for subsequent accounting under IFRS 9 Financial Instruments or, when applicable, the
cost on initial recognition of an investment in an associate or a joint venture.
Revenue
Revenue is measured based on the consideration specified in a contract with a customer. The Group
recognises revenue when it transfers control of a product or service to a customer. Revenue of the
Group represents sale of cement, transmission and distribution of electricity and interest income.
Revenue of the Company represents management fee.
Sale of cement
On transition to IFRS 15 Revenue from Contract with Customers with effect from 1 January 2018,
The Group applied the modified retrospective approach without restatements to the comparative
periods relating to adoption of IFRS 15 and there are no cumulative effect on application of IFRS 15
as of the date of initial application.
Revenue is recognised at a point in time when control of the promised goods has transferred, being
when the goods have been shipped to the customers’ specific location (delivery). Following delivery,
the customer has full ownership of the goods and bears the risks of loss and damage in relation to
the goods. A receivable is recognised by the Group when the goods are delivered to the customer
as this represents the point in time at which the right to consideration becomes unconditional, as
only the passage of time is required before payment is due. Payment of the transaction price is due
immediately for customers without credit terms granted.
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.
52
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 Government grants are recognised in profit or loss on a systematic basis over the periods in
which the Group recognises as expenses the related costs for which the grants are intended
to compensate. Specifically, government grants whose primary condition is that the Group
should purchase, construct or otherwise acquire non-current assets are recognised as deferred
revenue in the consolidated statement of financial position and transferred to profit or loss on
a systematic and rational basis over the useful lives of the related assets.
Government grants that are receivable as compensation for expenses or losses already incurred
or for the purpose of giving immediate financial support to the Group with no future related
costs are recognised in profit or loss in the period in which they become receivable.
The benefit of a government loan at a below-market rate of interest is treated as a government
grant, measured as the difference between proceeds received and the fair value of the loan
based on prevailing market interest rates.
Foreign Currencies
The individual financial statements of each group entity are presented in the currency of the
primary economic environment in which the entity operates (its functional currency). For the
purpose of the financial statements of the Group, the results and financial position of each
entity are expressed in United States Dollars (“USD”), which is the functional currency of the
Company, and the presentation currency for the financial statements of the Group and of the
Company. The functional currency of the principal subsidiary companies, Karcement JSC and
Central Asia Cement JSC (“CAC JSC”), is the Kazakhstan Tenge (“KZT”).
In preparing the financial statements of the individual entities, transactions in currencies other
than the entity’s functional currency are recorded at the rates of exchange prevailing on the
dates of the transactions. At each reporting date, monetary items denominated in foreign
currencies are retranslated at the rates prevailing on the reporting date. Non-monetary items
carried at fair value that are denominated in foreign currencies are retranslated at the rates
prevailing on the date when the fair value was determined. Non-monetary items that are
measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary item and on the retranslation of
monetary items are included in the statement of profit or loss for the year. Exchange differences
arising on the retranslation of non-monetary items carried at fair value are included in the
statement of profit or loss for the year except for differences arising on the retranslation of
non-monetary item in respect of which gains and losses are recognised in other comprehensive
income. For such non-monetary items, any exchange component of that gain or loss is also
recognised in other comprehensive income.
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 on a monetary
item that represents a net investment in a foreign operation, 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.
53
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 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”)
2018
USD
1.2769
1.1467
0.2418
0.0026
KZT
2017
USD
1.3513
1.2005
0.2471
0.0173
KZT
1 USD
384.20
332.33
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 USD615 per month per employee (2017: USD552) from
employee salaries and pays them to the state pension fund. In addition, such pension system provides
for calculation of current payments by the employer as a percentage of current total disbursements
to staff. Such expenses are charged to statements of profit or loss in the period the related salaries
are earned. Upon retirement, all retirement benefit payments are made by pension funds selected by
the employees. The Group does not have any pension arrangements separate from the state pension
system of the countries where its subsidiary companies operate. In addition, the Group has no post-
retirement benefits or other significant compensation benefits requiring accrual.
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
54
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill
or from the initial recognition (other than in a business combination) of other assets and liabilities in
a transaction that affects neither the taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable that sufficient taxable profits will be available to
allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised, based on the tax rates (and tax laws) that
have been enacted or substantively enacted by the end of the reporting period. The measurement
of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner
in which the entity expects, at the end of the reporting period, to recover or to settle the carrying
amount of its assets and liabilities. Deferred tax is charged or is credited to the statement of profit
or loss, except when it is related to items that are recognised outside profit or loss (whether in other
comprehensive income or charged or credited directly to equity), in which case the deferred tax is
also dealt with outside profit or loss, or where they arise from the initial accounting for a business
combination, the tax effect is included in the accounting for the business combination.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in
subsidiary companies, except where the Group is able to control the reversal of the temporary
difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current
tax assets against current tax liabilities and when they relate to income taxes levied by the same
taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
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
55
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
buildings is recognised in the statement of profit or loss to the extent that it exceeds the balance, if
any, held in the revaluation reserve relating to a previous revaluation of that asset.
Revaluation surplus is transferred directly to retained earnings as and when the revalued asset is
used by the Group. The amount of the surplus transferred is calculated as the difference between
depreciation calculated based on the revalued carrying amount of the asset and depreciation based
on the asset’s original cost.
Construction in Progress
Assets in the course of construction for production, supply or administrative purposes are carried at
cost, less any recognised impaired loss. Cost includes professional fees and, for qualifying assets,
borrowing costs capitalised in accordance with the Group’s accounting policy. Such assets will be
presented in the appropriate categories of property, plant and equipment when they are completed
and ready for intended use.
Depreciation
Depreciation of property, plant and equipment commences when the assets are ready for their
intended use.
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
Stand-by equipment, major spare parts and
other assets
25 years
14 years
20 years
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.
56
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
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).
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.
57
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 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 settle the
present obligation at the end of the reporting period, taking into account the risks and uncertainties
surrounding the obligation. Where a provision is measured using the cash flows estimated to settle
the present obligation, its carrying amount is the present value of those cash flows (where the effect
of the time value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be recovered
from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will
be received and the amount of the receivable can be measured reliably.
Equity
Ordinary shares are classified as equity. Distributions to holders of ordinary shares are debited
directly to equity and dividend declared on or before the end of the reporting period is recognised
as liability. Costs directly attributable to equity transactions are accounted for as a deduction, net of
tax, from equity.
Contingent Liabilities
Contingent liabilities are not recognised in the statement of financial position but are disclosed
unless the possibility of any outflow in settlement is remote.
Financial Instruments
Financial assets and financial liabilities are recognised in the statements of financial position when the
Group becomes a party to the contractual provisions of the financial instrument.
58
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 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.
Financial Assets under IFRS 9 with effect from 1 January 2018
All regular way purchases or sales of financial assets are recognised or derecognised on a
trade date basis. Regular way purchases or sales are purchases or sales of financial assets that
require delivery of assets within the time frame established by regulation or convention in
the marketplace. All recognised financial assets are measured subsequently in their entirely at
either amortised cost or fair value, depending on the classification of the financial assets.
(i)
Classification of financial assets
Debt instruments that meet the following conditions are subsequently measured at
amortised cost.
a.
the financial asset is held within a business model whose objective is to hold financial
assets in order to collect contractual cash flows; and
the contractual terms of the financial asset give rise on specified dates to cash flows
that are solely payments of principal and interest on the principal amount outstanding.
b.
All the Group’s and the Company’s financial assets meet the definition of financial assets
at amortised cost.
Amortised cost and effective interest method
The effective interest method is a method of calculating the amortised cost of a financial
asset and of allocating interest income over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash receipts
(including all fees and points paid or received that form an integral part of the effective
interest rate, transaction costs and other premiums or discounts) excluding expected credit
losses (“ECL”), through the expected life of the debt instrument, or, where appropriate, a
shorter period, to the gross carrying amount of the debt instrument on initial recognition.
The amortised cost of a financial asset is the amount at which the financial asset is
measured at initial recognition minus the principal repayments, plus the cumulative
amortisation using the effective interest method of any difference between that initial
amount and the maturity amount, adjusted for any loss allowance. The gross carrying
amount of a financial asset is the amortised cost of a financial asset before adjusting for
any loss allowance.
Interest income is recognised using the effective interest method for financial assets
measured subsequently at amortised cost. Financial assets of the Group and of the
Company measured subsequently at amortised cost are short-term deposits, cash and
bank balances, trade receivables, other receivables (excluding value added taxes),
refundable deposits and inter-company indebtedness.
59
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 (ii)
Impairment of financial assets
The Group and the Company recognise a loss allowance for expected credit losses on
investments in debt instruments that are measured at amortised cost. The amount of expected
credit losses is updated at each reporting date to reflect changes in credit risk since initial
recognition of the respective financial instrument.
The Group and the Company always recognise lifetime ECL for trade receivables. The expected
credit losses on these financial assets are estimated using a provision matrix based on the
Group’s historical credit loss experience, adjusted for factors that are specific to the debtors,
general economic conditions and an assessment of both the current as well as the forecast
direction of conditions at the reporting date, including time value of money where appropriate.
For all other financial instruments, the Group and the Company recognise lifetime ECL when
there has been a significant increase in credit risk since initial recognition. If, on the other hand,
the credit risk on the financial instrument has not increased significantly since initial recognition,
the Group measures the loss allowance for that financial instrument at an amount equal to
12 months ECL. The assessment of whether lifetime ECL should be recognised is based on
significant increases in the likelihood or risk of a default occurring since initial recognition
instead of on evidence of a financial asset being credit-impaired at the reporting date or an
actual default occurring.
Lifetime ECL represents the expected credit losses that will result from all possible default
events over the expected life of a financial instrument. In contrast, 12m ECL represents the
portion of lifetime ECL that is expected to result from default events on a financial instrument
that are possible within 12 months after the reporting date.
Significant increase in credit risk
In assessing whether the credit risk on a financial instrument has increased significantly since
initial recognition, the Group and the Company compare the risk of a default occurring on the
financial instrument as at the reporting date with the risk of a default occurring on the financial
instrument as at the date of initial recognition. In making this assessment, the Group considers
both quantitative and qualitative information that is reasonable and supportable, including
overdue status, collection history and forward looking macro-economic factors.
The Group assumes that the credit risk on a financial instrument has not increased significantly
since initial recognition if the financial instrument is determined to have low credit risk at the
reporting date. A financial instrument is determined to have low credit risk if i) the financial
instrument has a low risk of default, ii) the borrower has a strong capacity to meet its contractual
cash flow obligations in the near term and iii) adverse changes in economic and business
conditions in the longer term may, but will not necessarily, reduce the ability of the borrower
to fulfil its contractual cash flow obligations. The Group considers a financial asset to have low
credit risk when it has an internal or external credit rating of ‘investment grade’ as per globally
understood definition.
The Group regularly monitors the effectiveness of the criteria used to identify whether there
has been a significant increase in credit risk and revises them as appropriate to ensure that the
criteria are capable of identifying significant increase in credit risk before the amount becomes
past due.
60
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 Measurement and recognition of expected credit losses
The measurement of expected credit losses is a function of the probability of default, loss given
default and the exposure at default. The assessment of the probability of default and loss given
default is based on historical data adjusted by forward-looking information. Exposure at default
is represented by the assets’ gross carrying amount at the reporting date.
Expected credit loss is estimated as the difference between all contractual cash flows that are
due to the Group in accordance with the contract and all the cash flows that the Group expects
to receive, discounted at the original effective interest rate.
Where lifetime ECL is measured on a collective basis to cater for cases where evidence of
significant increases in credit risk at the individual instrument level may not yet be available,
the financial instruments are grouped on 1) Nature of financial instruments; 2) Past-due status;
3) Nature, size and industry of debtors; and 4) External credit ratings where available.
The grouping is regularly reviewed by management to ensure the constituents of each group
continue to share similar credit risk characteristics. If the Group has measured the loss allowance
for a financial instrument at an amount equal to lifetime ECL in the previous reporting period,
but determines at the current reporting date that the conditions for lifetime ECL are no longer
met, the Group measures the loss allowance at an amount equal to 12m ECL at the current
reporting date.
The Group recognises an impairment gain or loss in profit or loss for all financial instruments
with a corresponding adjustment to their carrying amount through a loss allowance account.
(iii) Financial liabilities at amortised costs
Financial liabilities that are not 1) contingent consideration of an acquirer in a business
combination, 2) held-for trading, or 3) designated as at FVTPL, are subsequently measured at
amortised cost using the effective interest method.
Financial Assets under IAS 39
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.
61
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 The Group does not have financial assets designated as at FVTPL, held-to-maturity investments or
AFS financial assets.
(i)
Loans and receivables
Cash and cash equivalents comprise cash on hand and demand deposits and other short-term
highly liquid investments with initial maturity period of up to three months that are readily
convertible to a known amount of cash and are subject to an insignificant risk of changes in
value. When cash and cash equivalents are restricted from use, they are disclosed in the notes
to the financial statements.
Short-term investments represent fixed short-term deposits in banks with original maturity of
more than three months.
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.
(ii)
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.
(iii) 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.
62
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 The Group does not have financial liabilities designated as FVTPL.
(iv) 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.
(v) 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.
Cash equivalents are short-term, highly liquid investments with maturities of three months or less
from the date of acquisition and are readily convertible to cash with insignificant risks of changes in
value.
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.
63
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
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 2018, the directors consider that the carrying amount of the land and buildings
is reflective of the fair values of these assets.
Impairment of Property, Plant and Equipment
The Group assesses at each reporting date whether there is any indication that an asset may be
impaired. If any such indication exists, or when annual impairment testing for an asset is required,
the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the
higher of an asset’s or CGU’s fair value less costs to sell and its value in use and is determined for an
individual asset. Where the carrying amount of an asset exceeds its recoverable amount, the asset is
considered impaired and is written down to its recoverable amount.
The determination of impairment of property, plant and equipment involves the use of estimates
that include, but are not limited to, the cause, timing and amount of the impairment. Impairment is
determined based on a large number of factors, such as expected growth in the industry, changes
in the future availability of financing, technological obsolescence, discontinuance of service, current
replacement costs and other changes in circumstances that indicate an impairment exists. The
recoverable amount and the fair value are typically determined using a discounted cash flow method
which incorporates reasonable market participant assumptions. The identification of impairment
indicators, the estimation of future cash flows and the determination of fair values for assets (or group
of assets) requires management to make significant judgments concerning the identification and
validation of impairment indicators, expected cash flows, applicable discount rates, useful lives and
residual values. The determination of the recoverable amount of a CGU involves the use of estimates
by management. These estimates can have a material impact on the fair value and ultimately the
amount of any property, plant and equipment impairment.
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.
Loss Allowance for Doubtful Receivables, Advances paid to Third Parties and Provision for Inventories
The Group makes loss allowance for doubtful receivables and advances paid to third parties. Significant
judgement is used to estimate doubtful receivables. Loss allowance for doubtful receivables is
established based on an expected credit loss model. The Company accounts for expected credit
losses and changes in those expected credit losses at each reporting date to reflect changes in credit
risk since initial recognition. The primary factors that the Company considers whether a receivable
is impaired is its overdue status, collection history and forward looking macro-economic factors.
As of 31 December 2018, loss allowance for doubtful trade receivables amounted to USD206,330
(2017: USD45,563) (Note 14) and on advances paid to third parties amounted to USD211,668 (2017:
USD82,878) (Note 15).
64
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 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 2018, provision for obsolete and slow
moving inventories amounted to USD2,262,085 (2017: USD2,907,854) (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% (2017:
13%) is used as it reflects current market assessment of the time value of money and the risk specific
to site restoration obligation.
4.
REVENUE
The Group derives its revenue from the transfer of cement at a point in time. Transmission of electricity
is determined to be a single performance obligation satisfied over time and represents a promise
to transfer to the customer a series of distinct goods that are substantially the same and have the
same pattern of transfer to the customer. The Group primarily operates in one geographic location
(segment) and as such, no segmental information is presented.
The Group
The Company
Sale of manufactured goods
82,174,174
65,844,532
2018
USD
2017
USD
Transmission and distribution
of electricity
Dividend income
Net interest income
Management fee receivable
from subsidiary company
10,496
10,605
-
-
-
-
-
-
8,389,233
3,435,005
523,610
-
-
100,000
2018
USD
-
-
2017
USD
-
-
Total
82,184,670
65,855,137
8,912,843
3,535,005
The Group applied the practical expedient under IFRS 15 not to disclose the aggregate amount of
the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied)
as of the end of the reporting period as all unsatisfied contracts with customers are expected to be
fulfilled within one year.
As permitted under the transitional provisions in IFRS 15, the transaction price allocated to (partially)
unsatisfied performance obligations as of 31 December 2017 is not disclosed.
65
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 5.
FINANCE COSTS
The Group
The Company
2018
USD
2017
USD
2018
USD
2017
USD
Interest expenses on:
- Bank loans
- Bonds issued
Amortisation of discount on:
- Bonds issued
Unwinding of discount
Others
Total interest expense for
financial liabilities not
classified as at FVTPL
1,484,502
1,771,554
-
-
8,374
144,958
407,006
43,217
-
14,739
1,637,834
2,236,516
6.
NET FOREIGN EXCHANGE (LOSS)/GAIN
-
-
-
-
-
-
-
-
-
-
-
-
The Group
The Company
2018
USD
2017
USD
2018
USD
2017
USD
Net foreign exchange (loss)/
gain
(1,786,724)
(205,610)
26,141
(81,355)
During the year, the appreciation in the value of USD against KZT resulted in foreign exchange
losses on the USD denominated bank loans.
66
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 7.
PROFIT BEFORE INCOME TAX
Profit before income tax includes the following income/(expenses):
The Group
The Company
2018
USD
2017
USD
2018
USD
2017
USD
Depreciation of property,
plant and equipment
(7,272,439)
(7,265,935)
Employee benefit expenses
(5,500,332)
(4,670,553)
Amortisation of quarry
stripping costs
Amortisation of site
restoration costs
Deferred income
Loss on disposal of
property, plant and
equipment
Reversal of provision for
obsolete inventories
Provision for obsolete
inventories
Credit loss allowance for
doubtful receivables
Allowance for advances
paid to third parties
Reversal of dividend
income
Reversal of doubtful
receivables
Write-off of inventories
-
-
-
-
-
-
-
-
-
-
(4,654)
(30,398)
(1,566)
41,192
(1,656)
49,096
(30,925)
(72,728)
346,533
356,280
(46,562)
(33,175)
(168,365)
(25,532)
(139,979)
(43,782)
-
-
-
-
4,855
138
(46,820)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
67
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 8.
INCOME TAX EXPENSE
The Group
The Company
Income tax - current year
Deferred tax (Note 20) -
2018
USD
75,503
2017
USD
4,941
subsidiary companies
1,668,983
698,150
Total
1,744,486
703,091
2018
USD
-
-
-
2017
USD
4,941
-
4,941
Under the Labuan Business Activity Tax Act, 1990, no tax is chargeable on the Company’s Labuan
non-trading activities for the current basis period for that year of assessment. Income tax is to be
charged tax at the amount of RM20,000 (approximately USD4,957) 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.
The profits earned by the subsidiary companies incorporated in the Republic of Kazakhstan are
subject to the prevailing statutory tax rate of 20% (2017: 20%), and Malaysian and Netherland
subsidiaries are subject to statutory tax rates of 24% (2017: 24%) and 25% (2017: 25%) respectively.
A reconciliation of income tax expense applicable to profit 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:
68
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 The Group
The Company
2018
USD
2017
USD
2018
USD
2017
USD
Profit before income tax
10,668,939
1,934,561
8,634,070
3,183,553
Tax expense calculated at
domestic tax rates applicable
to the respective jurisdictions
Tax effects of expenses not
deductible for tax purposes
Effect of loss not available for
offset against future taxable
income
Effect of previously
unrecognised temporary
differences
Effect of unused tax losses
not recognised as deferred
tax assets
1,138,251
496,899
399,052
146,839
33,524
-
130,048
(40,868)
43,611
100,221
Income tax expense
1,744,486
703,091
-
-
-
-
-
-
4,941
-
-
-
-
4,941
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, tax effects arising on foreign
exchange losses on intercompany loan deductible for tax purposes, higher unrecognised deferred
tax assets and the impact of reduced level of certain non-deductible expenses.
69
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 9.
EARNINGS PER SHARE
Basic and diluted
0
7
The Group
2018
USD
2017
USD
Profit attributable to ordinary shareholders
8,924,453
1,231,470
Number of ordinary shares in issue at beginning
and end of year
219,000,000
219,000,000
2018
2017
Weighted average number of ordinary shares
in issue
Earnings per share, basic and diluted (cents)
219,000,000
219,000,000
2018
4.1
2017
0.6
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 2018 and 2017.
70
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 0
7
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Steppe Cement Ltd.Annual Report 2018Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
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Annual Report 2018Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
2
7
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 USD8,462,113 as of
31 December 2018 (2017: USD10,419,061). 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
2018 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
2018
USD
210,724
1,096,489
2017
USD
244,197
1,402,167
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 2019 to December 2022;
•
• derivation of terminal value based on Nil growth beyond the 4 year forecast period with average
annual growth rate in EBITDA across the forecast period at 4.0%; and
• discount rate of 17.31% was applied.
73
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 As of 31 December 2018, property, plant and equipment of a subsidiary company (Karcement JSC)
with a cost and net book value of USD24,708,337 and USD12,247,879 (2017: USD28,559,050 and
USD16,108,227) respectively is pledged to secure the loan from Halyk Bank JSC.
As at 31 December 2018, property, plant and equipment of a subsidiary company (Karcement JSC)
with a cost and net book value of USD6,636,960 and USD4,370,424 (2017: USD7,568,983 and
USD5,577,005) respectively are pledged as collateral for the government-subsidised loan (Note 19).
As of 31 December 2018, the cost of property, plant and equipment that is fully depreciated amounted
to USD1,080,666 (2017: USD897,533).
11.
INVESTMENT IN SUBSIDIARY COMPANIES
Unquoted shares, at cost
Less: Accumulated impairment loss
The Company
2018
USD
30,500,002
(4,000,001)
2017
USD
30,500,002
(4,000,001)
Net
26,500,001
26,500,001
74
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 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
2018
2017
%
%
Direct Subsidiary
Companies
Steppe Cement (M)
Sdn. Bhd.
Malaysia
100
100
Malaysia
100
100
consultancy services
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:
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
Investment
holding
company
Provision of
Investment
holding
company
Sale of
cement
Production
and sale
of cement
Transmission
and
distribution
of electricity
75
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 12. OTHER ASSETS
VAT recoverable -
non-current
Quarry stripping costs
Site restoration costs
Site restoration fund
Others
Total
Quarry stripping costs
The Group
The Company
2018
USD
2017
USD
2018
USD
2017
USD
1,869,721
192,218
34,464
106,840
216
884,687
219,508
41,468
102,172
-
2,203,459
1,247,835
-
-
-
-
-
-
-
-
-
-
-
-
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 2018. 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
2018
USD
219,508
(29,160)
6,524
(4,654)
2017
USD
180,539
1,094
68,273
(30,398)
At end of year
192,218
219,508
Site restoration costs
2018
USD
2017
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.
76
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 13.
INVENTORIES
The Group
The Company
2018
USD
2017
USD
2018
USD
2017
USD
Finished goods
Work-in-progress
Spare parts
Raw materials
Packing materials
Construction materials
Goods held for resale
Fuel
Others
Total
5,678,962
6,354,592
403,895
6,958,196
1,435,747
411,062
23,217
48,860
22,075
389,277
6,417,829
1,590,768
147,104
17,633
38,985
54
661,366
965,254
15,643,380
15,921,496
Less: Provision for
obsolete inventories
(2,262,085)
(2,907,854)
Net
13,381,295
13,013,642
The movements in the provision for obsolete inventories are as follows:
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The Group
The Company
2018
USD
2017
USD
2018
USD
2017
USD
At beginning of year
(2,907,854)
(3,223,677)
Exchange differences
345,798
(7,282)
Provision for obsolete
inventories
Reversal of provision for
obsolete inventories
(46,562)
(33,175)
346,533
356,280
At end of year
(2,262,085)
(2,907,854)
-
-
-
-
-
-
-
-
-
-
As of 31 December 2018, inventories of USD5,301,411 (2017: USD7,628,008) were pledged to secure
the short-term loan obtained from Halyk Bank JSC (Note 19).
77
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
14.
TRADE AND OTHER RECEIVABLES
The Group
The Company
2018
USD
2017
USD
2018
USD
2017
USD
Trade receivables
2,970,882
2,820,750
Less: Loss allowances
(206,330)
(45,563)
Net
2,764,552
2,775,187
Other receivables:
VAT recoverable -
Current
Receivables from related
party
Receivables from
employees
Others
Dividend receivable
Interest receivable
91,286
71,432
51,526
44,251
87,492
505,612
99,206
111,591
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8,389,233
3,435,005
494,723
-
Total
3,500,468
3,101,667
8,883,956
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.
Movement in the credit loss allowances for trade receivables is as follows:
The Group
The Company
At beginning of year
Exchange differences
2018
USD
(45,563)
6,151
2017
USD
(23,960)
(70)
Add: Impairment losses
(168,365)
(25,532)
Less: Write-offs
Less: Amounts recovered
1,447
-
3,861
138
At end of year
(206,330)
(45,563)
2018
USD
2017
USD
-
-
-
-
-
-
-
-
-
-
-
-
78
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 The Group measures the loss allowance for trade accounts receivable at an amount equal to lifetime
ECL. The expected credit losses on trade accounts receivable are collectively assessed and estimated
using the following provision matrix by reference to past default experience of the debtors and an
analysis of the debtors’ current financial position, adjusted for factors that are specific to the debtors,
general economic conditions of the industry in which the debtors operate and an assessment of both
the current as well as the forecast direction of conditions at the reporting date:
The Group
Days past due
2018
Not past due
<180 days
181-270 days
271-360 days
1-2 years
>2 years
> 3 years
Days past due
2017
Not past due
<180 days
181-270 days
271-360 days
>1 year
Expected credit loss
rate
Gross carrying
amount at default
Lifetime ECL
USD
USD
1%
5%
10%
20%
33%
66%
100%
1,540,913
962,330
254,159
5,651
82,881
109,131
15,817
15,383
48,116
25,416
1,130
27,350
73,118
15,817
2,970,882
206,330
Gross carrying
amount at default
Provision for
doubtful trade
receivables
USD
USD
428,246
731,550
825,523
729,973
105,458
-
-
-
-
45,563
2,820,750
45,563
As permitted under the transitional provisions in IFRS 9, no expected credit loss rates are disclosed
for 2017.
79
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 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.
15.
ADVANCES AND PREPAID EXPENSES
The Group
The Company
2018
USD
2017
USD
2018
USD
2017
USD
2,215,502
2,106,301
(211,668)
(82,878)
2,003,834
2,023,423
(191,242)
(508,555)
1,812,592
1,514,868
-
-
-
-
-
-
-
-
-
-
499,942
1,962,311
6,704
6,579
Advances paid to third
parties
Less: Provision on
advances paid to third
parties
Less: Non-current portion
of advances paid to third
parties
Current portion of
advances paid to third
parties
Prepaid and deferred
expenses
Total
2,312,534
3,477,179
6,704
6,579
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. Short-term advances are mainly advances 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
80
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
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.
Movement of allowance for advances paid to third parties is as follows:
The Group
The Company
At beginning of year
Exchange differences
Add: Allowance for
advances paid
to third parties
2018
USD
(82,878)
11,189
2017
USD
(38,984)
(112)
(139,979)
(43,782)
At end of year
(211,668)
(82,878)
2018
USD
2017
USD
-
-
-
-
-
-
-
-
16.
CASH AND CASH EQUIVALENTS
The Group
The Company
2018
USD
Cash in hand and at banks
2,837,064
Short-term deposit
2,882,427
2017
USD
427,456
2,617,880
2018
USD
2017
USD
23,570
12,985
-
-
Total
5,719,491
3,045,336
23,570
12,985
17.
SHARE CAPITAL
The Group and
the Company
2018
USD
2017
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
81
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
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 shareholder.
Dividends paid
During the year, the Company paid a first and final tax exempt dividend of GBP0.01 per ordinary
share of no par value each amouting to USD2,959,347 in respect of financial year ended 31 December
2017.
Dividends proposed after reporting period
On 10 May 2019, the board of directors of the Company proposed a final tax-exempt dividend
of GBP0.03 per ordinary share of no par value each amounting to GBP6,570,000 in respect of the
financial year ended 31 December 2018. The proposed dividend is subject to approval by the
shareholders of the Company at the forthcoming Annual General Meeting, and if approved, will be
accounted for in equity during the financial year ending 31 December 2019. The dividends have not
been recognised as a liability as at 31 December 2018.
82
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
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
Bank loans:
Current
Non-current
Total
The Group
2018
USD
-
-
-
-
-
-
2017
USD
8,001,718
(3,475,006)
(43,217)
-
(4,483,495)
-
11,823,919
20,029,303
11,823,919
20,029,303
The Group
2018
USD
2017
USD
5,217,009
6,606,910
10,194,584
9,834,719
11,823,919
20,029,303
83
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 Details of bank loans are as follows:
Currency
Maturity
month
Interest
rate
The Group
2018
USD
2017
USD
-
4,000,000
November
2018
6% p.a.
USD
USD
November
2021
6.5% p.a.
6,092,889
7,949,496
KZT
August 2022
6% p.a.
1,074,656
677,038
KZT
June 2025
6% p.a.
584,050
740,637
September
to November
2025
KZT
6% p.a.
1,721,273
2,426,392
KZT
May 2018
6% p.a.
-
1,503,710
KZT
June 2019
11% p.a.
2,342,530
2,711,161
8,521
20,869
11,823,919
20,029,303
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
Altyn Bank JSC for
working capital
Accrued interest
Total outstanding
84
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
Halyk Bank JSC facilities
Full repayment of VTB Bank (Austria) AG and VTB Bank (France) SA loan facilities with facility
provided by Halyk Bank JSC
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 November
2021. Interest is payable monthly from 23 December 2016 until maturity.
As at 31 December 2018, the amounts outstanding under Facility A have been fully repaid. No
further amounts were available for drawdown from Facility A and B.
Halyk Bank JSC government-subsidised facility
The government-subsidised loan of KZT1.69 billion (equivalent of USD4,400,000) 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 (Note 21).
As at 31 December 2018, no further amounts are available for drawdown from this facility.
Halyk Bank JSC working capital facilities
The KZT2.5 billion (equivalent of USD6.5 million) working capital credit line and a KZT500 million
(equivalent of USD1.3 million) working capital requirements under the above government-subsidised
facility matures on 23 January 2021 and 19 June 2020 respectively. The loan from the Halyk Bank
JSC is secured by inventories of both CAC JSC and Karcement JSC with a carrying amount of
USD5,301,411 (2017: USD7,628,008) (Note 13).
85
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
As of 31 December 2018, the facility of USD7.8 million with Halyk Bank JSC was available for
drawdown.
Altyn Bank JSC working capital facilities
On 28 December 2018, Karcement JSC signed a KZT900 million (equivalent of USD2.3 million) credit
line agreement with Altyn Bank JSC for working capital financing. The facility carries a fixed interest
rate of 11% per annum and matures on 17 June 2019.
As of 31 December 2018, the Altyn Bank JSC working capital facility loan was fully drawn.
VTB Bank (Kazakhstan) JSC working capital facility
During the financial year, 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 KZT100 million. The
working capital loan facilities have been full repaid and expired on 5 April 2019.
The following table shows the reconciliation in the Group’s liabilities arising from financing activities:
Opening
balance
Financing
cash flows
Non-cash
movements[1]
Closing
balance
USD
USD
USD
USD
2018
Borrowings
20,029,303
(7,368,956)
(836,428)
11,823,919
2017
Bonds
Borrowings
4,477,158
(4,483,495)
6,337
-
21,939,917
(1,843,469)
(67,145)
20,029,303
Total
26,417,075
(6,326,964)
(60,808)
20,029,303
[1] Non-cash movements primarily relates to foreign currency exchange differences, accrued interests
and amortisation of discount on bonds fully redeemed in 2017.
86
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 20. DEFERRED TAXES
The Group
The Company
At beginning of year
Exchange differences
Recognised in profit or loss
(Note 8)
2018
USD
(637,777)
252,002
2017
USD
47,097
13,276
(1,668,983)
(698,150)
At end of year
(2,054,758)
(637,777)
Movement in net deferred tax assets/(liabilities) of the Group is as follows:
2018
USD
2017
USD
-
-
-
-
-
-
-
-
Opening balance
Exchange rate
differences
Recognised in
profit or loss
Closing balance
USD
USD
USD
USD
2018
Temporary
differences:
Property, plant
and equipment
Inventories
Trade receivables
Accrued unused
leaves
Tax losses
Payables
Others
(7,576,369)
1,001,466
395,012
11,826
(70,117)
(5,133)
209,237
126,854
34,572
8,805
(2,490)
12,720
6,436,251
(664,045)
(2,005,145)
78,218
8,480
(6,397)
(1,282)
(18,112)
(29,109)
(6,365,666)
451,749
41,265
19,035
3,767,061
53,709
(21,911)
Total
(637,777)
252,002
(1,668,983)
(2,054,758)
87
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 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)
The tax losses for which no deferred tax assets have been recognised are as follows:
The Group
The Company
2018
USD
2017
USD
2018
USD
2017
USD
Tax losses for which no
deferred tax assets have
been recognised
198,795
100,221
-
-
88
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 21. DEFERRED INCOME
The Group
The Company
2018
USD
2017
USD
2018
USD
2017
USD
Deferred income
1,629,508
1,519,487
Less: Amount due within
12 months
-
-
Non-current
1,629,508
1,519,487
Movement of deferred income are as follows:
At beginning of year
1,519,487
1,525,359
Exchange differences
Additions
Recognised in profit or loss
(200,929)
352,142
(41,192)
5,331
37,893
(49,096)
At end of year
1,629,508
1,519,487
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Deferred income represents government grant in the form of interest rate lower than market interest
rates on government-subsidised loan for capital expenditure 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.
As at 31 December 2018, the related assets in the amount of USD9,466,137 were put into use (2017:
USD1,822,697). During financial year, the Group recognised USD41,192 (2017: USD49,096) in the
statement of profit or loss as other income on a straight-line basis over the useful lives of the related
assets.
89
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 22.
TRADE AND OTHER PAYABLES
The Group
The Company
2018
USD
2017
USD
2018
USD
2017
USD
Trade payables
6,589,435
7,650,549
Amount due to related
parties
Others
Total
5,432
19,737
2,612
31,210
6,614,604
7,684,371
-
-
-
-
-
-
-
-
The credit period granted by creditors ranges from 1 to 30 days (2017: 1 to 30 days).
23. ACCRUED AND OTHER LIABILITIES
The Group
The Company
2018
USD
2017
USD
2018
USD
2017
USD
Accrued directors’ fees
1,024,069
1,036,061
1,024,069
1,036,061
Advances from customers
1,126,169
237,957
95,169
199,205
666,118
240,029
44,026
243,020
-
-
-
-
-
-
34,326
33,421
2,682,569
2,229,254
1,058,395
1,069,482
Accrued salaries
Accrued unused leave
Others
Total
90
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 24.
TAXES PAYABLE
Corporate income tax
Other taxes:
VAT payable
Royalties
Emission taxes
Pension fund
Personal income tax
Property tax
Social
Others
Total
25.
RELATED PARTIES
The Group
The Company
2018
USD
16,538
839,232
139,461
136,398
16,921
28,738
54,193
25,337
11,307
2017
USD
6,801
20,221
-
107,484
22,439
20,925
894
17,216
-
1,268,125
195,980
2018
USD
-
-
-
-
-
-
-
-
-
-
2017
USD
4,941
-
-
-
-
-
-
-
-
4,941
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.
91
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 Loans and advances to subsidiary companies of the Company are unsecured, interest-free and
are repayable on demand except for loan to a subsidiary company of USD30,210,000 which bears
interest at 8% per annum repayable by year 2033.
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
2018
USD
2017
USD
14,645
17,158
(Payable to)/Receivable from related
parties
2018
USD
(5,432)
51,525
2017
USD
(2,612)
44,251
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
2018
USD
2017
USD
Steppe Cement (M) Sdn. Bhd.
Dividend income
8,389,233
3,435,005
Karcement JSC
Interest income
803,610
MECS Ltd.
Interest income assigned
280,000
-
-
MECS Ltd.
92
Management fees
receivable
-
100,000
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
Subsidiary companies
Nature of transactions
Receivable from subsidiary
companies
2018
USD
2017
USD
Karcement JSC
Intercompany loans
30,210,000
30,220,000
Karcement JSC
Interest income
494,723
-
MECS Ltd.
Advances and
management fees
6,694,437
6,580,968
Steppe Cement (M) Sdn. Bhd.
Advances
2,899,888
2,804,323
Total
40,299,048
39,605,291
Compensation of key management personnel
The remuneration of directors and other members of key management are as follows:
The Group
The Company
2018
USD
467,002
306,483
2017
USD
504,247
198,829
2018
USD
2017
USD
100,000
86,959
-
-
Remuneration
Short-term benefits
Total
773,485
703,076
100,000
86,959
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.
93
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 The directors’ remuneration in the Company is as follows:
Director fees
Executive director:
Javier del Ser Perez
Non-executive directors:
Xavier Blutel
Rupert Wood
Paul Rodzianko
Total
26.
FINANCIAL INSTRUMENTS
Categories of financial instruments under IFRS 9
The Company
2018
USD
30,000
40,000
30,000
-
100,000
2017
USD
30,000
32,219
6,658
18,082
86,959
The Group
The Company
USD
USD
2018
Financial assets
Amortised cost:
Trade and other receivables
3,409,182
-
Loans and advances to subsidiary companies
-
39,804,325
Cash and cash equivalents
5,719,491
23,570
Financial liabilities
Amortised cost:
Trade and other payables
Accrued and other liabilities
Borrowings
94
6,614,604
1,556,400
11,823,919
-
1,058,395
-
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
Categories of financial instruments under IAS 39
The Group
The Company
USD
USD
2017
Financial assets
Loans and receivables at amortised cost:
Trade and other receivables
3,030,235
-
Loans and advances to subsidiary companies
-
39,605,291
Cash and cash equivalents
Financial liabilities
Other financial liabilities at amortised cost:
Trade and other payables
Accrued and other liabilities
Borrowings
Capital Risk Management
3,045,336
12,985
7,684,371
1,563,136
20,029,303
-
1,069,482
-
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.
95
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
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i
Annual Report 2018Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
6
9
The Company
2018
GBP
EUR
MYR
Total
Financial Asset
Cash and cash
equivalents
Financial Liability
Accrued and other
liabilities
3,603
78
10
3,691
871,140
-
32,426
903,566
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
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 before tax.
97
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 The Group
2018
2017
Impact on profit or loss
and equity
USD
GBP
EUR
MYR
RUB
911,070
170,320
85,836
7,490
20,490
2,562,398
184,083
66,792
7,059
42,972
Impact on profit or loss
and equity
The Company
2018
2017
GBP
EUR
MYR
(ii)
Credit Risk
170,320
(16)
7,490
184,083
(16)
7,059
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 financial assets are not
secured by any collateral or credit enhancements.
98
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
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. The credit risk on liquid funds are limited because the
counterparties are banks with high credit-ratings assigned by international credit-rating
agencies.
At the end of the reporting period, there is no significant increase in credit risk in financial
assets since initial recognition. There are no significant changes in gross carrying amount of
trade receivables that contribute to changes in the loss allowance.
(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 2018, CAC JSC’s short-term loan of USD7.8 million with Halyk Bank JSC
is available for drawdown.
99
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
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Annual Report 2018Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
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Steppe Cement Ltd.Annual Report 2018Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
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Annual Report 2018Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
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Steppe Cement Ltd.Annual Report 2018Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
(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 2018 and 2017, 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.
As of 31 December 2018 and 2017, the fair values of borrowings approximate their carrying values,
except for the following:
Fair value
Carrying amount
2018
USD
2017
USD
2018
USD
2017
USD
Borrowings
6,848,589
12,947,691
6,685,460
12,711,002
104
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018
The fair values of the borrowings with Halyk Bank JSC were included in the Level 2 of fair value
hierarchy, as the fair values had been determined in accordance with generally accepted pricing
models based on a discounted cash flow analysis with the most significant inputs being the discount
rate that reflects the credit risk of the Group. The discount rate used in the fair value calculation was
5.1% per annum (2017: 6.1% per annum).
27.
COMMITMENTS
The Group has outstanding amount of contractual commitments for the acquisition of property, plant
and equipment of USD1,985,463 as at 31 December 2018 (2017: USD259,736).
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 EVENT
On 10 May 2019, the board of directors of the Company proposed a final tax-exempt dividend of
GBP0.03 per ordinary share of no par value each amounting to GBP6,570,000 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 2019.
30. COMPARATIVE FIGURES
Certain comparative figures in the consolidated financial statements have been restated to conform
with current year’s presentation. The Group determined that certain changes in disclosure should be
made in the notes to the consolidated financial statements in order to provide more clarity for the
users of the Group’s financial statements. The Group has made changes in presentation of accrual of
allowance for impairment of inventories from general and administrative expenses to cost of sales
and changed comparative information accordingly.
The Group
As previously
stated
Effect of
Reclassification
2017
USD
2017
USD
As restated
Net effect
USD
Statement of Profit and Loss
Cost of sales
46,215,796
(1,004,279)
45,211,517
General and administration expenses
4,241,309
1,004,279
5,245,588
There was no impact on the Group’s Statement of Financial Position as a result of the reclassifications.
105
Annual Report 2018NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018 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
accordance with International Financial Reporting Standards so as to give a true and fair view of the state
of affairs of the Group and of the Company as of 31 December 2018 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
10 May 2019
106
Steppe Cement Ltd. NOTICE OF THE 2019 AGM
NOTICE OF THE 2019 ANNUAL GENERAL MEETING
NOTICE IS HEREBY GIVEN that the 2019 ANNUAL GENERAL MEETING of the Company will be held at the
office of Steppe Cement Ltd, Suite 10.1, 10th Floor, West Wing, Rohas Perkasa, 8 Jalan Perak, Kuala Lumpur,
Malaysia on Wednesday, 12 June 2019 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
RESOLUTION 1
To receive and adopt the audited financial statements for year ended
31 December 2018.
2.
FIRST AND FINAL TAX EXEMPT DIVIDEND FOR THE FINANCIAL YEAR
ENDED 31ST DECEMBER 2018
RESOLUTION 2
To approve the payment of First and Final Tax Exempt Dividend of
GBP0.03 per ordinary share of no par value each in respect of the
financial year ended 31 December 2018.
3.
RE-ELECTION OF DIRECTORS
RESOLUTION 3
To re-elect the following Directors who offered themselves for re-
election:
3.1 Xavier Blutel
3.2 Javier Del Ser Perez
3.3 Rupert Wood
4.
CHANGE OF AUDITORS
RESOLUTION 4
To approve and ratify the change of Auditors from Messrs. Deloitte &
Touche PLT to Messrs. Deloitte PLT, due to change of name, approved
by the Board of Directors on 26 November 2018.
BY ORDER OF THE BOARD
TMF Secretaries Limited
Corporate Secretary
Labuan F.T., Malaysia
107
Annual Report 2018 Notes:
1.
2.
3.
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.
4.
Copies of the proxy form and form of instruction are available at the UK Registrar
Computershare Investor Services PLC, The Pavilions, Bridgwater Road BS13 8AE.
108
Steppe Cement Ltd. 109
Annual Report 2018 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