Steppe Cement Ltd
Annual Report 2019

Plain-text annual report

Plant Location In Kazakhstan NUR SULTAN 2 2 Steppe Cement Ltd. 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 108 Statement by a Director 109 Notice of Annual General Meeting Annual Report 2019 3 3 Annual Report 2019Financial Highlights Revenue (USD Million) 2019 2018 2017 2016 2015 79.9 82.2 65.8 52.4 93.6 Profit/Loss after Tax (USD Million) 9.7 9.1 * 2019 2018 2017 2016 0.2 1.2 3.4 2015 * Restated 4 4 Steppe Cement Ltd. EBITDA* (USD Million) 2019 2018 2017 2016 2015 11.6 9.7 23.9 21.4 22.7 * excluding foreign exchange gain/ losses arising on devaluation of the Tenge. Shareholders Funds (USD Million) 2019 2018 2017 2016 2015 62.9 61 * 59.5 58 56.7 * Restated Steppe Cement Ltd.Operational and Market Data 14.9 13.3 Ex-factory price (USD) Ex-factory price (KZT’000) 2019 2018 2017 2016 2015 9.6 10.9 10.2 Sales volume (million tonnes) 2019 2018 2017 2016 2015 1.71 1.72 1.63 1.57 1.64 Average exchange rates (USD/KZT) 39 39 33 28 2019 2018 2017 2016 2015 49 Market Size (million tonnes) 2019 2018 2017 2016 2015 8.9 8.6 9.0 9.0 9.6 2019 2018 2017 2016 2015 383 345 Capacity utilisation (%) 326 342 222 2019 2018 2017 2016 2015 90 90 76 86 82 Annual Report 2019 5 5 * Restated Annual Report 2019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) 2015 2016 2017 2018 Restated 2019 36 (4) (2) (6) 26 30 30 0 0 0 2 2 27 27 43 11 15 28 0.6 4 42 12 4 15 29 Shares data Number of shares issued (million) 219 219 219 219 219 6 6 Steppe Cement Ltd. Steppe Cement Ltd. 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 Country of incorporation Federal Territory of Labuan, Malaysia Company Registration LL04433 Registered Office Brumby Centre Lot 42, Jalan Muhibbah 87000 Federal Territory of Labuan Malaysia Kuala Lumpur Office Suite 10.1, 10th Floor Rohas Perkasa, West Wing No.8, Jalan Perak 50450 Kuala Lumpur Malaysia Labuan Office Suite No. 4, Unit Level 9(E) Main Office Tower, Financial Park Labuan Jalan Merdeka 87000 Federal Territory of Labuan Malaysia Main Country of Operation (Operating Subsidiaries Address) 472380, Aktau Village Karaganda Region Republic of Kazakhstan Company Secretary TMF Trust Labuan Limited and Level 28, QV1 Building 250 St Georges Tce Perth, Western Australia 6000 Broker RFC Ambrian Limited Octagon Point 5 Cheapside London EC2V 6AA, 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 Solicitor BMF Group LLP Alatau Business Center 151 Abay Street, Almaty 050009, Republic of Kazakhstan Adelaida Legal Group, LLP 12/1 Kunayev Street, Block 5B, 4th floor, Office #1, Astana 010000, Republic of Kazakhstan Annual Report 2019 7 7 Annual Report 2019Chairman’s Statement The company is dedicated to work hard and safely as it did in the past, with a target of putting itself in a position to keep paying a dividend even under these difficult conditions. Dear Shareholders As this report reaches you, everyone’s spirit will still be driven towards pessimism if not full despair. First, I wish to express our gratitude to our Management, staff and workers, subcontractors and customers who are showing a remarkable resilience and continuity under increasingly difficult conditions. Some of our senior staff are expatriates staying in Aktau, entirely focused on maintaining your factory production and sales at the highest possible level and deprived of any possibility to see their relatives left in their country of origin. Kazakhstan is not among the most affected countries so far. It benefits from its vast territory shared by a limited population. In Aktau, offices are large, workstations are spread across a broad production site. Every measure has been implemented to make the risk of contamination as low as possible, with no casualties reported as of today. It would be somehow inappropriate to insist heavily on the outstanding profitability reached by your company in 2019. The further fall of the Tenge against the USD, in line with the inflation differential, reduces the magnitude of a record year in Dollar terms. Although turnover was lower at USD 80 million compared to USD 82 million year-on-year, net profit reached USD 9.7 million against USD 9.1 million in 2018 and EBITDA USD 23.9 million vs. USD 21.4 million. The financial position in cash improved from USD 5.7 million to USD 9.0 million, despite paying USD 8.4 million in dividends and paying down debt. 2019 domestic demand for cement stood at 2% above 2018. 2020 has started on a positive note, the first quarter standing at some 15% above 2019. For an industry heavily dependent on seasonality, winter months cannot be used as a sound early indication for 2020 construction activity, and any more stringent measures to mitigate the epidemic could obviously reverse this trend dramatically. Those obvious uncertainties surrounding the construction activity appear in a country already adversely affected by depressed oil, gas, mining and other commodities global prices. The reduction of imports, and some positive prospects in the short term in exports may help to mitigate a possible slowdown in the country. 8 Steppe Cement Ltd.The primary export market for Kazakhstan producers, Uzbekistan, was expected to be partly lost to new entrants in Tajikistan, Kyrgyzstan and Uzbekistan itself. In April 2020, the government of Uzbekistan closed the border to imports from Kazakhstan. This create increased pressure in the southern markets. Imports in 2019 were mostly coming from Iran into West Kazakhstan. The very low prices offered from this country were probably not giving any return to the producer, once logistic costs are covered. The 15% devaluation in March 2020 of the Tenge against the Iranian Rial has made this flow of imports less sustainable. In April 2020 the government of Kazakhstan closed imports of cement from Iran. This is providing an additional breath of oxygen for competitors in this western market, and, by ripple effect, reduces competitive pressure in our primary market. From a balance sheet standpoint, the investment made in the new line and some major renovation and various improvements is reflected in a very conservative way in our books: Foreign exchange losses and a heavy accumulated depreciation point to a net asset value which hides the real economic life of the equipment. With proper maintenance and professional operational processes, the Company is in fact operating a 1.9 million tons capacity cement factory in perfect condition and at the most recent level of technology. Any new entrant would need to invest between USD 200 and 250 million to set up an equivalent facility. This is to compare with the carrying value of property, plant and equipment in our books which stands at USD 55.8 million. The net equity of the company is USD 62.9 million (USD 61.0 million in December 2018). As an ongoing concern, a meaningful economic value would be closer to USD250-300 million. The remarkable performance of your company is more detailed in your CEO’s report. It deserves proper consideration. Today, from the Board perspective and the company management, attention is now entirely directed towards the immediate and longer- term consequences of the COVID-19 pandemic. Your company is geared to keep producing and servicing its customers. We need to remember that our positioning is possibly the strongest in the industry: the factory is ideally located in Aktau, next to some major coal and iron ore deposits, near the only steel producer which generates the slag used in our process. It is situated centrally and is a logical and historical supplier for the populated areas of Nur- Sultan and Almaty. Distribution cost and lead time are major factors for success as cement producers, where transportation costs can easily exceed the production cost. This advantage is likely to increase if, and when, rail fares will increase from their current low value under a regulated tariff system. We are proud to have nearly completed the full reimbursement of our long-term debt. The new dry process lines, and other ancillary machinery and equipment, paid up in USD at the time, are now fully owned by our shareholders. This gives your company another competitive advantage, more freedom, and a strong balance sheet which will help in any recessionary scenario or tougher competitive environment : factoring the cost of servicing debt in the production cost, we do have the lowest cash cost in the industry. It also gives the company a preferred status with banks to meet the seasonal working capital requirements with short term credit. The company is dedicated to work hard and safely as it did in the past, with a target of putting itself in a position to keep paying a dividend even under these difficult conditions. On behalf of the Board of Directors, I congratulate the Steppe Cement subsidiaries on their impressive results and achievements in 2019. We express our recognition of their dedication and hard work, especially under the new external challenges appearing in 2020. We fully appreciate the continuing commitment and support of our shareholders. Xavier Blutel Chairman of the Board 9 Annual Report 2019CEO’s Statement Line 5 produced 995,141 tonnes of cement while Line 6 produced 720,620. We continue to make small improvements in Line 6 that will deliver additional production capabilities and lower costs in 2020. In 2019, Steppe Cement posted a net profit of USD 9.7 million. Steppe Cement’s EBITDA increased to USD 23.9 million from USD 21.4 million in 2018 as higher prices in KZT, lower cost of production and the implementation of IFRS 16 were balanced by a devaluation of 11%. The overall domestic cement market increased by 2% to 8.9 million tonnes, while our sales volume remained flat. Our local sales increased by 4% while exports decreased by 29% due to increased competition from new factories and the strength of the KZT against the Uzbek Som in the second half of the year. In 2019 our cost of production per tonne in KZT increased by 10%, higher than inflation of 5% due to coal and transportation pricing. Steppe Cement operated both lines at 88% of their current combined capacity (which is 1.1 million tonnes for line 5 and 0.85 million tonnes for line 6). Shareholders’ funds increased to USD 62.9 million from USD 61.0 million after dividend distribution to shareholders. The replacement cost of the Company’s assets remains many times higher than their current book value. 10 Steppe Cement Ltd. Key financials Year ended 31-Dec-2019 Year ended 31-Dec-2018 Inc/ (Dec)% Sales (tonnes of cement) 1,715,761 1,720,629 Consolidated turnover (KZT million) 30,594 28,342 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) 79.9 12.5 9.7 4.4 62.9 383 381 82.2 10.8 9.1 4.1 61.0 345 384 0 8 (3) 16 7 - 3 (11) 1 The Kazakh cement market increased by 2% in 2019 but we expect headwinds in 2020 The Kazakh cement market in 2019 was 8.9 million tonnes, an increase of 2% from 2018. Imports into Kazakshtan decreased by 10% to 0.7 million tonnes or 8% of the total market. Exports from local producers decreased by 17% to 1.6 million tonnes. The market demand in 2020 is very difficult to estimate as we can see the drop in demand during the COVID-19 lock down period. We expect a potential decrease of 10% as the effect of the lockdown and lower oil prices are felt across the economy. However we are still confident to maintain the volumes over the summer. Exports, mostly to Uzbekistan and Kyrgyzstan, were reduced as they deployed their new factories and prices became more competitive. Still the companies located in the south of Kazakhstan benefited most. In April 2020, the government closed imports from Iran to west Kazakhstan and so it will benefit the companies operating in that region. At the same time Uzbekistan stopped imports from Kazakhstan. We expect imports and exports to be significantly reduced. Steppe Cement’s average cement selling prices increased by 8% in KZT, but decreased by 2% in USD, to USD 46.6 per tonne delivered. Line 5 produced 995,141 tonnes of cement while Line 6 produced 720,620. We continue to make small improvements in Line 6 that will deliver additional production capabilities and lower costs in 2020. 11 Annual Report 2019CEO’s Statement Capital investment in 2019 was directed to the improvement of cement mills, silos, packing and to reduce power consumption. In 2020 we will endeavour to conserve cash and limit the capital investment to ecological and energy saving projects. Selling expenses, reflecting mostly cement delivery costs, decreased to USD 8/tonne from USD 9/tonne in 2018, due to lower export volumes (-29%) and the net reclassification of 0.4 million wagon rental expenses from selling expenses to cost of sales and finance costs based on IFRS 16. In 2019 we completed the following projects: Effects of application of IFRS 16 in the accounts • Increasing the capacity of the new 50 kg bags packing line to 2,400 bags per hour, equivalent to 120 tonnes per hour, • Commissioning the fully automated loading of wagons and trucks, • Installing a separator in cement mill number four that will allows us to increase the sales of M500 and decrease the production cost of M400, • Changing the two preheater fans in Line 6 to improve energy efficiency, and • Automating the silos and loading in the wet line mills area. The application of IFRS 16 in our accounts affects mostly the accounting of the expenses associated with the rental of wagons that Steppe Cement does not own. Some wagons are rented for more than one year and the accounting standard requires to account for a new non-current asset called right- of-use assets evaluated at USD 6.1 million (note 11 of the financial statements). The corresponding entries in the liabilities are called lease liabilities seggregated between non-current and current at USD 4.3 million and USD 2.2 million respectively (note 21). The transportation expenses have been reduced by USD 0.4 million to USD 13.3 million while the corresponding lease finance cost has been calculated at USD 0.9 million (note 5) increasing the financial expenses. Capital investment was maintained at USD 3 million. In 2020, we plan the limit the capex to USD 2 million including: • Cooler EP fan system, • Pan conveyor replacement, • Slag drier filter and automation, • Cooler fan replacement, and • Laboratory equipment. Cost per tonne increased on the back of coal price increases The average cash production cost of cement was maintained at USD 23/tonne as cost increases in KZT were balanced by currency depreciation of 11% over the year. We expect the coal price to be reduced in 2020. IFRS 16 accounting, Without the finance expenses would have been USD 1.1 million and the transportation expenses USD 13.8 million. Consequently, the gross profit has been reduced by USD 0.4 million. As the tax authorities do not recognise for the effects of IFRS 16 accounting, Steppe Cement’s effective income tax rate has increased to 23%. increased due to the The EBITDA has been recognition of the depreciation of right of use assets. Without this depreciation, the EBITDA for 2019 would have been USD 21.6 million. General and administrative expenses General and administrative expenses decreased by 5% to USD 5.9 million from USD 6.2 million in 2018 as we reduced the number of expatriates and contained inflation in salaries. On 31 March 2020, the labour count stood at 751 from 735 in 2018. The increase is due to the termination of the subcontractor for bag packing. We are now employing directly the required personnel. 12 Steppe Cement Ltd. Financial position: Continuous debt reduction During the year, our total loans outstanding were reduced from USD 11.8 million to USD 10.3 million. The cash position increased to USD 9.0 million leaving the company almost in net cash position at the end of 2019. Long term loans were reduced from USD 6.6 million to USD 3.9 million. Of this reduction USD 1.6 million were due to repayment of loans and the balance due to the lower value in USD of long term KZT denominated loans. The effective blended interest rate in the long term loans in USD and KZT was maintained at 6.2% per annum. Our short term loans and current part of the long term loans were slightly increased from USD 5.2 million in 2018 to USD 6.4 million in 2019, while the cash position at the end of the year was increased from USD 5.7 million to USD 9.0 million. (ex-operating In 2019, finance costs leases) decreased to USD 1.1 million from USD 1.6 million in 2018 due to the continuous repayment of loan principal. Finance costs increased to USD 2.0 million after accounting for operating lease interest costs of USD 0.9 million under IFRS 16. Following the drop of oil prices and the devaluation of the Russian Rouble in March 2020, the KZT devalued from 380 to 430 KZT/USD. Our current loans in USD are balanced by similar cash deposits in foreign currency. We maintain two short term credit lines available as stand by: KZT 3 billion from Halyk Bank at 6% p.a. in USD or 13% in KZT which includes a government subsidized program of KZT 0.5 billion in KZT at 6% p.a. KZT 0.9 billion from Altyn Bank at 11% p.a. in KZT. All covenants under the various credit lines have been met comfortably. Depreciation of property, plant and equipment decreased slightly from USD 7.1 million in 2018 to USD 6.9 million in 2019. The statutory corporate income tax rate remains at 20% in Kazakhstan. Javier del Ser Perez Chief Executive Officer 13 Annual Report 2019 Group Structure 100% Steppe Cement (M) Sdn Bhd (Malaysia) 100% Steppe Cement Holdings B.V. (Netherlands) Mechanical and Electrical Consulting Services Ltd (Malaysia) 100% Central Asia Cement JSC (Kazakhstan) 100% Karcement JSC (Kazakhstan) 100% Central Asia Services LLP (Kazakhstan) 100% 14 Steppe Cement Ltd.  board of directors Xavier Blutel (Non-Executive Chairman) Xavier Blutel, 65, is currently member of the Strategic Board of Wagram Corporate Finance and President and founding partner of SAS Baudrimont. 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, 54, 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. 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, 49, 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 2019senior management MANAGEMENT AND STAFF OF CENTRAL ASIA CEMENT JSC General Director : Peter Durnev A graduate of Academy Marketing Moscow. He has worked in CAC for about 20 years rising from marketing executive to his present position. He also holds the position of Marketing Director. 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. 16 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. Personnel Manager : Irina Poluychik An economist by qualification. She specializes in human resources matters. She has been with CAC for 32 years. Steppe Cement Ltd.senior management MANAGEMENT AND STAFF OF KARCEMENT JSC General Director: George Ramesh A Mechanical Engineer by profession with a Master degree in Business Management (Finance & Marketing) from India. He has about 28 years of experience in the dry process cement industry in various countries (India, Malaysia & Singapore), handled plant improvement projects, operational reliability, methodology development and maintenance. Before joining Karcement in September 2007, he worked as Maintenance & Project Manager for Holcim (Malaysia) and prior to that, with Lafarge (Malaysia). He was the Project Manager of the Line 5 dry line modernization Project in Karcement which was successfully commissioned in 2014. Legal Department Chief: Veronica Kuznetsova A graduate from the Legal Academy of Kazakhstan with a Master’s Degree in Law. She joined CAC in 2005 as a Lawyer. In 2007 she was transferred to Karcement and from 2010, she was appointed Chief of the Legal Department. Head 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. 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. 17 Annual Report 2019Corporate Governance We are pleased to present our 2019 Corporate Governance Statement. This Statement describes our approach to corporate governance and the governance practices in place at Steppe Cement and its subsidiaries. OUR VISION To be Kazakhstan’s leading, most sustainable, profitable, trusted and competitive cement producer OUR VALUES DEDICATION TO CUSTOMERS QUALITY OF PRODUCT & SERVICES SAFEGUARD AND ENHANCE ASSET VALUE EMPOWER AND RESPECT EMPLOYEES BE ACCOUNTABLE AT ALL LEVELS SHAREHOLDERS STEPPE CEMENT BOARD BOARD AUDIT COMMITEE BOARD REMUNERATION COMMITEE BOARD NOMINATIONS & GOVERNANCE COMMITEE MANAGEMENT CHIEF EXECUTIVE OFFICER EXECUTIVE LEADERSHIP AND OPERATIONAL MANAGEMENT The Board reserves certain power for itself and delegates certain authority and responsiblitity for day-to-day management of our business. The Group CEO in turn delegates certain authorities and responsibilities to senior executives. These delegations are regularly reviewed and confirmed 18 18 Steppe Cement Ltd. Steppe Cement Ltd.FOCUS ON CUSTOMERS, CULTURE, VALUE AND ACCOUNTABILITY In 2019, we have continued our long-term, proactive approach to creating a governance culture that secures availability of our cement to our customers, promotes responsible behaviour and accountability, and contributes to sustainable value creation for our shareholders. This section details core activities during 2019 and early 2020. On June 12, 2019, our Annual General Meeting was held in Kuala-Lumpur with a high turnout of 55% in person and voting of 88%, giving the CEO and the outgoing Board Members the opportunity to report in detail the company’s activities and answer shareholders questions. The Board was re-elected with an unanimous vote. Across the year, the CEO, often accompanied by a Board member, met with various investors or analysts to deliver all information needed to monitor our business, our prospects and answer any question raised: meetings organised in London, Singapore, Kuala Lumpur, Paris, and participation in conferences in Prague and Bucharest provided the financial community with many opportunities to assess the company’s performance, risks and governance. We held five formal Board meetings, two of which being in Aktau: they were combined with extensive site visits. During these stays in the factory, in-depths reviews were made with each operational manager. The directors also inspected the facility, requested all relevant description about the operations and the proper condition and functioning of the existing and new assets. Personal contacts between directors and senior management were further strengthened in these occasions. Looking forward into 2020, the constraints created by COVID19 are forcing to interrupt our field visits as well as our regular Board meetings. Until these restrictions are safely lifted, the Board institutes a routine whereby it reviews the key issues with the CEO by conference call twice a month. Moreover, at least every six months a video conference call is scheduled with the senior staff to maintain a concrete dialogue with the operational issues, encourage motivation, assess difficulties and alternative solutions. Besides these direct contacts with Management, accountability is ensured through the guidance of our Audit Committee, as detailed further. Internal audit was reinforced by the services provided by an experienced person, Gan Chee Leong, a former executive of our Company, and who is given specific internal control programs by the Committee. His first report gave valuable input to the Board and generated useful improvements in organisational processes, policies and guidelines, and control procedures. Besides ensuring availability of cement to the market, the Company has also taken steps to support loyal customers facing temporary difficulties. This was done by taking ownership of some of their assets and help them to face their cash difficulties. As it should be, the Board monitors permanently such cases and verifies that a prudential approach is taken and that such assistance does not increase the risk level of the company. The value of our company is on top of our priorities. With the excellent financial position reached in 2019, the Board aims at proposing an optimal and well- balanced allocation of funds. Capital investment has always been strictly justified in the past. Nonpriority projects were and are deferred, but major attention is given to ensure the availability of strategic spare parts, and assuring proper preventive maintenance, two crucial but costly needs. Another priority relates to projects which increase the value of the business. In the past, these were mostly engineering projects, such as creating additional capacity, improving reliability and quality, reducing manufacturing cost. A strong manufacturing base is now in place and should be maintained. Since 2019, capex is mostly oriented towards reinforcing logistics and sales to tap into the more lucrative bagged cement segment of the market: this is a testimony of our dedication to customers. In terms of benefits, it enables us to keep or increase our market share, our margins, and therefore our value for our shareholders. In 2020 and, hopefully in 2021 the Board hopes to satisfy this priority and, in the same time, propose a dividend to reward shareholders for their loyalty and support. results and reports, announcements, Financial investor presentations and briefings are available on our website at www.steppecement.com Xavier Blutel Chairman of the Board 19 Annual Report 2019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. 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: • 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. The Board’s role in Corporate Governance in The Board of Directors (“Board”) is fully committed and strives to take the necessary measures to uphold the best principles and practices of corporate governance 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 The Chairman’s role is to ensure that the governance structure remains relevant and appropriate, whilst supporting the Group’s 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. 20 Steppe Cement Ltd. BOARD OF DIRECTORS The Board’s primary objective is to protect and enhance long-term shareholders’ value. The Board is responsible for: • • • • • • • formulating the Group’s strategic direction and major policies; review performance of the Group and monitor the achievement of management’s goals; approval of the Group’s financial statements, annual report and announcements; approval of Group’s operational and capital budgets; approval of major contracts, capital expenditure, acquisitions and disposals; setting the remuneration, appointing, removing and creating succession policies for Directors and senior executives; the effectiveness and integrity of the Group’s internal control and management information systems; and • overall corporate governance of the Group. BOARD PROCESSES The Board has established a framework for the management of the Group including a system of internal control, risk management practices and the establishment of appropriate ethical standards. The Board holds regular meetings to discuss strategy, operational matters and any extraordinary meetings at such other times as may be necessary to address any specific and significant matters that may arise. The Board has determined that individual Directors have the right qualification and experience to perform their duties and responsibilities as Directors. BOARD COMPOSITION At least half of the Board comprises of independent non-executive Directors. The Board composition reflects the balance of skills and expertise to ensure that these are in line with the Group’s strategies. There is a clear segregation of roles of between the 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-today management and operations of the Group in accordance with the objectives and strategies established by the Board to the CEO and the senior management. Independence The Non-Executive Directors are responsible for providing independent advice and are considered by the Board to be independent of management and free from any business or relationship that would materially interfere with the exercise of independent judgment as a member. No one individual in the Board has unfettered powers of decision and no Director or group of Directors is able to unduly influence the Board’s decision making. This enables the independent Directors to debate and constructively challenge the management on the Group’s strategy, financial and operational matters. 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. 21 Annual Report 2019 Corporate Governance Performance evaluation Independence advice and insurance The Board conducts regular evaluations 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. Re-election of Directors Every year, the Directors offer themselves for re- election and their re-election is subject to the shareholders approval at the Company’s Annual General Meeting. 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 the advice of independent consultants at the Company’s expense in relation to Director’s rights and duties - 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 Nomination The Board has established 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 2019, 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 Remuneration 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 comprise: 1. Rupert Wood (Chairman) 2. Javier Del Ser Perez 3. Xavier Blutel The principal objectives of the Committee are to review that the Board structure, size, composition and the mix of skills and expertise to ensure that these are in line with the Group’s strategies and to recommend to the Board the potential candidates for directorship. The selection criteria for selection the potential candidates and include qualifications of for directorship shall and knowledge the achievements, credibility and background and ability of the candidates to contribute effectively to the Board and Group. individual, experience, recruitment of The functions of the Nomination Committee include: • Review annually size and composition of the Board taking into account the Group’s strategies; structure, the • Identify and nominate the potential candidates to the Board for approval; 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 legal of responsibilities, performance, relevant 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 policy of the Chairman, CEO, Executive Directors and senior executives; • Review the contracts for the Chairman, CEO, Executive Directors and the contractual terms; • Obtain information on the remuneration of other listed companies of similar size and industry; • Report and make recommendations to the Board on the Committee’s activities; and • Review and update the Terms of Reference every two (2) years, or more frequently as required to ensure its ongoing relevance and effectiveness. • Monitor the appointment process of Directors; The Remuneration Committee’s members comprise: • Recommend to the Board for approval on the re- appointment of Directors; 1. Xavier Blutel (Chairman) 2. Rupert Wood • Oversee the succession planning of Directors the Group’s into consideration of taking strategies; • Report and make recommendations to the Board on the Committee’s activities; and • Review and update the Terms of Reference at least once a year. 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. 23 Annual Report 2019 Corporate Governance 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. Details on the roles and responsibilities of the Audit Committee are described in the Audit Committee Report. The Audit Committee’s members comprise: 1. Rupert Wood (Chairman) 2. 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. Conflict of interest All Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Group. Where the Board believes that a significant conflict exists for a Director on a board matter, the Director concerned does not receive the relevant board papers and is not present at the meeting whilst the item is considered. Directors are required to take into consideration any potential conflicts of interest when accepting appointments to other Boards. INVESTOR RELATIONS The Board recognises and values the importance of managing its relationship with the investing community. The Board committed and communicates regularly with shareholders on strategy, financial performance, the Group’s developments and prospects via issuance of annual and interim financial statements to shareholders, stock exchange announcements and in meetings. is The Group’s management meets regularly with fund managers, analysts and shareholders to convey information about the development of the Group’s performance and operations in Kazakhstan. Annual General Meeting The Annual General Meeting (“AGM”) provides the main forum and opportunity for discussion and interaction between the Board and the shareholders. The Board encourages the active participation of shareholders, both individuals and institutional at the AGM on important and relevant matters. The results of the AGM are announced via Regulatory News Service to the public after the AGM. INTERNAL CONTROL The Board places importance on the maintenance of a strong internal control system in the Group, including compliance and risk management practices to ensure good corporate governance. The Board regularly evaluates and monitors the effectiveness of the internal control system. Purpose investments. The Group’s The Group’s internal control system is designed to safeguard the Group’s assets and enhance the internal shareholders 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. 24 Steppe Cement Ltd. Key elements The key elements of the Group’s internal control system are: • Control - an organisational structure is in place with clearly defined levels of responsibility and authority together with appropriate reporting procedures, particularly with respect to financial information and capital expenditure. • Financial Reporting and Budgeting - A financial reporting and budgeting system with an annual budget approved by the Directors has been established to monitor the performance of the subsidiaries. The management evaluates the actual against budget to identify and explain the causes of the significant variances for appropriate regularly action. The budgets are taking into internal and external variables such as performance, costs, capital expenditure requirements, macro outlook and other relevant factors. revised • Risk Management and Compliance - Risk management and compliance policies, controls and practices are in place for the Group to identify, assess, manage and monitor key business risks and exposure and for evaluation of their financial impact and other implications. Monitoring and review mechanism The Audit Committee is tasked to monitor and review the adequacy and effectiveness of the internal control system and procedures including risk management and compliance. The Group’s internal audit function is responsible for conducting internal audits based on the risk-based audit plan approved annually by the Audit Committee. The internal audit function provides regular reports to the Audit Committee highlighting the observations, recommendations and management action to improve the internal control system. The scope of work, authority and resources of the internal audit function are reviewed by the Audit Committee at annually. The Audit Committee also deliberates on control issues highlighted by the external auditors during the course of statutory audits. 25 Annual Report 2019 Corporate Governance Nomination Committee Report 2019 Dear Shareholder, Last year the Nomination Committee found itself busy looking at several important roles within your Company. In liaison with the Audit Committee, the Nomination Committee worked to recruit a new Head of Internal Audit, to strengthen the function of oversight within the Company. To drive this forward, Gan Chee Leong, the retiring General Director, was asked to lead the recruitment process. Meanwhile, in the interim, Gan took on the role of acting Head of Internal Audit, reviewing several key areas of your Company’s business: Purchasing, Security, Inventory and Stock Taking, and Payroll/Accounting. Gan’s retirement saw the promotion of George Ramesh and Petr Durnev to General Director of Karcement and CAC respectively. They have stepped up to the task in hand and we thank them for their work, dedication and performance. With a view to succession planning, the Committee met with Oksana Hoschenko, due to take over as Head of HR from Irina Poluychik, the current Head of HR. In July, the Committee also recommended renewing the CEO’s contract for a further two years. Yours faithfully Rupert Wood, Nomination Committee Chairman 26 26 Steppe Cement Ltd. Steppe Cement Ltd.Audit Committee Report 2019 Dear Shareholder, The Audit Committee had a busy year working to ensure your Company’s continued improvements to its operational, financial, compliance and audit health. situations. 2019 was a good year for your Company, seeing a 3p dividend paid in respect of 2018 last summer. As part of its oversight remit, the Committee has reviewed procedures and protocols to ensure Best Practice wherever possible. The Audit Committee, (comprising of its Chairman and Xavier Blutel), formally met four times in person over the course of 2019, as well as by video conference and several further times by telephone. Most occasions of Committee Meetings remained logistical based around Board Meetings, purposes, and with the opportunity to meet with management on the ground twice yearly in Aktau. The Committee continues to advise and challenge the Management of your Company, and to assist the board on its recommendations to strengthen governance, controls and oversight. for The Committee, with the Board, continues to monitor and evaluate the Company’s financial strength and performance on an ongoing basis. This involves comfort with prudent leverage ratios, monitoring the cashflow situation, evaluating legal and tax risks, reviewing internal auditing and accounting changes, whilst monitoring risks both short term as well as medium to long-term to mitigate these potential I am pleased to report that the Committee oversaw the recruitment plan for a new Head of Internal Audit, who was due to start in April of 2020. Unfortunately, owing to the pandemic, he has been unable to relocate to Kazakhstan yet, but we anticipate that, once borders reopen, he will be able to start work at the factory. The Committee also dedicated time to reviewing Insider Lists and potential Conflicts of Interest, and is pleased to report that no issues generated concern. As part of the commitment to ongoing professional development, and in order to seek external reference points regarding Audit Committee developments and best practice, the Committee Chairman attended a one day Audit Committee training event in London, which proved useful for benchmarking purposes. Yours faithfully Rupert Wood, Audit Committee Chairman 27 Annual Report 2019Corporate Governance External Audit Process Financial Oversight 2019 saw the Audit Committee hold several conference calls with the External Auditors to engage with the External Auditors and set fees, set the terms of the Audit and approve the 2019 Audit Plan, to monitor its progress and discuss any issues arising from the External Audit process. The Audit Committee remains satisfied that the External 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 2018 Audit with the External Auditors, and ensured that key items raised had been resolved between the External Auditor and the Company. Risk Management The area of risk management 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 revision and monitoring 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 did not materially change over the course of 2019. The development of a risk register remains work in progress to ensure a more formal framework for an assessment and monitoring programme. Whistleblowing Protocols During the second half of 2019 the Committee formal requested that the Company establish Whistleblowing Protocols, which were adopted and posted throughout the factory in response to this request. So far there have been no reported concerns or issues raised through the Whistleblowing Programme. the year Through the Committee, alongside 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. The Committee, as well as the Board, dedicates a significant 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. Transactions, loans and payments between subsidiary companies in the Group have also been an area that the Committee has explored carefully. The Committee reviewed the changes to IFRS 16, relating to the difference in treatment for finance versus operating leases (for lessee accounting). The details of the accounting changes and impact on your Company are detailed in the Auditor’s Notes – in summary the pushed up the Company’s costs in the order of USD0.4m. Internal Audit The function of Internal Audit has been one of focus for the Committee, in particular the need for a strengthened internal audit function. To address this issue, in 2019 the Audit Committee recommended to the Board the recruitment of a Head of Internal Audit. In the meantime, the retiring General Director Gan Chee Leong was tasked with providing an interim Head of Internal Audit function, reviewing several areas of importance for the Company: • Purchasing and how the department is managed and authorised; • Inventory and Stock Taking; • Security Department and related Protocols; and • Payroll and Accounting, with focus on the 1C software platform integration. 28 Steppe Cement Ltd.In each of these areas, your Company has been able to improve on procedures and streamline processes to ensure maximum efficiency whilst maintaining proper controls. Gan was also tasked with the recruitment of a new Head of Internal Audit. The chosen candidate was due to join in March 2020 (but has been unable to relocate to Kazakhstan so far due to the pandemic). We anticipate that he will be able to take up his new role on the ground once the lockdowns ease. The Committee met with senior management in Kazakhstan twice last year - sales, operations, maintenance, Human Resource (“HR”), legal, and finance. Internal Audit moved from being primarily 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 matters. The Audit Committee remains vigilant for any signs of suspected fraud, theft or malfeasance, and will continue to improve internal controls throughout 2020 to mitigate such risks. Health and Safety The ongoing wellbeing of the Company’s workforce remains a key objective for the Company and the committee has regularly reviewed the latest updates on Health and Safety. Ongoing training of staff has been maintained and the Company maintains a good record with regard to Health and Safety. Additionally, as referred to previously, the Company instituted a Whistleblower Policy so that any concerns from the workforce can be confidentially reported. Membership of Audit Committee Rupert Wood - Committee Chairman, since 2017 Xavier Blutel - Member since 2015 All members of the Audit Committee are independent, non-executive directors, with backgrounds in relevant areas for Committee purposes (see Biographies and Skill Sets section). They add both deep and broad experience in the cement industry and plant management as well as relevant financial experience and understanding. Role and Responsibilities of the Audit Committee These include: • Review the Group’s financial regulatory announcements Group’s results; statements, the to relating • Review the Group’s significant accounting policies and practices; • Review compliance with international financial reporting standards, regulatory and other legal requirements; • Review and advise the Board on the appointment, nomination and re-appointment of the external auditors; • Oversee the relationship with the external auditors, including the engagement of auditors, the audit scope, plan, remuneration and objectivity; • Monitor and review the effectiveness of the external audit; • Evaluate and monitor the adequacy and effectiveness of the internal controls system and procedures including risk management and compliance; • Monitor and review the performance and effectiveness of the internal audit function; • Report and make recommendations to the Board on the Committee’s activities; and • Review and update the Terms of Reference at least once a year and recommend any changes to the Board for approval. 29 Annual Report 2019FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 (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 - 46 Notes to the financial statements 46 - 107 Statement by a director 108 31 Annual Report 2019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 2019, 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 36 to 107. 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 2019, 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 Matter Key audit matter is a matter that, in our professional judgement, is of most significance in our audit of the financial statements of the Group and of the Company for the current year. This matter is 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 this matters. 32 Steppe Cement Ltd.Key audit matter How our audit addressed the key audit matter Impairment of property, plant and equipment and right-of-use assets The carrying value of property, plant and equipment and right-of-use assets amounted to USD61.9million, representing 66% of the total assets as of 31 December 2019. 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 industry, and concluded that indication of impairment of property, plant and equipment and right-of-use assets existed. Consequently, an impairment assessment was performed to determine the recoverable amounts of the Group’s property, plant and equipment and right-of-use assets. The recoverable amounts 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. We discussed with management the future plans of the manufacturing entities and economic outlook in the coming years. Our audit procedures included physical sighting of the property, plant and equipment and right-of-use assets to assess whether they are operating and in a working 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. Our consideration includes the non-adjusting subsequent events as disclosed in Note 31 to the financial statements. 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 in the impairment assessment. No impairment was recorded during the current financial year as the recoverable amounts of the property, plant and equipment and right-of-use assets calculated by the directors were in excess of their carrying values as of 31 December 2019. 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. Significant judgements and inputs used in the value-in-use model are disclosed in Note 10 to the financial statements. We have not identified any key audit matter pertaining to the financial statements of the Company for the financial year ended 31 December 2019. 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. 33 Annual Report 2019INDEPENDENT AUDITORS’ REPORT 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. 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. 34 Steppe Cement Ltd.• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s or the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements of the Group and of the Company or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group or the Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements of the Group and of the Company, including the disclosures, and whether the financial statements of the Group and of the Company represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial statements of the Group. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. 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 - 2939/01/2022 J Chartered Accountant Labuan 3 June 2020 35 Annual Report 2019STATEMENTS OF PROFIT AND LOSS FOR THE YEAR ENDED 31 DECEMBER 2019 The Group The Company Note 2019 USD 2018 USD Restated 2019 USD 2018 USD Revenue Cost of sales 4 79,929,953 82,184,670 9,915,657 8,912,843 (46,244,126) (46,737,415) - - Gross profit 33,685,827 35,447,255 9,915,657 8,912,843 5 6 7 8 Selling expenses General and administrative expenses Interest income Finance costs Net foreign exchange (loss)/gain Other income/ (expenses), net Profit before income tax Income tax expense Profit for the year Attributable to: Shareholders of the Company Earnings per share: (13,371,624) (15,612,203) - - (5,921,545) (6,226,994) (318,980) (300,517) 128,735 42,649 (2,061,008) (1,637,834) 6,023 - 458 - (84,400) (1,786,724) (35,941) 26,141 166,115 576,570 - (4,855) 12,542,100 10,802,719 9,566,759 8,634,070 (2,835,709) (1,744,486) - - 9,706,391 9,058,233 9,566,759 8,634,070 9,706,391 9,058,233 9,566,759 8,634,070 Basic and diluted (cents) 9 4.4 4.1 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 2019 The Group The Company 2019 USD 2018 USD Restated 2019 USD 2018 USD Profit for the year 9,706,391 9,058,233 9,566,759 8,634,070 Other comprehensive income/ (loss): Items that may be reclassified subsequently to profit or loss: Exchange differences arising from translation of foreign operations Total other comprehensive income/(loss) Total comprehensive income/ (loss) for the year Attributable to: 572,722 (9,445,330) 572,722 (9,445,330) - - - - 10,279,113 (387,097) 9,566,759 8,634,070 Shareholders of the Company 10,279,113 (387,097) 9,566,759 8,634,070 The accompanying notes form an integral part of the financial statements. 37 Annual Report 2019 STATEMENTS OF FINANCIAL POSITION FOR THE YEAR ENDED 31 DECEMBER 2019 The Group The Company Note 2019 USD 2018 USD Restated 2019 USD 2018 USD Assets Non-Current Assets Property, plant and equipment Right-of-use assets 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 10 11 12 27 16 13 14 15 27 16 17 55,807,917 59,642,055 6,140,152 - - - - - - - - - 36,197,767 26,500,001 30,140,000 30,170,000 5,992 191,242 2,426,938 2,203,459 - - - - 64,380,999 62,036,756 66,337,767 56,670,001 10,811,542 13,381,295 - - 5,790,278 3,500,468 8,847,922 8,883,956 405,147 175,336 - - - - 30,079 9,634,325 3,682,896 2,312,534 15,944 6,704 9,014,360 5,719,491 261,798 23,570 Total Current Assets 29,704,223 25,089,124 9,155,743 18,548,555 Total Assets 94,085,222 87,125,880 75,493,510 75,218,556 38 Steppe Cement Ltd.STATEMENTS OF FINANCIAL POSITION FOR THE YEAR ENDED 31 DECEMBER 2019 The Group The Company Note 2019 USD 2018 USD Restated 2019 USD 2018 USD 18 19 19 19 20 21 22 23 24 25 20 21 23 26 Equity and Liabilities Capital and Reserves Share capital Revaluation reserve Translation reserve Retained earnings Total Equity Non-Current Liabilities Borrowings Lease liabilities Deferred taxes Deferred income Provision for site restoration Total Non-Current Liabilities Current Liabilities Trade and other payables Accrued and other liabilities Borrowings Lease liabilities Deferred income Taxes payable Total Current Liabilities Total Liabilities Total Equity and Liabilities 73,760,924 73,760,924 73,760,924 73,760,924 2,015,943 2,349,282 (113,285,956) (113,858,678) - - - - 100,386,012 98,735,515 1,576,763 399,237 62,876,923 60,987,043 75,337,687 74,160,161 3,892,851 6,606,910 4,306,929 - 4,651,541 2,054,758 1,421,368 1,490,942 74,435 65,354 14,347,124 10,217,964 6,203,453 6,614,604 - - - - - - - - - - - - - - 1,405,123 2,682,569 155,823 1,058,395 6,420,573 5,217,009 2,190,586 - 81,387 138,566 560,053 1,268,125 - - - - - - - - 16,861,175 15,920,873 155,823 1,058,395 31,208,299 26,138,837 155,823 1,058,395 94,085,222 87,125,880 75,493,510 75,218,556 The accompanying notes form an integral part of the financial statements. 39 Annual Report 2019l e b a t u b i r t s i D l e b a t u b i r t s i d - n o N * t e N D S U D S U D S U D S U i s g n n r a e d e n a t e R i e v r e s e r n o i t a l s n a r T e v r e s e r n o i t a u a v e R l e r a h S l a t i p a c D S U 2 3 3 , 0 3 0 , 5 8 1 5 , 2 2 6 , 2 4 1 8 , 7 0 4 , 2 - - 1 1 7 , 6 5 9 , 5 5 7 9 9 , 2 1 1 , 6 9 ) 2 9 4 , 6 6 2 , 6 1 1 ( 2 8 2 , 9 4 3 , 2 4 2 9 , 0 6 7 , 3 7 9 1 0 2 y r a u n a J 1 f o s A d e t a t s i y l s u o v e r p s A ) 2 3 e t o N ( s t n e m t s u d A j p u o r G e h T 3 4 0 , 7 8 9 , 0 6 5 1 5 , 5 3 7 , 8 9 ) 8 7 6 , 8 5 8 , 3 1 1 ( 2 8 2 , 9 4 3 , 2 4 2 9 , 0 6 7 , 3 7 d e t a t s e r s A 1 9 3 , 6 0 7 , 9 1 9 3 , 6 0 7 , 9 - 2 2 7 , 2 7 5 - 2 2 7 , 2 7 5 3 1 1 , 9 7 2 , 0 1 1 9 3 , 6 0 7 , 9 2 2 7 , 2 7 5 ) 3 3 2 , 9 8 3 , 8 ( ) 3 3 2 , 9 8 3 , 8 ( - 9 3 3 , 3 3 3 - - - - - - ) 9 3 3 , 3 3 3 ( - - - - - e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T e m o c n i e v i s n e h e r p m o c r e h t O r a e y e h t r o f t fi o r P r a e y : y t i u q e g n i t c a p m i s n o i t c a s n a r t r e h t O d n a t n a p l , y t r e p o r p o t g n i t a e r l e v r e s e r n o i t a u a v e r l f o r e f s n a r T e s u h g u o r h t t n e m p u q e i ) 9 1 e t o N ( i d a p s d n e d v D i i 0 4 3 2 9 , 6 7 8 , 2 6 2 1 0 , 6 8 3 , 0 0 1 ) 6 5 9 , 5 8 2 , 3 1 1 ( 3 4 9 , 5 1 0 , 2 4 2 9 , 0 6 7 , 3 7 9 1 0 2 r e b m e c e D 1 3 f o s A y n a p m o C e h t f l o s r e d o h e r a h s e h t o t l e b a t u b i r t t A * STATEMENTS OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2019 Annual Report 2019Steppe Cement Ltd. 0 8 7 , 3 3 1 0 8 7 , 3 3 1 3 5 4 , 4 2 9 , 8 3 5 4 , 4 2 9 , 8 3 3 2 , 8 5 0 , 9 3 3 2 , 8 5 0 , 9 - - - 1 4 ) 8 6 3 , 5 2 5 , 9 ( 8 3 0 , 0 8 ) 0 3 3 , 5 4 4 , 9 ( - - - 8 3 0 , 0 8 ) 8 6 3 , 5 2 5 , 9 ( ) 0 3 3 , 5 4 4 , 9 ( ) 7 9 0 , 7 8 3 ( 3 3 2 , 8 5 0 , 9 ) 0 3 3 , 5 4 4 , 9 ( ) 7 4 3 , 9 5 9 , 2 ( ) 7 4 3 , 9 5 9 , 2 ( - 1 2 7 , 0 3 3 - - 3 4 0 , 7 8 9 , 0 6 5 1 5 , 5 3 7 , 8 9 ) 8 7 6 , 8 5 8 , 3 1 1 ( - - - - - - - - ) 1 2 7 , 0 3 3 ( 2 8 2 , 9 4 3 , 2 - - - - - - - - - 4 1 5 , 6 1 8 , 4 8 3 7 , 8 8 4 , 2 6 7 7 , 7 2 3 , 2 - - 3 7 9 , 6 1 5 , 9 5 0 7 1 , 7 1 8 , 9 8 ) 4 2 1 , 1 4 7 , 6 0 1 ( 3 0 0 , 0 8 6 , 2 4 2 9 , 0 6 7 , 3 7 7 8 4 , 3 3 3 , 4 6 8 0 9 , 5 0 3 , 2 9 ) 8 4 3 , 3 1 4 , 4 0 1 ( 3 0 0 , 0 8 6 , 2 4 2 9 , 0 6 7 , 3 7 d e t a t s i y l s u o v e r p s a r a e y e h t r o f t fi o r P d e t a t s e r s a r a e y e h t r o f t fi o r P ) 2 3 e t o N ( s t n e m t s u d A j r o f e m o c n i / ) s s o l ( e v i s n e h e r p m o c l a t o T d e t a t s e r s a s s o l e v i s n e h e r p m o c r e h t O r a e y e h t : y t i u q e g n i t c a p m i s n o i t c a s n a r t r e h t O s a s s o l e v i s n e h e r p m o c r e h t O ) 2 3 e t o N ( s t n e m t s u d A j d e t a t s y l s u o v e r p i 8 1 0 2 y r a u n a J 1 f o s A d e t a t s i y l s u o v e r p s A ) 2 3 e t o N ( s t n e m t s u d A j d e t a t s e r s A ) 9 1 e t o N ( i d a p s d n e d v D i i l o t g n i t a e r e v r e s e r n o i t a u a v e r l f o r e f s n a r T h g u o r h t i t n e m p u q e d n a t n a p l , y t r e p o r p e s u 4 2 9 , 0 6 7 , 3 7 8 1 0 2 r e b m e c e D 1 3 f o s A y n a p m o C e h t f l o s r e d o h e r a h s e h t o t l e b a t u b i r t t A * l e b a t u b i r t s i D l e b a t u b i r t s i d - n o N * t e N D S U D S U D S U D S U D S U i s g n n r a e d e n a t e R i e v r e s e r n o i t a l s n a r T e v r e s e r n o i t a u a v e R l l a t i p a c e r a h S p u o r G e h T STATEMENTS OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2019 Annual Report 2019Steppe Cement Ltd. STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2019 The Company Distributable (Accumulated losses)/ Retained earnings USD Share Capital USD Total USD As of 1 January, 2019 Total comprehensive income for the year Dividends paid (Note 19) 73,760,924 399,237 74,160,161 - - 9,566,759 9,566,759 (8,389,233) (8,389,233) As of 31 December, 2019 73,760,924 1,576,763 75,337,687 As of 1 January, 2018 73,760,924 (5,275,486) 68,485,438 Total comprehensive income for the year Dividends paid (Note 19) - - 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 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 2019 The Group The Company 2019 USD 2018 USD Restated 2019 USD 2018 USD CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES Profit before income tax 12,542,100 10,802,719 9,566,759 8,634,070 Adjustments for: Depreciation of property, plant and equipment Depreciation of right-of-use assets 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 Loss allowance for doubtful receivables Allowance for advances paid to third parties Reversal of provision for obsolete inventories 6,880,944 7,138,659 2,285,530 - - 4,654 1,410 1,566 - - - - 140,656 30,925 - - - - - - - - (8,678,970) (8,389,233) - - 4,855 - (128,735) (42,649) (1,242,710) (524,068) 2,061,008 1,637,834 - - 84,400 1,786,724 1,339 (50,676) 36,146 46,562 433,412 168,365 142,400 139,979 (118,792) (346,533) - - - - - - - - - - 43 Deferred income (246,290) (41,192) Annual Report 2019STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2019 The Group 2019 USD 2018 USD Restated The Company 2019 USD 2018 USD 24,114,189 21,327,613 (353,582) (325,052) Movement in working capital: Decrease/(Increase) in: Inventories 2,704,172 (2,304,350) Trade and other receivables (2,687,961) (2,434,470) Loans and advances to subsidiary companies Advances and prepaid expenses (Decrease)/Increase in: - (1,514,504) - - - - - (125) (63,520) (199,034) (9,240) - - Trade and other payables (354,224) (161,809) - Accrued and other liabilities (2,002,941) 2,244,060 (903,911) 39,589 Purchase of other assets (14,982) (25,621) (2,837,509) (3,138,098) 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 Proceeds from disposal of property, plant and equipment Dividends received from subsidiary Interest received Net Cash(Used In) /From Investing Activities 44 20,258,731 18,671,044 (1,330,253) (493,734) (151,305) - (484,622) (4,941) 19,764,997 18,519,739 (1,330,253) (489,563) - - - - - - 8,389,233 3,430,150 149,482 - - - 128,735 42,649 1,568,481 29,345 (2,574,274) (3,121,070) 9,957,714 3,459,495 Steppe Cement Ltd.STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2019 The Group The Company 2019 USD 2018 USD Restated 2019 USD 2018 USD CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES Proceeds from borrowings* 7,834,646 9,363,949 Repayment of borrowings* (9,432,630) (16,732,905) Repayment of lease liabilities* (1,929,741) - - - - - - - Dividends paid Interest paid (8,389,233) (2,959,347) (8,389,233) (2,959,347) (2,036,609) (1,650,182) - - Net Cash Used In Financing Activities (13,953,567) (11,978,485) (8,389,233) (2,959,347) NET INCREASE IN CASH AND CASH EQUIVALENTS EFFECTS OF FOREIGN 3,237,156 3,420,184 238,228 10,585 EXCHANGE RATE CHANGES 57,713 (746,029) - - CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT 5,719,491 3,045,336 23,570 12,985 END OF YEAR (Note 17) 9,014,360 5,719,491 261,798 23,570 45 Annual Report 2019STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 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 2019 Borrowings (Note 20) 11,823,919 (1,597,984) 87,489 10,313,424 Lease liabilities (Note 21) - (1,929,741) 8,427,256 6,497,515 2018 Borrowings (Note 20) 20,029,303 (7,368,956) (836,428) 11,823,919 Lease liabilities (Note 21) - - - - [1] Non-cash movements primarily relates to recognition of leases arising from effect of adoption of IFRS 16, foreign currency exchange differences and accrued interests. The accompanying notes form an integral part of the financial statements. 46 Steppe Cement Ltd.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 12. 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 12. The financial statements of the Group and of the Company have been approved by the Board of Directors and were authorised for issuance on 3 June 2020. 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 revised IFRS New and revised 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 and IFRS Interpretations Committee (“IFRIC”) Interpretation issued by IASB that are mandatorily effective for an accounting period that begins on or after 1 January 2019. IFRS 16 IFRIC 23 Amendments to IFRS 9 Amendments to IAS 19 Amendments to IAS 28 Amendments to IFRSs Leases Uncertainty Over Income Tax Treatments Prepayment Features with Negative Compensation Plan Amendment, Curtailment or Settlement Long-term Interests in Associates and Joint Ventures Annual Improvements to IFRSs 2015 - 2017 Cycle 47 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019The application of these new and amendments to IFRS and IFRIC Interpretation 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 16 as described below. 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, IAS 17. The Group and the Company applied IFRS 16 using the cumulative catch-up approach to lease commitments on 1 January 2019 and elected to adjust the opening balance of retained earnings for any financial impact, if any. The Group and the Company did not restate any comparative information which continue to be presented under IAS 17 and IFRIC 4. (a) Impact of the new definition of a lease The Group and the Company made use of the practical expedient available on transition to IFRS 16 not to reassess whether a contract is or contains a lease. The change in definition of a lease mainly relates to the concept of control. A lease must contain an identifiable asset. IFRS 16 determines whether a contract contains a lease on the basis of whether the customer has the right to control the use of an identified asset for a period of time in exchange for consideration. This is in contrast to the focus on ‘risks and rewards’ in IAS 17 and IFRIC 4. The Group and the Company apply the definition of a lease and related guidance set out in IFRS 16 to all lease contracts entered into or changed on or after 1 January 2019. The new definition in IFRS 16 did not significantly change the scope of contracts that meet the definition of a lease for the Group and for the Company. (b) Impact on lessee accounting IFRS 16 changes how the Group and the Company account for leases previously classified as operating leases under IAS 17, which were off the statement of financial position. Applying IFRS 16 for all leases, the Group and the Company: (i) Recognises right-of-use assets and lease liabilities in the statements of financial position, initially measured at the present value of the future lease payments, with the right-of-use asset adjusted by the amount of any prepaid or accrued lease payments in accordance with IFRS 16:C8(b)(ii); (ii) Recognises depreciation of right-of-use assets and interest on lease liabilities in the statements of profit or loss; and (iii) Separates the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within financing activities) in the statements of cash flows. 48 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 For short-term leases (lease term of 12 months or less) and leases of low-value assets, the Group and the Company have opted to recognise a lease expense on a straight-line basis in profit or loss as permitted by IFRS 16. The Group and the Company have used the following practical expedients when applying the cumulative catch-up approach to measure right-of-use assets at an amount equal to lease liabilities to leases previously classified as operating leases under IAS 17: • Application of a single discount rate to a portfolio of leases with reasonably similar characteristics. • No recognition of right-of-use assets and lease liabilities to leases for which the lease term ends within 12 months of the date of initial application. • Use of hindsight when determining the lease term when the contract contains options to extend or terminate the lease. There are no impact to leases classified as finance leases as the Group and the Company are not lessees to any finance lease contracts that are effective at 1 January 2019. (c) Impact on lessor accounting IFRS 16 does not change substantially how a lessor accounts for leases. A lessor continues to classify leases as either finance or operating leases and account for both types of leases differently. Under IFRS 16, an intermediate lessor accounts for the head lease and the sublease as two separate contracts. The intermediate lessor is required to classify the sublease as a finance or operating lease by reference to the right-of-use asset arising from the head lease (and not by reference to the underlying asset as was the case under IAS 17). The Group and the Company have assessed all operating sublease agreements at 1 January 2019 and no reclassification is necessary as these agreements continue to be classified as operating leases with lease income recognised on a straight-line basis. (d) Financial impact of initial application of IFRS 16 The weighted average lessee’s incremental borrowing rate applied to lease liabilities recognised in the statement of financial position on 1 January is 12.3%. The following table shows the operating lease commitments disclosed applying IAS 17 at 31 December 2018, discounted using the incremental borrowing rate at the date of initial application and the lease liabilities recognised in the Group’s statement of financial position at the date of initial application. Operating lease commitments recognised under IAS 17 at 31 December 2018 Effect of discounting based on incremental borrowing rate USD 10,544,729 (2,175,224) Lease liabilities recognised at 1 January 2019 8,369,505 49 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019The Group recognised right-of-use assets of USD8,369,505 upon transition to IFRS 16 with no impact to retained earnings. In the current financial year, the Group recognised depreciation charges of USD2,285,530 on right-of-use assets as disclosed in Note 11. Since lease liabilities on operating leases are now on the statement of financial position, the Group’s total lease payments of USD2,855,674, representing selling expenses under IAS 17, was debited against lease liabilities. The Group recognised finance costs of USD925,933 in relation to lease liabilities as disclosed in Note 5. There are no changes to the amounts reported in the Company’s statement of financial position as of 1 January 2019 arising from the application of IFRS 16. New and amendments to IFRS in issue but not yet effective IFRS 17 IFRSs Insurance Contracts2 Amendments Framework in IFRS Standards1 to References to the Conceptual Amendments to IAS 1 and IAS 8 Definition of Material1 Amendments to IFRS 3 Definition of Business1 Amendments to IAS 39, IFRS 9 and IFRS 7 Interest Rate Benchmark Reform1 Amendments to IAS 1 Classification of Liabilities as Current or Non-Current3 Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture4 1 2 3 4 Effective for annual periods beginning on or after 1 January 2020, with earlier application permitted. Effective for annual periods beginning on or after 1 January 2021. The IASB has decided on 17 March 2020 that the effective date of the Standard will be deferred to annual reporting periods beginning on or after 1 January 2023. This amendment is expected to be issued in the second quarter of 2020. Effective for annual periods beginning on or after 1 January 2022, with earlier application permitted. Effective for annual periods beginning on or after a date to be determined. The directors anticipate that the abovementioned new and amendments to IFRSs 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. 50 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 3. SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The financial statements of the Group and of the Company have been prepared under the historical cost convention except for the revaluation of land and building made in accordance with IAS 16 Property, Plant and Equipment (Note 10) and financial assets and financial liabilities that are recognised at amortised cost. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group and the Company take into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for the measurement and/or disclosure purposes in these financial statements is determined on such basis. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: • • • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and Level 3 inputs are unobservable inputs for the asset or liability. The principal accounting policies are set out below. Basis of Consolidation The consolidated financial statements incorporate the financial statements of the Company and its subsidiary companies. Control is achieved when the Company: • has the power over the investee; • • has the ability to use its power to affect its returns. is exposed, or has rights, to variable returns from its involvement with the investee; and The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. 51 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including: • the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; • potential voting rights held by the Company, other vote holders or other parties; • • rights arising from other contractual arrangements; and any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings. Consolidation of a subsidiary company begins when the Company obtains control over the subsidiary company and ceases when the Company loses control of the subsidiary company. Specifically, income and expenses and each component of the other comprehensive income of a subsidiary company are included in the consolidated statement of profit or loss and consolidated statement of profit or loss and other comprehensive income respectively from the date the Company gains control until the date when the Company ceases to control the subsidiary company. Where necessary, adjustments are made to the financial statements of subsidiary companies to bring their accounting policies to be in line with those used by other subsidiary companies of the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Changes in the Group’s ownership interests in existing subsidiary companies Changes in the Group’s ownership interests in subsidiary companies that do not result in the Group losing control over the subsidiary companies are accounted for as equity transactions. The carrying amounts of the Group’s interests are adjusted to reflect the changes in their relative interests in the subsidiary companies. When the Group loses control of a subsidiary company, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interests and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary company. All amounts previously recognised in other comprehensive in- come 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. Revenue of the Company represents management fee income, interest and dividend income. 52 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 Sale of cement 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. 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. 53 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019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. Monetary items denominated in foreign currencies are retranslated at the rates prevailing on the end of the reporting period. 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 profit or loss for the year. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in 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 at the end of the reporting period. 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 profit or loss in the year in which the foreign operation is disposed of. Goodwill (if any) and fair value adjustments arising on the acquisition of foreign operations are treated as assets and liabilities of the foreign operation and translated at the closing rate. 54 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 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”) 2019 USD 1.3210 1.1213 0.2443 0.0161 KZT 2018 USD 1.2769 1.1467 0.2418 0.0144 KZT 1 USD 381.18 384.20 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 USD555 per month per employee (2018: USD615) from employee salaries and pays them to the state pension fund. In addition, such pension system provides for calculation of current payments by the employer as a percentage of current total dis- bursements to staff. Such expenses are charged to 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 pen- sion 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 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 end of the reporting period. Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and are accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. 55 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 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 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. Leases The Group has applied IFRS 16 using the cumulative catch-up approach and therefore comparative information has not been restated and is presented under IAS 17. Policies applicable from 1 January 2019 The Group as a lessee The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the lessee uses its incremental borrowing rate. The lease liability comprise monthly fixed lease payments (including in-substance fixed payments), less any lease incentives receivable, presented as a separate line in the statements of financial position. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. 56 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 The Group remeasures the lease liability (and makes a corresponding adjustment to the related right- of-use asset) whenever: • The lease term has changed in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate. • A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification. The Group did not make any such adjustments during the periods presented. The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses. Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset at the commencement date of the lease. The right-of-use assets are presented as a separate line in the statements of financial position. The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the accounting policies on ‘Property, Plant and Equipment’. As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-lease components as a single arrangement. The Group has not used this practical expedient. The Group as lessor Leases for which the Group is a lessor are classified as finance or operating leases. Whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee, the contract is classified as a finance lease. All other leases are classified as operating leases. When the Group is an intermediate lessor, it accounts for the head lease and the sublease as two separate contracts. The sublease is classified as a finance or operating lease by reference to the right-of-use asset arising from the head lease. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term. Amounts due from lessees under finance leases are recognised as receivables at the amount of the Group’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases. When a contract includes lease and non-lease components, the Group applies IFRS 15 to allocate the consideration under the contract to each component. 57 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019Policies applicable prior to 1 January 2019 Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. 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 profit or loss, in which case, the increase is credited to profit or loss to the extent of the decrease previously expensed. A decrease in the carrying amount arising on revaluation of such land and buildings is recognised in 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 58 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 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 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 with indefinite useful lives 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 Other assets 25 years 14 years 20 years 5 - 10 years Depreciation on stand-by equipment and major spare parts begins when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. 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 profit or loss. Mining assets Mining assets comprise quarry stripping costs and site restoration costs relating to quarry used by the Group. (i) Quarry stripping costs The cost of removal of the overburden from the quarry is deferred until the commencement of physical extraction of limestone from the site. Such costs are amortised over the expected life of the quarry from the date of commencement of extraction. 59 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 (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 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 profit or loss unless the relevant asset is carried at a revalued amount in which case the reversal of the impairment loss is treated as a revaluation increase. Inventories Inventories are stated at the lower of cost and net realisable value. Costs comprise direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and the estimated costs necessary to make the sale. 60 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 At the end of each reporting period, 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 recov- ered from a third party, a receivable is recognised as an asset if it is virtually certain that reimburse- ment 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 di- rectly 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. 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 profit or loss. 61 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 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 (in- cluding all fees and points paid or received that form an integral part of the effective inter- est 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 receiv- ables, other receivables (excluding value added taxes), refundable deposits and inter-company indebtedness. (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 the end of each reporting period to reflect changes in credit risk since initial recognition of the respective financial instrument. 62 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 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 end of the reporting period, including time value of money where appropriate. For all other financial instruments such as other receivables and amount owing by subsidiary companies, 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. 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, 12 months 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 end of the reporting period. 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 end of the reporting period 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. Definition of default The Group considers the following as constituting an event of default for internal credit risk management purposes as historical experience indicates that financial assets that meet either of the following criteria are generally not recoverable: (a) when there is a breach of financial covenants by the debtor; or (b) information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Group, in full (without taking into account any collateral held by the Group). 63 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019Credit‑impaired financial assets A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events: (a) significant financial difficulty of the issuer or the borrower; (b) a breach of contract, such as a default or past due event (see (ii) above); (c) the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider; (d) it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or (e) the disappearance of an active market for that financial asset because of financial difficulties. Write off policy The Group writes off a financial asset when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings. Financial assets written off may still be subject to enforcement activities under the Group’s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognised in profit or loss. 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 end of the reporting period. 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. 64 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 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 end of the current reporting period that the conditions for lifetime ECL are no longer met, the Group measures the loss allowance at an amount equal to 12 months ECL at the end of the current reporting period. 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. 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 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. 65 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 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 2019, 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 the end of each reporting period 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. The determination of an asset’s recoverable amount of a CGU involves the use of estimates by management. The recoverable amount and the fair value are typically determined using a discounted cash flow method and takes into consideration reasonable market participant assumptions and broader economic factors such as expected growth in the industry, technological obsolescence, discontinuance of service, current replacement costs and other changes in circumstances. The key assumptions and estimates in the discounted cash flow methods concerning timing of expected cash flows, future sales volume and growth rates, applicable discount rates, useful lives and residual values have a material impact on the fair value and ultimately the amount of any property, plant and equipment impairment. 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 Group accounts for expected credit losses and changes in those expected credit losses at the end of each reporting period to reflect changes in credit risk since initial recognition. The primary factors that the Group considers whether a receivable is impaired is its overdue status, collection history and forward looking macro-economic factors. As of 31 December 2019, loss allowance for doubtful trade receivables amounted to USD626,053 (2018: USD206,330) (Note 15) and on advances paid to third parties amounted to USD334,454 (2018: USD211,668) (Note 16).The Group makes provision for obsolete and slow-moving inventories based on information obtained from annual stock count and the results of inventory turnover analysis based upon past experience and the level of write-offs in previous years. As of 31 December 2019, provision for obsolete and slow moving inventories amounted to USD2,197,359 (2018: USD2,262,085) (Note 14). Provision for Site Restoration The Company’s subsidiary company, CAC JSC, engaged professional consultants with geology and environmental protection expertise to estimate site restoration obligation which may arise from its limestone and clay quarries in accordance with Subsurface Use Contracts and relevant legislations. In arriving at the present value of site restoration obligation, a pre-tax discount rate of 13% (2018: 13%) is used as it reflects current market assessment of the time value of money and the risk specific to site restoration obligation. 66 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 4. REVENUE The Group derives its revenue from the transfer of cement at a point in time. Transmission of electric- ity 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 79,917,889 82,174,174 2019 USD 2018 USD Transmission and distribution of electricity Dividend income Net interest income 12,064 10,496 - - - - 8,678,970 8,389,233 1,236,687 523,610 Total 79,929,953 82,184,670 9,915,657 8,912,843 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. 5. FINANCE COSTS The Group The Company 2018 USD 2019 USD 2018 USD 2019 USD - - 2018 USD - - Interest expenses on: - Bank loans - Lease liabilities Unwinding of discount on provision for site restoration Others Total interest expense for financial liabilities not classified as at FVTPL 2019 USD 868,901 925,933 23,507 242,667 1,484,502 - 8,374 144,958 2,061,008 1,637,834 - - - - - - - - - - 67 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 6. NET FOREIGN EXCHANGE (LOSS)/GAIN The Group The Company 2019 USD 2018 USD 2019 USD 2018 USD Net foreign exchange (loss)/gain (84,400) (1,786,724) (35,941) 26,141 7. PROFIT BEFORE INCOME TAX Profit before income tax includes the following income/(expenses): The Group The Company 2019 USD 2018 USD Restated 2019 USD 2018 USD Depreciation of property, plant and equipment (6,880,944) (7,138,659) Employee benefit expenses (5,091,238) (5,500,332) Depreciation of right-of-use assets (2,285,530) - 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 accrued - (4,654) (1,410) 246,290 (1,566) 41,192 (140,656) (30,925) 118,792 346,533 (36,146) (46,562) (433,412) (168,365) (142,400) (139,979) - - - - - - - - - - - - - - - - - - - - - - - - - 4,855 68 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 8. INCOME TAX EXPENSE The Group The Company 2019 USD 2018 USD 2019 USD 2018 USD Income tax - current year 266,326 75,503 Deferred tax (Note 22) - subsidiary companies 2,569,383 1,668,983 Total 2,835,709 1,744,486 - - - - - - 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. Effective 1 Jan 2019, a Labuan company carrying on Labuan trading activities shall be charged at a tax rate of 3% on the chargeable profits of a Labuan company for the basis period for that year of assessment. The profits earned by the subsidiary companies incorporated in the Republic of Kazakhstan are sub- ject to the prevailing statutory tax rate of 20% (2018: 20%), and Malaysian and Netherland subsidiar- ies are subject to statutory tax rates of 24% (2018: 24%) and 25% (2018: 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: 69 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019The Group The Company 2019 USD 2018 USD Restated 2019 USD 2018 USD Profit before income tax 12,542,100 10,802,719 9,566,759 8,634,070 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 2,308,029 1,138,251 476,952 399,052 23,280 33,524 - 130,048 27,448 43,611 Income tax expense 2,835,709 1,744,486 - - - - - - - - - - - - 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 higher effective tax rate is due to higher level of non- deductible expenses. 70 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 9. EARNINGS PER SHARE Basic and diluted The Group 2019 USD 2018 USD Restated Profit attributable to ordinary shareholders 9,706,391 9,058,233 Number of ordinary shares in issue at beginning and at end of year 219,000,000 219,000,000 2019 2018 Weighted average number of ordinary shares in issue 219,000,000 219,000,000 Earnings per share, basic and diluted (cents) 2019 4.4 2018 4.1 The basic earnings per share is calculated by dividing the profit attributable to shareholders of the Company by the weighted average number of ordinary shares in issue during the financial year. There are no dilutive instruments outstanding for the years ended 31 December 2019 and 2018. 71 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019l a t o T D S U r e h t O s t e s s a D S U n o i t c u r t s n o C s s e r g o r p n i - y b d n a t S t n e m p u q e i j r o a m d n a s t r a p e r a p s D S U D S U y a w l i a R s n o g a w D S U i y r e n h c a M i t n e m p u q e d n a D S U d e t a t s e R D S U D S U s g n d i l i u B l d o h e e r F d n a l d n a d n a l t n e m e v o r p m i p u o r G e h T : i g n w o l l o f e h t f o s t s i s n o c t n e m p u q e i d n a t n a p l , y t r e p o r P I T N E M P U Q E D N A T N A L P , Y T R E P O R P . 0 1 6 2 4 , 7 3 1 5 5 5 , 3 1 1 8 8 9 , 7 3 1 ) 9 8 6 , 8 2 1 ( - 2 7 5 , 4 1 ) 6 9 2 , 9 3 5 , 7 1 ( ) 6 2 7 , 8 8 9 ( ) 6 4 1 , 1 2 6 ( ) 3 7 2 , 4 5 4 ( ) 2 0 9 , 3 1 1 , 1 ( ) 7 9 0 , 7 7 9 , 0 1 ( ) 1 9 0 , 4 9 0 , 3 ( 7 7 7 , 0 4 3 , 2 1 1 6 4 3 , 5 1 6 , 6 5 8 0 , 8 1 5 , 3 7 0 7 , 9 2 9 , 2 0 3 3 , 0 3 1 , 7 0 7 9 , 6 1 4 , 0 7 2 2 9 , 1 7 8 , 9 1 3 0 1 , 3 4 0 2 4 , 6 0 9 - 6 8 2 , 3 5 3 0 1 , 3 4 1 2 4 , 6 2 - - 9 0 5 , 7 3 8 , 2 8 9 6 , 8 7 1 2 1 7 , 7 6 1 8 3 5 , 8 0 0 , 2 3 9 6 , 7 1 ) 9 3 3 , 6 7 4 , 2 ( ) 3 2 2 , 9 7 ( ) 7 1 9 , 8 4 6 ( ) 9 8 4 , 9 4 1 ( - ) 6 8 7 , 9 3 1 ( - - - - - - 6 5 4 , 5 0 5 6 8 1 , 5 2 9 , 1 ) 1 4 4 , 9 5 3 ( ) 1 0 2 ( 4 2 1 , 7 2 1 4 6 6 , 2 6 4 - - - - - - - ) 3 2 0 , 0 4 ( 8 9 0 , 8 3 1 , 3 2 5 5 , 1 3 2 0 5 5 , 7 5 2 ) 9 7 3 , 7 ( - - ) 3 8 4 , 6 2 ( ) 1 6 1 , 6 ( 3 3 5 , 2 6 5 , 2 6 2 2 ) 3 6 6 , 1 9 7 , 2 ( ) 0 9 5 , 6 1 ( - - 7 8 7 , 3 4 3 1 3 0 , 2 5 3 , 2 - 2 7 6 , 8 9 1 2 7 5 , 4 4 6 , 6 2 1 4 9 7 , 8 0 0 , 7 3 7 3 , 0 3 2 , 4 3 3 0 , 9 2 5 , 3 5 1 7 , 0 7 2 , 8 8 3 8 , 9 8 6 , 8 7 1 4 3 , 7 6 7 , 2 2 , 8 7 4 8 4 1 2 , - - - - ) 1 6 0 0 9 2 , , 7 1 4 8 5 8 1 , ( s e c n e r e f f i d e g n a h c x E r e b m e c e D 1 3 t A s e i r o t n e v n i ) o t ( / m o r f n o i t a c fi i s s a c e R l s e i r o t n e v n i ) o t ( / m o r f n o i t a c fi i s s a c e R l s n o i t i d d A s r e f s n a r T s l a s o p s i D 8 1 0 2 8 1 0 2 y r a u n a J 1 t A t s o C s n o i t i d d A s r e f s n a r T s l a s o p s i D 2 7 2 9 8 , 8 7 4 , 5 1 1 3 5 5 , 5 6 8 , 6 8 0 8 , 9 1 1 , 3 9 7 2 , 0 5 7 , 2 2 2 8 , 6 8 1 , 7 5 2 7 , 1 6 0 , 3 7 4 6 5 , 1 2 6 , 0 2 , 1 4 1 3 7 8 1 , r e b m e c e D 1 3 t A 9 1 0 2 8 8 8 , 1 2 2 9 4 , 6 5 4 5 5 , 3 7 5 5 5 0 , 0 6 1 4 2 7 4 1 , s e c n e r e f f i d e g n a h c x E NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 Annual Report 2019Steppe Cement Ltd. l a t o T D S U r e h t O s t e s s a D S U n o i t c u r t s n o C s s e r g o r p n i - y b d n a t S t n e m p u q e i j r o a m d n a s t r a p e r a p s D S U D S U y a w l i a R s n o g a w D S U i y r e n h c a M i t n e m p u q e d n a D S U d e t a t s e R D S U D S U s g n d i l i u B l d o h e e r F d n a l d n a d n a l t n e m e v o r p m i p u o r G e h T 4 7 4 , 9 6 4 , 4 5 7 5 2 , 8 8 3 , 4 ) 8 9 0 , 9 ( ) 9 3 2 , 4 ( 9 5 6 , 8 3 1 , 7 3 0 8 , 1 1 7 ) 3 1 3 , 0 0 9 , 8 ( ) 4 3 8 , 4 6 6 ( 2 2 7 , 8 9 6 , 2 5 7 8 9 , 0 3 4 , 4 4 4 9 , 0 8 8 , 6 4 3 8 , 8 5 4 ) 9 7 7 , 8 5 3 ( ) 0 0 9 , 9 9 ( 8 8 0 , 0 5 4 0 5 9 , 3 3 5 7 9 , 0 7 6 , 9 5 1 7 8 , 3 2 8 , 4 - - - - - - - - - - - - - - - - - - 3 0 4 , 3 2 4 , 1 6 5 0 , 1 6 1 , 4 3 8 5 7 , 6 9 4 , 4 1 ) 9 5 8 , 4 ( 1 6 3 , 7 9 3 - - 5 2 8 , 7 1 2 , 5 0 7 6 , 1 1 8 ) 8 1 3 , 2 3 2 ( ) 9 5 9 , 2 6 9 , 5 ( ) 2 0 2 , 0 4 0 , 2 ( 7 8 5 , 3 8 5 , 1 2 2 9 , 5 1 4 , 3 3 6 2 2 , 8 6 2 , 3 1 9 5 7 , 7 5 3 7 6 2 , 3 6 9 , 4 4 8 0 , 1 0 1 , 1 - 2 3 1 , 4 1 ) 9 0 7 , 8 5 2 ( 9 7 0 , 2 9 2 ) 0 7 1 ( 7 2 9 , 9 0 1 8 7 4 , 5 5 9 , 1 9 5 5 , 2 1 4 , 8 3 7 6 0 , 9 7 4 , 4 1 - - - - - - - - - 7 1 9 , 7 0 8 , 5 5 2 8 6 , 1 4 0 , 2 8 0 8 , 9 1 1 , 3 9 7 2 , 0 5 7 , 2 4 4 3 , 1 3 2 , 5 6 6 1 , 9 4 6 , 4 3 7 9 4 , 2 4 1 , 6 , 1 4 1 3 7 8 1 , s e s s o l t n e m r i a p m i d n a i n o i t a c e r p e d l d e t a u m u c c A 8 1 0 2 y r a u n a J 1 t A r a e y e h t r o f e g r a h C s l a s o p s i D s e c n e r e f f i d e g n a h c x E 8 1 0 2 r e b m e c e D 1 3 t A r a e y e h t r o f e g r a h C s l a s o p s i D s e c n e r e f f i d e g n a h c x E 9 1 0 2 r e b m e c e D 1 3 t A 9 1 0 2 r e b m e c e D 1 3 t A l e u a V k o o B t e N 5 5 0 , 2 4 6 , 9 5 9 5 3 , 4 8 1 , 2 5 8 0 , 8 1 5 , 3 7 0 7 , 9 2 9 , 2 3 4 7 , 6 4 5 , 5 8 4 0 , 1 0 0 , 7 3 6 9 6 , 3 0 6 , 6 7 1 4 , 8 5 8 , 1 8 1 0 2 r e b m e c e D 1 3 t A 3 7 ] 3 [ l e v e l a s i i h c h w , y t i l i c a f n o i t c u d o r p a s i y t r e p o r p e h t s a , d o h t e m s w o fl h s a c d e t n u o c s i d e h t o t e c n e r e f e r y b t a d e v i r r a s a w s g n d i l i u b f o n o i t a u a V l . h c a o r p p a . y h c r a r e h e u a v l i r i a f e h t n i t n e m e r u s a e m e m o c n i d n a t s o c i l t n e m e c a p e r d e t a c e r p e d n o d e s a b r e u a v l l a n o i s s e f o r p t n e d n e p e d n i n a y b 5 1 0 2 t s u g u A 1 3 n o d e u a v e r e r e w s g n d i l l i u b d n a d n a L NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 Annual Report 2019Steppe Cement Ltd. 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 USD8,015,638 as of 31 December 2019 (2018: USD8,462,113). 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 2019 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 2019 USD 2018 USD 212,399 818,481 210,724 1,096,489 During the current financial year, management of the subsidiary companies performed an impairment test on the cement manufacturing facilities and right-of-use assets collectively 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 2020 to December 2024; • • derivation of terminal value based on Nil growth beyond the 5 year forecast period with average annual growth rate in EBITDA across the forecast period at 4.3%; and • discount rate of 17.31% was applied. As of 31 December 2019, property, plant and equipment of a subsidiary company (Karcement JSC) with a cost and net book value of USD24,915,935 and USD10,750,160 (2018: USD24,708,337 and USD12,247,879) respectively is pledged to secure the Facility B loan from Halyk Bank JSC (Note 20). 74 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 As at 31 December 2019, property, plant and equipment of a subsidiary company (Karcement JSC) with a cost and net book value of USD6,689,543 and USD3,947,505 (2018: USD6,636,960 and USD4,370,424) respectively are pledged as collateral for the government-subsidised loan (Note 20). As of 31 December 2019, the cost of property, plant and equipment that is fully depreciated amounted to USD2,033,966 (2018: USD1,080,666). 11. RIGHT-OF-USE ASSETS The Group Railway wagons Buildings USD USD Total USD Cost At 1 January 2019 Arising from adoption of IFRS 16 Exchange differences - 8,334,669 66,034 - 34,836 276 - 8,369,505 66,310 At 31 December 2019 8,400,703 35,112 8,435,815 Accumulated depreciation At 1 January 2019 Charge for the year Exchange differences - (2,278,538) (10,102) - (6,992) (31) - (2,285,530) (10,133) At 31 December 2019 (2,288,640) (7,023) (2,295,663) Carrying amount At 31 December 2019 6,112,063 28,089 6,140,152 Amount recognised in profit or loss: Interest expense on lease liabilities Expense relating to short-term leases Total cash outflow for leases The Group USD 925,933 1,563,704 1,929,741 The Group relies on railway wagons for delivery of finished goods to customers. The Group and the Company did not enter into any low value asset leases or variable lease payment arrangements during the current financial year. The lease terms, including extensions, are 5 years for buildings and 2 to 4 years for railway wagons respectively. 75 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 201912. INVESTMENT IN SUBSIDIARY COMPANIES Unquoted shares, at cost Net investment in a subsidiary company Less: Accumulated impairment loss The Company 2019 USD 37,242,408 2,955,360 40,197,768 (4,000,001) 2018 USD 30,500,002 - 30,500,002 (4,000,001) Net 36,197,767 26,500,001 Loan that is part of net investment represents amount receivable from a subsidiary which is non- trade, unsecured and is interest-free. The settlement of the amount is neither planned nor likely to occur in the foreseeable future as it is the intention of the Company to treat this amount as a long- term source of capital to the subsidiary company. As this amount is, in substance, a part of the Com- pany’s net investment in the subsidiary, it is stated at cost less accumulated impairment loss, if any. 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 2019 % 2018 % Malaysia 100 100 Malaysia 100 100 Netherlands 100 100 Investment holding company Provision of consultancy services Investment holding company Direct Subsidiary Companies Steppe Cement (M) Sdn. Bhd. Mechanical & Electrical Consulting Services Ltd. (“MECS Ltd”) Indirect Subsidiary Companies Held through Steppe Cement (M) Sdn. Bhd.: Steppe Cement Holdings B.V. (“SCH BV”) 76 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 Place of incorporation (or registration) and operation Proportion of ownership interest and voting power held Principal activities 2019 % 2018 % Indirect Subsidiary Companies Held through SCH BV: 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 Sale of cement Production and sale of cement Transmission and distribution of electricity 13. OTHER ASSETS The Group The Company 2019 USD 2018 USD 2019 USD 2018 USD VAT recoverable - non-current Quarry stripping costs Site restoration costs Site restoration fund Others Total 2,068,579 1,869,721 193,740 33,321 131,298 - 192,218 34,464 106,840 216 2,426,938 2,203,459 - - - - - - - - - - - - 77 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019Quarry stripping costs Quarry stripping costs comprised of stripping cost and site restoration cost. Stripping cost represented costs removing the overburden related to the expansion of the existing quarry. The overburden removal work began in 2009 and continued as necessary up to 31 December 2019. 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 2019 USD 192,218 1,522 - - 2018 USD 219,508 (29,160) 6,524 (4,654) At end of year 193,740 192,218 Site restoration costs 2019 USD 2018 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. 78 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 14. INVENTORIES The Group The Company 2019 USD 2018 USD 2019 USD 2018 USD Finished goods Work-in-progress Spare parts Raw materials Packing materials Construction materials Goods held for resale Fuel Others Total 3,812,649 5,678,962 632,491 403,895 5,118,941 6,958,196 1,501,745 1,435,747 585,944 411,062 5,646 48,835 21,722 23,217 48,860 22,075 1,280,928 661,366 13,008,901 15,643,380 Less: Provision for obsolete inventories (2,197,359) (2,262,085) Net 10,811,542 13,381,295 The movements in the provision for obsolete inventories are as follows: - - - - - - - - - - - - - - - - - - - - - - - - The Group The Company 2019 USD 2018 USD 2019 USD 2018 USD At beginning of year Exchange differences Provision for obsolete inventories Reversal of provision for obsolete inventories (2,262,085) (2,907,854) (17,920) 345,798 (36,146) (46,562) 118,792 346,533 At end of year (2,197,359) (2,262,085) - - - - - - - - - - As of 31 December 2019, inventories of USD4,424,634 (2018: USD5,301,411) were pledged to se- cure the Halyk Bank JSC working capital facilities (Note 20). 79 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 15. TRADE AND OTHER RECEIVABLES The Group The Company 2019 USD 2018 USD 2019 USD 2018 USD Trade receivables Less: Loss allowances 5,659,381 (626,053) 2,970,882 (206,330) Net 5,033,328 2,764,552 Other receivables: VAT recoverable - Current Receivables from related party Receivables from employees Others Dividend receivable Interest receivable 239,092 91,286 - 51,526 87,492 505,612 30,668 487,190 - - - - - - - - - - - - - - - - - - 8,678,970 8,389,233 168,952 494,723 Total 5,790,278 3,500,468 8,847,922 8,883,956 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 2019 USD (206,330) (1,634) 2018 USD (45,563) 6,151 Add: Impairment losses (433,412) (168,365) Less: Write-offs 15,323 1,447 At end of year (626,053) (206,330) 2019 USD 2018 USD - - - - - - - - - - 80 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 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 end of the reporting period: The Group Days past due 2019 Not past due <180 days 181-270 days 271-360 days 1-2 years >2 years > 3 years 2018 Not past due <180 days 181-270 days 271-360 days 1-2 years >2 years > 3 years Expected credit loss rate Gross carrying amount at default USD 1,676,723 1,162,556 559,332 630,466 1,419,891 133,064 77,349 5,659,381 1,540,913 962,330 254,159 5,651 82,881 109,131 15,817 1% 5% 10% 20% 33% 66% 100% 1% 5% 10% 20% 33% 66% 100% Lifetime ECL USD 165,347 85,928 74,508 86,004 43,772 93,145 77,349 626,053 15,383 48,116 25,416 1,130 27,350 73,118 15,817 2,970,882 206,330 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 at the end of the reporting period. There has been no change in the estimation techniques or significant assumptions made during the current reporting period. None of the trade receivables that have been written off is subject to enforcement activities. 81 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019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 maintenance of a production line. Refundable customs duties represent customs duties levied on the import of property, plant and equipment for the refurbishment project. 16. ADVANCES AND PREPAID EXPENSES The Group The Company 2019 USD 2018 USD 2019 USD 2018 USD 2,073,202 2,215,502 (334,454) (211,668) 1,738,748 2,003,834 1,738,748 2,003,834 (5,992) (191,242) 1,732,756 1,812,592 - - - - - - - - - - - - 1,950,140 499,942 15,944 6,704 Advances paid to third parties Less: Provision on advances paid to third parties Net 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 3,682,896 2,312,534 15,944 6,704 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 the useful life of the refractory bricks and bag filters when consumed. The balance of the deferred ex- penses will be amortised over the next 6 to 8 months of production. 82 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 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 Less: Write-offs 2019 USD (211,668) (1,677) 2018 USD (82,878) 11,189 (142,400) (139,979) 21,291 - At end of year (334,454) (211,668) 17. CASH AND CASH EQUIVALENTS 2019 USD 2018 USD - - - - - - - - - - The Group The Company 2019 USD 2018 USD 2019 USD 2018 USD Cash in hand and at banks 1,939,857 2,882,427 261,798 23,570 Short-term deposits 7,074,503 2,837,064 - - Total 9,014,360 5,719,491 261,798 23,570 18. SHARE CAPITAL The Group and the Company 2019 USD 2018 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 83 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 19. RESERVES Revaluation reserve Revaluation reserve represents the reserve arising from the revaluation of land and buildings of subsidiary companies (CAC JSC and Karcement JSC) performed by an independent valuation appraiser. Translation reserve Exchange differences arising from the translation of assets and liabilities of foreign subsidiary companies are recognised in other comprehensive income and accumulated in the translation reserve. 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 dividend of GBP0.03 (2017: GBP0.01) per ordinary share of no par value each amounting to GBP6,570,000 (USD8,389,233) in respect of financial year ended 31 December 2018 (2017: GBP2,190,000 (USD2,959,347)). Dividends proposed after reporting period The board of directors of the Company proposed a final dividend of GBP0.03 per ordinary share of no par value each amounting to GBP6,570,000 (USD8,678,970) in respect of the financial year ended 31 December 2019. 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 2020. The dividends have not been recognised as a liability as at 31 December 2019. 84 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 20. BORROWINGS Secured - at amortised cost Bank loans Bank loans: Current Non-current Details of bank loans are as follows: The Group 2019 USD 2018 USD 10,313,424 11,823,919 6,420,573 3,892,851 5,217,009 6,606,910 10,313,424 11,823,919 Halyk Bank JSC: Facility B Halyk Bank JSC government subsidised facility for capital expenditure Halyk Bank JSC for working capital Altyn Bank JSC for working capital Accrued interest Total outstanding Currency Maturity month Interest rate The Group 2019 USD 2018 USD USD November 2021 6.5% p.a. 4,131,746 6,092,889 KZT August 2022 6% p.a. 806,068 1,074,656 KZT KZT KZT KZT June 2025 6% p.a. 511,798 584,050 September to November 2025 February to March 2020 6% p.a. 1,453,290 1,721,273 6% p.a. 1,041,773 - June 2020 11% p.a. 2,361,089 2,342,530 7,660 8,521 10,313,424 11,823,919 85 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 Halyk Bank JSC facilities 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. The facility is secured against property, plant and equipment with a net book value of USD10,750,160 (2018:USD12,247,879) (Note 10). As at 31 December 2019, no further amounts are available for drawdown from Facility B. Halyk Bank JSC working capital facilities During the financial year, a subsidiary company signed short-term agreements with JSC Halyk Bank of Kazakhstan for working capital requirements of KZT397 million (equivalent of USD1,042,000) under the government programs bearing an interest rate of 6% per annum. The short-term borrowing was fully drawn and in repayable in February 2020 (KZT283 million) and March 2020 (KZT 114 million) respectively. The facility is secured against inventories of USD4,424,634 (2018: USD5,301,411) (Note 14). As of 31 December 2019, all working capital facilities of USD6.8 million with Halyk Bank JSC are available for drawdown. 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. 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 USD1,500,000) carries a subsidised fixed interest rate of 6% per annum. The loan is used for capital expenditure with maturity period of 5 years and secured against property, plant and equipment with a net book value of USD3,947,505 (2018: USD4,370,424) (Note 10). No further amounts are available for drawdown from this facility. The government-subsidised loans are initially recognised at fair value at interest rate of 14% per annum, and subsequently carried at amortised cost (Note 23). 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 carried a fixed interest rate of 11% per annum and matured on 17 June 2019. The facility was fully drawn and renewed on 31 December 2019, maturing on 30 June 2020. 86 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 21. LEASE LIABILITIES Operating leases analysed as: Non-current Current Balance as at 31 December The Group 2019 USD 4,306,929 2,190,586 6,497,515 2018 USD - - - The following table shows the maturity profile of the undiscounted operating lease payments and the effects of discounting on the lease liabilities at 31 December 2019: The Group 2019 USD 2018 USD Maturity analysis: Year 1 Year 2 Year 3 Less: Future finance charges 2,868,338 2,441,076 2,438,773 7,748,187 (1,250,672) 6,497,515 - - - - - - 87 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 Balance as at 1 January Increase arising from adoption of IFRS 16 Payment of lease liabilities Finance costs (Note 5) Exchange differences Balance as at 31 December The Group 2019 USD - 8,369,505 (2,855,674) 925,933 57,751 6,497,515 2018 USD - - - - - - The incremental borrowing rate was 12.3%. All leases are on a fixed repayment basis and no arrangements have been entered for contingent rental payments. 22. DEFERRED TAXES The Group The Company 2019 USD 2018 USD 2019 USD 2018 USD At beginning of year Exchange differences Recognised in profit or loss (Note 8) (2,054,758) (637,777) (27,400) 252,002 (2,569,383) (1,668,983) At end of year (4,651,541) (2,054,758) - - - - - - - - 88 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 Movement in net deferred tax assets/(liabilities) of the Group is as follows: Opening balance Exchange rate differences Recognised in profit or loss USD USD USD Closing balance USD 2019 Temporary differences: Property, plant and equipment Inventories Trade receivables Accrued unused leaves Tax losses Payables Others Total 2018 Temporary differences: Property, plant and equipment Inventories Trade receivables Accrued unused leaves Tax losses Payables Others (6,365,666) (48,576) 451,749 41,265 19,035 3,767,061 53,709 (21,911) 3,506 696 419,072 (16,457) 83,250 139 (2,774) 16,457 (3,019,772) 343 35 (18,706) (13,996) (5,995,170) 438,798 125,211 16,400 763,746 35,346 (35,872) (2,054,758) (27,400) (2,569,383) (4,651,541) (7,576,369) 1,001,466 395,012 11,826 (70,117) (5,133) 209,237 126,854 34,572 (6,365,666) 451,749 41,265 8,805 (2,490) 12,720 19,035 6,436,251 (664,045) (2,005,145) 3,767,061 78,218 8,480 (6,397) (1,282) (18,112) (29,109) 53,709 (21,911) Total (637,777) 252,002 (1,668,983) (2,054,758) 89 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019The tax losses for which no deferred tax assets have been recognised are as follows: Tax losses for which no deferred tax assets have been recognised 23. DEFERRED INCOME The Group The Company 2019 USD 2018 USD 2019 USD 2018 USD 226,000 198,795 - - The Group The Company 2019 USD 2018 USD 2019 USD 2018 USD Deferred income Less: Amount due within 12 months 1,502,755 1,629,508 (81,387) (138,566) Non-current 1,421,368 1,490,942 Movement of deferred income are as follows: - - - - - - The Group The Company 2019 USD 2018 USD 2019 USD 2018 USD At beginning of year Exchange differences Additions Recognised in profit or loss At end of year 1,629,508 1,519,487 11,819 (200,929) 107,718 (246,290) 352,142 (41,192) 1,502,755 1,629,508 - - - - - - - - - - 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 20). It represents the difference between the initial carrying amount of the loan measured at fair value using interest rate of 14% per annum and the proceeds received, and is amortised to profit or loss as other income over the useful lives of the related assets. As at 31 December 2019, the related assets in the amount of USD1,595,396 were put into use (2018: USD903,361). During financial year, the Group recognised USD246,290 (2018: USD41,192) in profit or loss as other income on a straight-line basis over the useful lives of these related assets. 90 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 24. TRADE AND OTHER PAYABLES The Group The Company 2019 USD 2018 USD 2019 USD 2018 USD Trade payables Other payables Amount due to related parties Others Total 3,346,081 3,865,015 2,831,208 2,724,420 9,875 16,289 5,432 19,737 6,203,453 6,614,604 - - - - - - - - The credit period granted by creditors ranges from 1 to 30 days (2018: 1 to 30 days). 25. ACCRUED AND OTHER LIABILITIES The Group The Company 2019 USD 2018 USD 2019 USD 2018 USD Accrued directors’ fees 117,662 1,024,069 117,662 1,024,069 Advances from customers 776,822 1,126,169 Accrued salaries Accrued unused leave Others Total 294,792 74,248 141,599 237,957 95,169 199,205 - - - - - - 38,161 34,326 1,405,123 2,682,569 155,823 1,058,395 91 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 201926. TAXES PAYABLE The Group The Company 2019 USD 2018 USD 2019 USD 2018 USD Corporate income tax 12,955 16,538 Other taxes: VAT payable Royalties Emission taxes Pension fund Personal income tax Property tax Social Others Total 27. RELATED PARTIES 225,072 122,916 109,987 21,412 33,076 - 28,359 6,276 839,232 139,461 136,398 16,921 28,738 54,193 25,337 11,307 560,053 1,268,125 - - - - - - - - - - - - - - - - - - - - Related parties include shareholders, directors, affiliates and entities under common ownership (which the Group has the ability to exercise a significant influence). Other related parties include entities which are controlled by a director, which a director of the Group has ownership interests and exercises significant influence. Receivable from/(payable to) related parties and other related parties, which arose mainly from trade transactions and expenses paid on behalf, is unsecured, interest-free and is repayable on demand. Balances and transactions between the Company and its subsidiary companies, which are related parties of the Company, have been eliminated on consolidation. Loans and advances to subsidiary companies of the Company are unsecured, interest-free and are repayable on demand except for loan to a subsidiary company of USD30,170,000 which bears inter- est at 8% per annum repayable by year 2033. 92 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 The transactions between related parties and the Group included in the statement of profit or loss and the statement of financial position are as follows: Other related parties Office rental Programming services Purchase of services 2019 USD 9,403 13,037 Payable to related parties 2019 USD 2018 USD 14,645 - 2018 USD Other related party Office rental 9,875 5,432 The following transactions and balances of the Company with subsidiary companies are included in the statement of profit or loss and the statement of financial position of the Company: Subsidiary companies Nature of transactions 2019 USD 2018 USD Steppe Cement (M) Sdn. Bhd. Dividend income 8,678,970 8,389,233 Karcement JSC Interest income 2,121,687 803,610 MECS Ltd. Interest income assigned 885,000 280,000 93 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 Subsidiary companies Nature of transactions Receivable from subsidiary companies 2019 USD 2018 USD Karcement JSC Intercompany loans 30,170,000 30,210,000 Karcement JSC Interest income 168,952 494,723 MECS Ltd. Advances and manage- ment fees 79 6,694,437 Steppe Cement (M) Sdn. Bhd. Advances 2,955,360 2,899,888 Total 33,294,391 40,299,048 Compensation of key management personnel The remuneration of directors and other members of key management are as follows: The Group The Company 2019 USD 2018 USD 2019 USD 2018 USD Short-term benefits 751,760 773,485 100,000 100,000 The remuneration of directors and key executives is determined by the remuneration committees of the Company and subsidiary companies having regard to the performance of individuals and market trends. The directors’ remuneration in the Company is as follows: Director fees Executive director: Javier del Ser Perez Non-executive directors: Xavier Blutel Rupert Wood Total 94 The Company 2019 USD 2018 USD 30,000 30,000 40,000 30,000 100,000 40,000 30,000 100,000 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 28. FINANCIAL INSTRUMENTS Categories of financial instruments Financial assets At amortised cost: Trade and other receivables Cash and cash equivalents Financial liabilities At amortised cost: Trade and other payables Accrued and other liabilities Borrowings Lease liabilities The Group 2019 USD 2018 USD 5,551,186 9,014,360 3,409,182 5,719,491 6,203,453 628,301 10,313,424 6,497,515 6,614,604 1,556,400 11,823,919 - The Company 2019 USD 2018 USD Financial assets At amortised cost: Loans and advances to subsidiary companies 30,170,079 39,804,325 Cash and cash equivalents 261,798 23,570 Financial liability At amortised cost: Accrued and other liabilities 155,823 1,058,395 95 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019Capital Risk Management The Group’s capital risk management objectives are to maximise value to shareholders and to ensure that the Group’s subsidiary companies will continue to operate as a going concern through optimisation of debt and equity balance. The Group’s capital structure consists of net debt (which comprise of borrowings as detailed in Note 20 offset by cash and cash equivalents) and equity attributable to the shareholders of the Group. Equity attributable to the shareholders of the Group includes share capital, reserves and retained earnings. The Group monitors and reviews its capital structure based on its business and operating requirements. 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. 96 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 : l w o e b d e t n e s e r p e r a r e b m e c e D 1 3 f i o s a s e c n e r r u c n g e r o i f n i s e i t i l i b a i l l i a c n a n fi d n a s t e s s a l i a c n a n fi s ’ y n a p m o C e h t f o d n a s ’ p u o r G e h t f o s t n u o m a g n y r r a c e h T i s i s y l a n a y t i v i t i s n e s y c n e r r u c i n g e r o F l a t o T D S U B U R R Y M R U E P B G p u o r G e h T 9 1 0 2 1 0 1 , 0 4 3 , 1 1 3 8 , 5 3 3 , 1 - 0 2 0 5 0 , 1 0 0 2 , 3 l s t n e a v u q e i t e s s A l i a c n a n F i h s a c d n a h s a C 3 0 3 , 3 7 - 6 4 7 , 1 3 1 , 4 6 4 7 , 1 3 1 , 4 - - 2 6 4 , 0 7 2 , 1 5 7 3 , 0 5 8 7 6 4 , 7 7 - - 3 5 6 , 2 3 - - 0 2 6 , 2 4 3 - - 0 5 6 , 0 4 s e i t i l i b a i l r e h t o d n a d e u r c c A l s e b a y a p r e h t o d n a e d a r T i s g n w o r r o B 8 1 0 2 s e i t i l i b a L i l i a c n a n F i 1 4 8 , 2 3 4 , 2 1 9 2 , 1 0 4 , 2 3 1 9 , 1 1 0 2 8 7 9 3 5 , 9 1 l s t n e a v u q e i t e s s A l i a c n a n F i h s a c d n a h s a C 7 9 0 1 6 , 8 0 9 9 4 8 , 8 9 3 , 1 0 4 1 , 1 0 1 , 6 - 0 4 1 , 1 0 1 , 6 - - 9 2 2 , 5 5 8 2 6 3 , 4 1 1 - - 0 7 4 , 7 3 - - 8 5 2 , 9 2 4 - - 0 4 1 , 1 7 8 s e i t i l i b a i l r e h t o d n a d e u r c c A l s e b a y a p r e h t o d n a e d a r T i s g n w o r r o B s e i t i l i b a L i l i a c n a n F i NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 Annual Report 2019Steppe Cement Ltd. The Company 2019 Financial Asset Cash and cash equivalents Financial Liability Accrued and other liabilities GBP EUR MYR Total 702 77 10 789 40,650 - 29,355 70,005 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 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. 98 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 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. The Group USD GBP EUR MYR RUB The Company GBP EUR MYR (ii) Credit Risk Impact on profit or loss and equity Impact on profit or loss and equity 2018 911,070 170,320 85,836 7,490 20,490 2018 170,320 (16) 7,490 2019 729,258 7,490 68,314 6,527 15,493 2019 7,990 (15) 5,869 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 ob- ligations. 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. 99 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019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 2019, CAC JSC’s short-term loan of USD6.8 million with Halyk Bank JSC is available for drawdown. 100 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 7 8 1 , 8 4 7 , 7 3 5 4 , 3 0 2 , 6 1 0 3 , 8 2 6 - - - 1 0 1 1 7 7 , 4 7 0 , 7 2 9 5 6 , 2 7 8 0 7 9 , 7 0 2 , 0 1 6 8 1 , 1 3 6 , 0 1 9 8 8 , 0 8 4 , 3 7 6 0 , 2 8 8 , 1 - - 4 2 8 , 7 1 0 , 3 7 0 1 , 1 5 2 , 2 2 2 5 , 4 3 9 6 2 8 , 6 8 1 0 7 4 , 0 1 5 0 0 , 1 3 4 - - 0 3 8 , 4 9 4 , 2 1 9 5 6 , 2 7 8 1 2 1 , 8 2 3 , 5 2 8 2 , 5 7 2 , 5 6 5 2 , 1 4 7 9 4 8 , 9 7 8 , 4 4 5 2 , 1 5 1 , 2 6 5 0 , 8 7 4 2 1 5 , 7 7 2 8 2 0 , 9 3 2 % 7 1 . 7 % 4 3 . 2 1 l a t o T r e t a e r G n a h t s r a e y 5 s r a e y 5 - 1 r a e y 1 - s h t n o m 3 s h t n o m 3 1 - h t n o m 1 n a h t s s e L e g a r e v a d e t h g e W i e t a r t s e r e t n i . s w o fl h s a c l i a p c n i r p d n a e h t n o d e s a b d e r a p e r p s i l e b a t e h T . y n a p m o C e h t f o d n a p u o r G e h t f o s e i t i l i b a i l l i a c n a n fi e v i t a v i r e d - n o n e h t f o s m r e t l a u t c a r t n o c s t c e fl e r k s i R i y t i d u q L i n o l s e b a T l e b a t g n w o i l l o f e h T . y a p o t d e r i u q e r e b n a c y n a p m o C e h t d n a p u o r G e h t i h c h w t a e t a d t s e i l r a e e h t f o s i s a b e h t n o s e i t i l i b a i l l i a c n a n fi e v i t a v i r e d - n o n n o s w o fl h s a c d e t n u o c s i d n u t s e r e t n i h t o b s e d u c n l i l e b a t e h T l s e b a y a p r e h t o d n a e d a r T g n i r a e b t s e r e t n i - n o N s e i t i l i b a i l r e h t o d n a d e u r c c A g n i r a e b t s e r e t n I p u o r G e h T 9 1 0 2 s e i t i l i b a i l e s a e L i s g n w o r r o B NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 Annual Report 2019Steppe Cement Ltd. l a t o T r e t a e r G n a h t s r a e y 5 s r a e y 5 - 1 r a e y 1 - s h t n o m 3 s h t n o m 3 1 - h t n o m 1 n a h t s s e L e g a r e v a d e t h g e W i e t a r t s e r e t n i - 4 0 6 , 4 1 6 , 6 0 0 4 , 6 5 5 , 1 - - - - - - - - - 3 0 0 , 1 4 0 , 3 0 0 2 , 4 6 1 , 1 9 9 0 , 6 5 1 0 1 , 6 3 3 4 2 9 , 1 5 4 , 2 7 7 6 , 1 2 1 , 1 2 4 7 , 5 4 4 , 4 2 3 9 0 , 2 8 7 , 1 1 9 0 , 1 8 1 , 8 1 6 9 , 4 8 4 , 9 4 0 1 , 7 5 2 , 3 3 9 4 , 0 4 7 , 1 3 2 8 , 5 5 1 - 5 9 3 , 8 5 0 , 1 - - - 5 0 0 , 0 4 1 - 8 1 8 , 5 1 3 5 9 , 4 4 0 , 1 0 9 3 , 1 2 5 0 , 2 1 - - - - - 8 3 7 , 4 7 2 , 6 1 3 9 0 , 2 8 7 , 1 1 9 0 , 1 8 1 , 8 8 5 7 , 9 7 2 , 5 1 8 0 , 9 4 7 5 1 7 , 2 8 2 % 6 9 . 6 s e i t i l i b a i l r e h t o d n a d e u r c c A l s e b a y a p r e h t o d n a e d a r T g n i r a e b t s e r e t n i - n o N g n i r a e b t s e r e t n I s e i t i l i b a i l e s a e L i s g n w o r r o B 8 1 0 2 s e i t i l i b a i l r e h t o d n a d e u r c c A g n i r a e b t s e r e t n i - n o N s e i t i l i b a i l r e h t o d n a d e u r c c A g n i r a e b t s e r e t n i - n o N 8 1 0 2 y n a p m o C e h T 9 1 0 2 2 0 1 . s t n e m e e r g a n a o l n i s m r e t t n e m y a p e r o t g n d r o c c a y a p e r o t i t c e p x e y n a p m o C e h t d n a p u o r G e h t s t n u o m a t n e s e r p e r s g n w o r r o b r o i f e v o b a d e d u c n l i s t n u o m a e h T . s t n e m e e r g a n a o l e h t f o s t n a n e v o c l i a c n a n fi e h t h t i w e c n a i l p m o c n i e r a y n a p m o C e h t d n a p u o r G e h t , d n e r a e y l i a c n a n fi t a s A NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019Annual Report 2019Steppe Cement Ltd. 5 2 6 , 9 3 9 , 8 5 3 7 , 4 7 6 8 1 , 1 5 5 , 5 6 4 5 , 5 6 5 , 4 1 2 6 7 , 5 9 8 , 2 9 2 7 , 3 2 8 , 2 2 8 1 , 9 0 4 , 3 3 7 6 , 8 2 1 , 9 3 0 1 - - - - - - - - n o d e s a b d e r a p e r p s a w l e b a t e h T . y n a p m o C e h t f o d n a p u o r G e h t f o s t e s s a l i a c n a n fi e v i t a v i r e d - n o n f o s e i t i r u t a m d e t c e p x e s t c e fl e r l e b a t i g n w o l l o f e h T w o fl h s a c e h t t c e p x e y n a p m o C e h t d n a p u o r G e h t n e h w t p e c x e , s t e s s a e s e h t n o d e v e c e r i t s e r e t n i i g n d u c n l i , s t e s s a l i a c n a n fi f o s m r e t l a u t c a r t n o c d e t n u o c s i d n u . d o i r e p t n e r e f f i d a n i l a t o T r e t a e r G n a h t s r a e y 5 s r a e y 5 - 1 r a e y 1 - s h t n o m 3 s h t n o m 3 1 - h t n o m 1 n a h t s s e L e g a r e v a d e t h g e W i e t a r t s e r e t n i g n i r a e b t s e r e t n I p u o r G e h T 9 1 0 2 5 2 6 , 9 3 9 , 8 % 6 5 . 7 l s t n e a v u q e i h s a c d n a h s a C - - - - - - 6 4 0 , 6 1 4 , 1 5 8 2 , 9 2 0 , 1 1 1 4 , 9 7 0 , 1 4 4 4 , 6 2 0 , 2 6 4 0 , 6 1 4 , 1 5 8 2 , 9 2 0 , 1 1 1 4 , 9 7 0 , 1 4 0 8 , 0 4 0 , 1 1 5 3 7 , 4 7 - - l s t n e a v u q e i h s a c d n a h s a C g n i r a e b t s e r e t n i - n o N l s e b a v e c e r i r e h t o d n a e d a r T g n i r a e b t s e r e t n I 8 1 0 2 - - - - - - 0 3 8 , 7 0 2 6 6 3 , 6 5 3 , 2 0 9 9 , 5 8 2 6 9 9 , 8 5 5 0 3 8 , 7 0 2 6 6 3 , 6 5 3 , 2 0 9 9 , 5 8 2 7 8 4 , 8 7 2 , 6 2 6 7 , 5 9 8 , 2 % 7 8 . 7 l s t n e a v u q e i h s a c d n a h s a C 9 2 7 , 3 2 8 , 2 - - l s t n e a v u q e i h s a c d n a h s a C g n i r a e b t s e r e t n i - n o N l s e b a v e c e r i r e h t o d n a e d a r T NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 Annual Report 2019Steppe Cement Ltd. 4 1 7 , 3 5 2 9 7 4 8 0 , 8 - - - - - - - - - 9 6 0 , 6 1 4 , 2 6 3 5 4 , 4 4 0 , 0 5 8 9 3 , 8 8 8 , 9 8 1 2 , 3 8 4 , 2 6 4 9 , 7 7 6 , 2 6 3 5 4 , 4 4 0 , 0 5 8 9 3 , 8 8 8 , 9 8 1 2 , 3 8 4 , 2 4 0 1 3 3 3 , 3 2 - 7 3 2 - 7 9 7 , 9 4 6 , 9 0 6 3 , 5 5 9 , 2 - - - - - - 6 1 0 , 5 0 9 , 4 6 1 1 9 , 7 1 5 , 2 5 8 5 1 , 8 9 8 , 9 7 4 9 , 8 7 4 , 2 3 8 3 , 8 7 5 , 4 7 1 7 2 , 3 7 4 , 5 5 8 5 1 , 8 9 8 , 9 7 4 9 , 8 7 4 , 2 - - - - - - - - - - 9 7 4 8 0 , 8 7 7 8 , 1 6 2 - - - 4 1 7 , 3 5 2 % 0 0 . 8 % 5 2 . 1 7 3 2 7 3 4 , 4 9 6 , 6 7 0 0 , 8 2 7 , 6 - - 0 0 0 , 0 1 3 3 3 , 3 2 % 0 0 . 8 % 1 9 . 1 l a t o T r e t a e r G n a h t s r a e y 5 s r a e y 5 - 1 r a e y 1 - s h t n o m 3 s h t n o m 3 1 - h t n o m 1 n a h t s s e L e g a r e v a d e t h g e W i e t a r t s e r e t n i o t s e c n a v d a d n a s n a o L i s e n a p m o c i y r a d i s b u s g n i r a e b t s e r e t n I y n a p m o C e h T 9 1 0 2 l s t n e a v u q e i h s a c d n a h s a C l s t n e a v u q e i h s a c d n a h s a C g n i r a e b t s e r e t n i - n o N o t s e c n a v d a d n a s n a o L i s e n a p m o c i y r a d i s b u s o t s e c n a v d a d n a s n a o L i s e n a p m o c i y r a d i s b u s g n i r a e b t s e r e t n I 8 1 0 2 l s t n e a v u q e i h s a c d n a h s a C g n i r a e b t s e r e t n i - n o N o t s e c n a v d a d n a s n a o L i s e n a p m o c i y r a d i s b u s l s t n e a v u q e i h s a c d n a h s a C NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019Annual Report 2019Steppe Cement Ltd. (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 2019 and 2018, 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 and lease liabilities 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. The fair values of the lease liabilities are estimated by discounting expected future cash flows at the Group’s incremental borrowing rate. As of 31 December 2019 and 2018, the fair values of borrowings approximate their carrying values, except for the following: Fair value Carrying amount 2019 USD 2018 USD 2019 USD 2018 USD Borrowings 4,775,951 6,848,589 4,651,204 6,685,460 105 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019The fair values of the borrowings with Halyk Bank JSC were included in the Level 2 of fair value hier- archy, as the fair values had been determined in accordance with generally accepted pricing models based on a discounted cash flow analysis with the most significant inputs being the discount rate that reflects the credit risk of the Group. The discount rate used in the fair value calculation was 4.1% per annum (2018: 5.5% per annum). 29. CAPITAL COMMITMENTS The Group has outstanding amount of contractual commitments for the acquisition of property, plant and equipment of USD1,068,012 as at 31 December 2019 (2018: USD1,985,463). 30. 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. 31. SUBSEQUENT EVENTS (a) Starting from early 2020 a new coronavirus disease (COVID-19) has begun rapidly spreading all over the world resulting in announcement of the pandemic status by the World Health Organization in March 2020. Responses put in place by many countries to contain the spread of COVID-19 are resulting in significant operational disruption for many companies and have significant impact on global financial markets. As the situation is rapidly evolving it may have a significant effect on business of many companies across a wide range of sectors, including, but not limited to such impacts as disruption of business operations as a result of interruption of production or closure of facilities, supply chain disruptions, quarantines of personnel, reduced demand and difficulties in raising financing. The Group’s primary business is an essential service which remain operational throughout the movement restriction period implemented in the Republic of Kazakhstan which ended on 11 May 2020. The Group considers this outbreak to be a non-adjusting subsequent event as at 31 December 2019. The Group abides by the requirements as activated by respective governments which includes reduced manufacturing activities and workforce social distancing measures. In light of the rapidly evolving situation at the date these financial statements are authorised for issue, the directors of the Group and of the Company considered that it is not practicable to quantify the potential financial effect of the outbreak on the Group’s and the Company’s financial statements. Nevertheless, the Group and the Company are monitoring the COVID-19 outbreak development closely and will continue to adhere to the relevant health and safety guidance provided by the relevant authorities in an effort to contain the spread of the epidemic. 106 Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 (b) The Republic of Kazakhstan produces and exports large volumes of oil and gas, its economy is particularly sensitive to the price of oil and gas on the world market. In March 2020 oil prices dropped for more than 40%, which resulted in immediate weakening of Kazakhstani Tenge against major currencies. The Group is exposed to volatility in Kazakhstani Tenge as its cement manufacturing activ- ities are closely correlated to the economy of the Republic of Kazakhstan. The directors of the Group and the Company monitor the currency movement and implemented measures to support the sustainability and development of the Group’s business in the foreseeable future which includes, but not limited to, conserving cash placed in US Dollar bank accounts and obtain financing facilities in Kazakhstani Tenge. CAC JSC’s short-term loan of USD6.8 million with Halyk Bank JSC is available for drawdown. 32. COMPARATIVE FIGURES In the previous financial year, excess depreciation charges pertaining to certain machinery and equipment of the Group were charged to profit and loss. The following accounts in the prior year have been adjusted retrospectively to reflect the effects of the accounting changes and related exchange differences: As previously reported Adjustments USD USD As restated USD Statement of financial position at 31 December 2018 Property, plant and equipment 54,611,723 Translation reserve Retained earnings (116,266,492) 96,112,997 5,030,332 2,407,814 2,622,518 59,642,055 (113,858,678) 98,735,515 Statement of profit or loss for the year ended 31 December 2018 Cost of sales Profit for the year Statement of profit or loss and other comprehensive income for the year ended 31 December 2018 (46,871,195) 8,924,453 133,780 133,780 (46,737,415) 9,058,233 Other comprehensive loss (9,525,368) Total comprehensive loss for the year (600,915) 80,038 213,818 (9,445,330) (387,097) 107 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 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 2019 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 3 June 2020 108 Steppe Cement Ltd.NOTICE OF THE 2020 AGM NOTICE IS HEREBY GIVEN that the 2020 ANNUAL GENERAL MEETING of the Company will be held online at the office of Steppe Cement Ltd, Suite 10.1, 10th Floor, West Wing, Rohas Perkasa, 8 Jalan Perak, Kuala Lumpur, Malaysia on Wednesday, 8 July 2020 at 4.00 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 2019. 2. FIRST AND FINAL DIVIDEND FOR THE FINANCIAL YEAR ENDED 31ST DECEMBER 2019 RESOLUTION 2 To approve the payment of First and Final Dividend of GBP 0.03 per ordinary share of no par value each in respect of the financial year ended 31 December 2019. 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 BY ORDER OF THE BOARD TMF Secretaries Limited Corporate Secretary Labuan F.T., Malaysia 109 Annual Report 2019Notes: 1. 2. 3. 4. A member of the Company entitled to attend and vote at this meeting is entitled to appoint a proxy to appoint and vote instead of him. The instrument appointing a proxy shall be produced at the place appointed for the meeting before the time for holding the meeting at which the person named in such instrument proposes to vote. The instrument appointing a proxy shall be in writing under the hand of the appointer, unless the appointer, is a corporation or other form of legal entity other than one or more individuals holding as joint owners, in which case the instrument appointing a proxy shall be in writing under the hand of an individual duly authorised by such corporation or legal entity to execute the same. Copies of the proxy form and form of instruction are available at the UK Registrar Computershare Investor Services PLC, The Pavilions, Bridgwater Road BS13 8AE. 110 Steppe Cement Ltd.111 Annual Report 2019STEPPE CEMENT LTD (Corporate Office) Suite 10.1, 10th Floor Rohas Perkasa, West Wing No.8, Jalan Perak 50450 Kuala Lumpur Malaysia Tel: +(603) 2166 0361 Fax: +(603) 2166 0362 www.steppecement.com 

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