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
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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
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NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 Annual Report 2019Steppe Cement Ltd.
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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
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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
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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