Plant Location In Kazakhstan
2
Steppe Cement Ltd. Contents
04 Financial Highlights
05 Operational and Market Data
06 Financial Data
07 Corporate Information
08 Chairman’s Statement
10 CEO’s Statement
14 Group Structure
15 Board Of Directors
16 Senior Management Karcement JSC & CAC JSC
Corporate Governance Statement
18 Chairman Statement on Governance
21 Corporate Governance
26 Nomination Committee Report
27 Audit Committee Report
30 Financial Statements
104 Statement by a Director
105 Notice of Annual General Meeting
Annual Report 2020
3
3
Annual Report 2020 Financial Highlights
30.5
30.9
28.3
21.4
17.9
82.2
79.9
74.8
65.8
52.4
2016 2017 2018 2019 2020
Revenue (KZT Billion)
2016 2017 2018 2019 2020
Revenue (USD Million)
24.2
23.9
21.4
11.6
9.7
2016 2017 2018 2019 2020
EBITDA* (USD Million)
Excluding foreign exchange gain/ losses
arising on devaluation of the Tenge.
*
11.1
9.7
9.1
1.2
0.2
2016 2017 2018 2019 2020
Profit after Tax (USD Million)
62.9
61
59.5
58
#
58
2016 2017 2018 2019 2020
Shareholders Funds (USD Million)
#
After distribution of USD11.5 million dividends in 2020
4
Steppe Cement Ltd. Operational and Market Data
15.8
14.9
13.3
10.9
9.6
39
39
38
33
28
2016 2017 2018 2019 2020
2016 2017 2018 2019 2020
Ex-factory price (KZT’000)
Ex-factory price (USD)
1.72
0.22
1.71
0.16
1.63
0.07
1.57
0.05
1.52
1.56
1.50
1.55
1.64
0.20
1.44
2016 2017 2018 2019 2020
Sales volume (million tonnes)
EXPORT
DOMESTIC
413
383
345
326
342
2016 2017 2018 2019 2020
Average exchange rates
(USD/KZT)
9.4
9.0
9.0
8.9
8.6
2016 2017 2018 2019 2020
Market Size (million tonnes)
90
90
87
86
76
2016 2017 2018 2019 2020
Cement capacity utilisation (%)
Annual production capacity of 1.9 million.
5
Annual Report 2020 Financial Data
Data
2016
2017
2018
2019
2020
Gross profit margin (%)
30
30
Profit after tax margin (%)
Net earnings / (Loss) per share (cents)
Return on shareholders funds (%)
0
0
0
2
2
0.6
4
NTA Per Share (cents per share)
27
27
43
11
15
28
42
12
4
15
29
43
15
5
19
26
Shares data
Number of shares issued (million)
219
219
219
219
219
6
6
Steppe Cement Ltd.
Steppe Cement Ltd.
Corporate Information
Listing
Nominated Advisor
London Stock Exchange AIM, London
Since 15 September 2005
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
RFC Ambrian Limited
Level 34, Grosvenor Place Tower,
225 George Street
Sydney NSW 2000
Australia
and
L48 Central Park
152-158 St Georges Terrace
Perth WA 6000
Australia
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 2020
7
7
Annual Report 2020 CHAIRMAN’S
STATEMENT
Unexpected resilience of construction sector
during a challenging period
When the first signs of the pandemic reached
Kazakhstan the Board and Management of your
group of companies immediately took whatever
emergency measures possible
the
necessary health protections were in place. It also
held the view that the boat would sail in rough
waters but would demand extreme attention and
preparation.
to ensure
One year later, at the time of writing this letter and with
the financial results now fully available, the outcome
has been better than were initially feared. Before
anything else, I must express here all my gratitude
to our management and employees in Kazakhstan:
They persevered despite the severe illness suffered
by several of them who caught the virus. Several
employees and managers were particularly affected,
and we proposed all possible assistance to our local
personnel in terms of testing, paying for vaccination,
enforcing social distancing at the workplace. Our
Technical Manager had to be flown by chartered
plane at the company’s initiative to his home country
of India in an emergency repatriation. From there,
as soon as he could, he monitored and directed
very effectively the production and ensured a
smooth and effective running of the Aktau factory.
The Marketing Director, also COVID-19 positive
and weakened, succeeded in remotely servicing
our customers, ensuring distribution and logistics
in the most efficient way. When foreign expatriates
were offered to return to their home country during
8
the pandemic our Finance Director, a Malaysian
national, elected to remain in Kazakhstan throughout
the whole year. It is not possible to name here all
the staff and employees who demonstrated their
commitment and would deserve individual citations.
Their constant commitment has truly been a one-of-
a-kind testimony of their loyalty to the company.
My corporate governance statement details how
we led the company during this troubled period,
and how the Board did its best to support the most
affected or vulnerable among its employees.
Unparalleled professional dedication under a
committed management in constant contact with the
Board allowed the company to reap most benefits of
several unexpected positive factors:
Construction in Kazakhstan
The construction activity remained well supported
in 2020 in Kazakhstan. Public finance, directly or
indirectly, is the key driver for the building sector
in general. The Government of Kazakhstan had
at wherewithal to support and even stimulate
construction to avoid harsh social consequences,
minimize losses in employment and confront the
global recessionary climate. Quoting the World Bank,
with a real GDP contraction of 2.6%, “the fallout of the
COVID-19 pandemic has hit the economy more than
the crises in 2008 and 2015. The pandemic halted
global activity in the second quarter of 2020, and
depressed global demand and price of oil, which is
Kazakhstan’s main export commodity. In April 2020,
the average oil price dropped to $21 barrel, the
lowest in the last two decades.” The oil and service
segments of the economy were indeed the most
affected. From 5.2% in 2019 inflation has reached an
average of 6.8%, affecting households’ food budget.
The anti-crisis package of the Government included
cash support and subsidized lending which had
some real positive impact on private construction.
Substantial public infrastructure and social projects
were launched or maintained.
Steppe Cement Ltd.
The resilience of the construction sector against this
depressed background materialized into a fair level
of cement consumption, which reached 9.4 million
tons in 2020 against 8.9 in 2019. Over the last twenty
years only in 2015 did we enjoy a higher demand at
9.6 million.
producer if one factors in financing costs. It is
operated under a lean and efficient organization. Its
central position in the core of its customer base, and
its vicinity to major material and energy sources like
coal, fly ash and gypsum are major advantages in a
business where too high transportation and logistics
costs can disqualify the most efficient player.
Exports of cement: 2020 and outlook
Neighbouring Uzbekistan experienced a significant
growth in cement consumption which benefitted the
cement factories present in South Kazakhstan. As new
capacities are now coming on stream in Uzbekistan,
it is expected that the Southern producers will seek
replacement for their lost sales in the Almaty region,
an important secondary market for Steppe Cement.
Imports:
Traditional foreign suppliers are Russian high-cost
producers in the North and West, and, for several
years now, low-cost Iranian producers in the West and
South West. A ban on imports imposed on the latter
provided well needed volumes and improved selling
prices to the sole factory located near the Caspian
Sea; they could sell out their entire production
capacity in the vicinity with high margins. However,
sooner or later, we expect to see this ban lifted and
additional pressure applied on some of our markets,
either directly or by ripple effect.
Supply/demand balance:
The demonstrated production capacity of the whole
industry in Kazakhstan reached 10.5 million tons in
2020. Two additional competitors started operating
at capacity. We foresee that total Kazakhstan
production will reach 12 million tons by 2022. Save
for exceptional infrastructure projects, domestic
demand is unlikely to exceed 10 million tons, or 526
kg per capita, which can be considered a sustainable
level equivalent to Morocco, Egypt or Vietnam, all
countries at similar stage of development in terms
of GDP per capita. This stands much above mature
markets like the USA or EU countries. Central Asian
countries still generally lack main infrastructure,
proper housing as well as commercial or office
buildings.
We believe that exports will in the medium term
comfortably exceed imports into Kazakhstan by
a volume of 1.3 million tons per annum at best.
Resumption of imports from Iran is the most
immediate threat.
Record financial performance and sound balance
sheet
The Chief Executive Officer’s report covers the
financial results of 2020 in more depth. It explains
the events and actions underlying these results.
Volumes at 1.65 million tons were lower than the
1.71m realized in 2019 (–3.1%) due to a limited
availability of our finishing mills during the high
season. Measures were taken to avoid similar under-
performances in the future.
This loss in volume was more than outweighed by
better prices and a reduction in production costs by
some 3%. Our investments will allow the company
to reach a more optimal product mix by increasing
further the share of bagged cement in our total sales,
in line with the trends in consumption. Providing
higher margins and reaching new types of customers,
it has already surged from around 150,000 tons in
2017 to more than half a million in 2020.
Operating profit improved by 12% against 2019,
reaching USD16 million, or 21% of revenues from
18% the previous year. The EBITDA, at USD24 million
(USD24 million in 2019), at 32% of revenues (30%
in 2019), places the company in the top league of
profitability among cement producers operating in
competitive markets. We believe it can be sustained.
And so, what about the future?
The Board has and will explore continuously
the alternatives offered to reward shareholders
either by a sustained dividend pay-out or, if new
opportunities arise, by proposing growth and value
creation associated with ‘well targeted / well priced’
acquisitions.
In the meantime, a limited combination of cash
flow and debt will be carefully directed towards
maintaining or replacing production assets to keep
them at the highest standard and undertaking small
or medium size short-return projects in productivity,
quality, capacity, and efficiency. Like in the past,
all necessary attention will be given to regulatory
requirements and ecological performance.
This overall picture leads us to expect a continuously
competitive pressure in the future years. In this
context your company will keep its lead against
weaker competitors. It is today the lowest cost
Xavier Blutel
Chairman of the Board
9
Annual Report 2020 CEO’S
STATEMENT
In 2020, our cost of production per tonne in KZT
decreased by 3%.
Steppe Cement operated both lines at 85% of their
current combined capacity (which is 1.1 million
tonnes for line 5 and 0.85 million tonnes for line 6).
I would like to thank all of our staff in Kazakhstan
that showed incredible resilience in spite of all
public health challenges and limitations. Our factory
continued to work almost normally and this is only
thanks to our employees and their commitment to
the future of the company.
In 2020, Steppe Cement posted a net profit of
USD11.1 million. Steppe Cement’s EBITDA increased
to USD 24.2 million from USD23.9 million in 2019 as
higher prices in KZT, lower cost of production and
the implementation of IFRS 16 were balanced by a
devaluation of 8%.
The overall domestic cement market increased by
6% to 9.4 million tonnes, while our sales volume
decreased slightly. Our local sales decreased by 6%
due to milling limitations during two months of the
high season, while exports increased by 20% in line
with the market.
10
“Capital investment in 2020 was directed to
the improvement of packing and to reduce
power consumption. We managed to invest
less than USD1 million in investment capex
due to the Covid-19 restrictions mostly
during the summer of 2020 as we didn’t
have a full team of engineers in place, but we
executed our planned maintenance capex of
USD2 million. “
Shareholders’ funds decreased to USD57.9 million
from USD62.9 million due to currency devaluation
and after dividend distribution to shareholders. The
replacement cost of the Company’s assets remains
many times higher than their current book value.
Despite the impact of Covid-19, the Kazakh cement
market in 2020 increased to 9.4 million tonnes (6%)
from 2019. Imports into Kazakshtan decreased by
13% to 0.6 million tonnes equivalent to 6% of the
total market, mostly due to the ban on imports from
Iran. Exports from local producers increased by
22% to 2 million tonnes mostly to Uzbekistan and
Kyrgyzstan.
Steppe Cement Ltd.
Key financials
Year ended
31-Dec-2020
Year ended
31-Dec-2019
Inc/
(Dec)%
Sales (tonnes of cement)
1,645,744
1,715,761
Consolidated turnover (KZT million)
30,958
30,534
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)
74.8
13.1
11.1
5.1
57.9
413
421
79.9
12.5
9.7
4.4
62.9
383
381
(4)
1
(6)
5
14
14
(8)
(8)
10
The Kazakh cement market increased by 6% in 2020 and we expect a modest increase in 2021
The market demand in 2021 seems strong despite
the effects of COVID-19 temporary lock downs. We
expect a potential increase of 2-4% as oil prices have
recovered and the government stimulus packages
continue.
Exports, mostly to Uzbekistan were increased as
demand in the Tashkent area remained strong and
the companies located in the south of Kazakhstan
to
continued
Uzbekistan by Kazakh operators will be reduced
once the new factories built in Uzbekistan become
operational, most likely in late 2021.
to benefit. Volumes exported
Steppe Cement’s average cement selling prices
increased by 6% in KZT, but decreased by 3% in
USD, to USD 45.4 per tonne delivered.
Production and costs
Line 5 produced 938,074 tonnes of cement while
Line 6 produced 707,670. Line 5 had two planned
maintenance stops during the year and L6 performed
as planned, but further improvements are expected
in 2021 when we expect production is excess of 1.75
million tonnes.
Cost per tonne decreased by 3% in KZT due to saving
on electricity and coal, partly offset by increases
repairs and maintenance.
The average cash production cost of cement was
reduced to USD19/tonne due to cost savings and
currency depreciation.
We expect the coal price to be maintained in 2021.
Selling expenses, reflecting mostly cement delivery
costs, were maintained at USD8/tonne, due to
higher export volumes (+20%) and transportation
cost inflation.
Selling expenses, reflecting mostly cement delivery
costs, were maintained at USD8/tonne, due to higher
export volumes (+20%) and transportation inflation.
Other income increased significantly due to the
write-back of a payable of USD 1 million previously
written down as well as the write-back of deferred
income from the government subsidied loans.
General and administrative expenses
increase
General and administrative expenses
increased
to USD6.2 million from USD5.6 million in 2019.
for
The
doubtful debts and withholding tax of USD0.4
million on transfers from Karcement to the holding
company, Steppe Cement
is due to higher provision
11
Annual Report 2020
CEO’s Statement
Labour and Covid-19
On 31 March 2021, the labour count stood at 781
from 751 in 2020. The difference is mostly due to
the increased proportion of bagged cement on our
product mix with subcontractors replaced by our
own staff.
To prevent the spread of Covid-19 we took standard
measures: temperature checking at the entry gates
of the factory, masks and distribution of information
and advice to all workers. We also made testing
available to all workers who wished to be tested
and in 2021 we have facilitated vaccination to those
willing to take it, with this option still being offered.
During 2020, the government provided different
statistics about the number of deceased due to
Covid-19 or pneumonia without a clear distinction
between the two. We had three employees that died
in 2020 of which two had comorbidities although only
one was recognised officially as a victim of Covid-19.
In 2021, we had an additional casualty but he was
not based in the factory as he had a sales position
in Almaty.
Capital investment slowed down but will increase
in 2021 and 2022
Capital investment in 2020 was directed to the
improvement of packing and to reduce power
consumption. We managed to invest less than USD1
million in investment capex due to the Covid-19
restrictions mostly during the summer of 2020 as we
didn’t have a full team of engineers in place, but we
executed our planned maintenance capex of USD2
million. We managed to complete the following
projects:
- Pan conveyor replacement;
- Cooler EP fan system replacement;
- Cooler static head fan system; and
- Automatic bag feeder (commissioned in
March 2021)
In the fourth quarter of 2020, we purchased through
a 6% subsidized loan a new fleet of 70 boxed wagons
for transportation of bagged cement. We borrowed
KZT0.8 billion before the end of the year and an
additioal KZT0.4 billion in February 2021 when the
wagons arrived in the factory. We will use this small
fleet year-round and we will rent between 200-250
additional box wagons during the high season. This
operation is similar to the 330 bulk wagons that
12
we bought in 2014. The return on these wagons is
higher than the cost of funds.
In addition, in 2021 we plan to increase investment
capex to at least USD3 million to compensate for the
lower capex in 2020 while we expect maintenance
capex to be smaller. The projects will include:
-
-
-
-
-
-
-
a new XRF (X-ray analyser) for the laboratory
to improve clinker quality and stability;
slag drier filter and automation for ecological
reasons;
an automatic bag feeder to reduce labour
cost and increase bagged cement;
a new Schenck coal dosing system, to better
control the feed to the preheater in line 6;
coal mill ducting modifications to increase
coal milling capacity;
railway line extension purchase to save trans-
portation fees; and
cement mill separators that will allow us to
increase the amount of additives as well as
control the cement finess. This project will be
carried over 2022.
Effects of application of IFRS 16 in the accounts
The application of IFRS 16 in our accounts continues
to affect the accounting of the rental of wagons
that Steppe Cement does not actually own. Some
wagons are rented for more than two years and the
accounting standard that we started to implement
in 2019 requires us to account for a new non-current
asset called “right-of-use assets” evaluated in 2020
at USD 3.5 million vs USD 6.1 million in 2019 (the
Steppe Cement Ltd. Long-term loans were reduced from USD3.9 million
to USD2.4 million. Of this reduction USD1.5 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
reduced to 5% per annum.
Our short term loans and current part of the long
term loans decreased from USD6.4 million in 2019
to USD4.4 million in 2020, while the cash position
at the end of the year was slightly decreased from
USD9 million to USD8.2 million.
In 2020, finance costs decreased to USD1.2 million
from USD2.1 million in 2019. Without operating
lease interest of USD0.6 million under IFRS 16, the
finance cost was USD0.6 million of which USD0.4
million was interest on loans.
The KZT had a very bumpy ride against the USD,
devaluing from 380 to 430 KZT/USD during the
beginning of the Covid crisis and following the drop
of oil prices. It then strengthened back to 400 by the
beginning of the summer and devalued to 430 by
the winter. The average rate for the year was 413.
We maintain short term credit lines available as stand
by:
- KZT 1 billion in a government subsidized pro-
gram in KZT at 6% p.a.
- KZT 2 billion from Halyk Bank at 6% p.a. in
USD or 13% in KZT.
- KZT 0.9 billion from Altyn Bank at 12% p.a.
in KZT.
All covenants under the various credit lines have
been met comfortably.
lease contracts have already been accounted for one
year). The amount will be reduced yearly until these
contracts are renewed and it may increase again
depending on the renewal terms. The corresponding
entries in the liabilities are called lease liabilities
seggregated between non-current at USD2.1 million
in 2020 vs USD4.3 million in 2019 and current of
USD1.8 million vs USD2.2 million in 2019.
The selling expenses have been reduced to USD13
million while the corresponding lease finance cost
has been calculated at USD0.6 million increasing the
financial expenses but less than in 2019 when they
were increased by USD0.9 million.
Without IFRS 16 accounting, the finance expenses
would have been USD0.6 million and the selling
expenses USD 13.5 million. Consequently, the gross
profit has been reduced by USD 0.1 million.
The EBITDA has been
increased due to the
recognition of the depreciation of right-of-use
assets. Without this depreciation, the EBITDA
for 2020 would have been USD22.1 million.
Depreciation of property, plant and equipment
remained the same at USD6.9 million for 2020 and
2019.
Financial position: Debt has all been repaid apart
from the subsidised lines.
During the year, our total loans outstanding were
reduced from USD10.3 million to USD6.8 million,
the majority of these loans have very favourable
subsidized rates in KZT. The company ended the year
with a net cash position of USD1.4 million, excluding
IFRS 16 leases.
Steppe Cement’s effective income tax rate has
decreased to 15%. The statutory corporate income
tax rate remains at 20% in Kazakhstan.
Javier del Ser Perez
Chief Executive Officer
13
Annual Report 2020
Group Structure
Steppe
Cement (M)
Sdn Bhd
(Malaysia)
100%
100%
Steppe
Cement
Holdings B.V.
(Netherlands)
Mechanical and
Electrical
Consulting Services
Ltd
(Malaysia)
100%
Central
Asia Services
LLP
(Kazakhstan)
100%
Karcement
JSC
(Kazakhstan)
Central
Asia Cement
JSC
(Kazakhstan)
100%
100%
14
Steppe Cement Ltd.
Board Of Directors
Xavier Blutel, 66, 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
ItalcementiGroup 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, 55, 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, 50, 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). He is a
Board Advisor at Adtones, the mobile advertising technology platform.
15
Xavier Blutel
(Non-Executive Chairman)
Javier Del Ser Perez
(Chief Executive Officer)
Rupert Wood
(Non-Executive Director)
Annual Report 2020 Senior Management
MANAGEMENT AND STAFF OF CENTRAL ASIA CEMENT JSC
General Director : Peter Durnev
A graduate of Academy Marketing Moscow. He has worked in CAC for about 20 years rising from marketing
executive to his present position. He also holds the position of Marketing Director.
Finance Director: Derek Kuan Boon San
Derek Kuan is a member of Malaysian Institute of Certified Public Accountants (MICPA). He started his career
as an articled student with a local accounting firm in Kuala Lumpur and presently has over 30 years of audit
and commercial working experience. Before joining CAC, he held a position of Finance Director based in
Liberia, after having spent 9 years in Jakarta and 3 years in Singapore. His expertise encompasses audit,
financial reporting, internal control procedures, corporate finance and investment evaluation.
Chief Accountant : Zilya Khasanova
She holds a bachelor degree in accounting and audit from the Karagandy Economical University of
Kazpotrebsouz and has worked for 25 years in the cement industry.
Personnel Manager : Irina Poluychik
An economist by qualification. She specializes in human resources matters. She has been with CAC for 32
years.
16
Steppe Cement Ltd. 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.
Srinivasa Reddy, Maintenances Head
A Mechanical Engineer from India and a graduate from the National Institute of Technology, Warngal
with strong academics. He joined us in 2008 with 19 years of dry process cement plants experience. His
experience includes Greenfield projects execution with latest art of technology built in machinery, plant
operation, maintenance and optimization. He had vast experience in vertical mills, ball mills and modern
kilns. He also worked in plant upgradation projects in his career. Before joining us, he was working with
Holcim (ACC Limited, India) in plant operation, maintenance and optimization of 1 MTPA plant. Apart from
maintenance he had expertise in production and process optimization.
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 bachelor’s 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 2020 Chairman Statement on Governance
We are pleased to present our 2020 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. Chairman Statement on Governance
Dear Shareholders
2020 will be long remembered as one of the most
challenging years for the whole of humanity from
health, economic, social, and individual perspectives.
For many the situation continues to worsen even
in Q2 2021. For Steppe Cement it created, like
for all companies, the most challenging test for
our business and, in respect of this report, for the
resilience and adaptability of our governance and
control processes.
The Board of Directors which is composed of two
independent directors, including its Chairman, and
of the CEO, also a substantial shareholder, held its
first meeting physically in Paris in January 2020.
On March 17, when it became clear that travel would
be banned or too risky for a long period of time,
the Directors held their first videoconference Board
Meeting. After the January 15 board meeting in
Paris, five other formal Board meetings took place
by Zoom (April 13 and 24, July 7, August 28,
September 24).
Besides this, numerous calls between directors took
place to tackle urgent situations or monitor and
guide our marketing and manufacturing strategies.
The uncertainties created by the global health
crisis led the Board to keep a tight rein on the
management, as well as to support them as much as
possible from a distance. This close communication
helped your Company to reap the benefits of
unexpectedly favourable market conditions despite
the circumstances.
Moreover, to comply with the regulations for
companies incorporated in Malaysia, a physical
meeting took place on October 28 with two
Alternate Directors, Messrs Gan Chee Leong and
Charles Tingey, both residents in Malaysia, and
acting on behalf of Messrs Javier del Ser and Rupert
Wood respectively, whilst the Chairman attended
by videoconference. The appointment of these
Alternate Directors was duly announced to the
London Stock Exchange by a public announcement
released on October 1, 2020.
On July 8, 2020, our Annual General Meeting was
held in Kuala-Lumpur and by Zoom with a high
turnout of 70.16 %. The Board was re-elected at the
unanimity of the votes. It also re-elected me as its
Non-Executive Chairman.
The CEO and Directors answered various investors
by phone or e-mail. All in-person gatherings were
cancelled for obvious reasons.
The virus did not spare the Management and
employees of our operational subsidiary CAC in
Kazakhstan. All expatriate managers or experts,
save our Finance Director, elected to return to their
home country, India, or Malaysia. It must be said
that the Company had to organize repatriation in
India of the General Director of Production, who
suffered severe symptoms after having caught the
virus: administrative formalities and the chartering
of a dedicated airplane were swiftly organized. The
Board is particularly grateful to George Ramesh
who, despite his condition continuously monitored
and directed the production of your factory in Aktau
remotely, before returning on site in 2021 in good
condition. Recognition is also due for the dedication
of Piotr Durnev, also strongly affected, but who kept
leading the marketing and distribution activities with
the utmost attention, and Derek Kuan, our Finance
Director, seriously affected by the virus. All other
staff and employees also deserve their share of
recognition and the excellent financial performance
of 2020 would not have been possible without their
constant commitment in what was a very adverse
environment.
Understandably two technical managers from India
decided to leave the Company and stay with their
family. They are now successfully replaced by local
hires or internal promotion, which happily reduces
the factory dependency on foreign support.
Since the traditional site visits by independent Board
Directors could not be held several videoconferences
were held with the management. A full-time internal
auditor hired in Malaysia and supported by the
19
Annual Report 2020 Chairman Statement on Governance
former General Manager, Mr Gan Chee Leong who
resides in Kuala Lumpur made detailed investigations
and checks in the most sensitive areas and in 2021
moved for several months to Aktau for interviews and
field controls. The Chairman of the Audit Committee
develops this additional process further in a separate
section of this report. Despite the heavy workload
and the effects of catching the illness, the Managers
were able to report clearly on their activities and
the quality of their presentations and answers to
questions were extremely useful to the Board.
I am also pleased to report that 2020 did not reveal
any lack of compliance with any legal requirements,
real or artificially created, nor did CAC experience
any new claim or litigation whatsoever. Pending
cases are progressing towards a close. The fact that
employment and compensation were maintained
in an area where opportunities do not abound,
and salaries paid during sick leave periods beyond
normal practice did contribute to uplifted goodwill
towards the factory from local stakeholders.
Regular contacts were maintained between the
Directors forming the Audit Committee and the
external auditors from Deloitte to facilitate and
guarantee an effective preparation and processing
of the financial and accounting information which
provides a fair and reliable reflection of the
Company’s performance. Due consideration was
given to the dividend policy which is in effect since
the long-term debt was fully repaid and major
capital expenditures completed successfully. Future
long term investment needs were assessed with
great attention: in our cyclical and capital-intensive
industry the Board takes the prudent approach
of maintaining the free cash-flows expected after
dividend pay-out at a level allowing to maintain or
repair the equipment to keep in its best condition.
Some combination of cash and debt is also allocated
each year to a reasonable number of fast-return
projects improving the efficiency or the overall
profitability of the Company.
The Company also ensures that its operational risks
are effectively managed. The Audit Committee took
the responsibility of launching and monitoring a
Risk Register. Definitions and processes are close
to complete in early 2021 and the register will be
built and shared with the CEO and operational
management. It is expected that the identification and
implementation of the material risks, the various risk
prevention and protection measures will thereafter
be approached in a structured manner, reducing
the number of situations where individual reactivity
and crisis management, for all their merits, are the
only answer to an adverse event. The Company is
progressing well on this path.
Xavier Blutel
Chairman of the Board
20
Steppe Cement Ltd. Corporate Governance
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.
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.
•
Independent non-executive Directors - at least
two independent non-executive Directors, one
of whom may be the Chairman.
• Establishment of Audit, Remuneration and
Nomination Committees and that Audit and
Remuneration Committees should comprise at
least two independent non-executive Directors.
• Re-election of Directors - All Directors should
be submitted to re-election at regular intervals
subject to continued satisfactory performance of
the Directors.
• Dialogue with shareholders - there should be
a dialogue with shareholders based on mutual
understanding of objectives.
• Matters reserved for the Board - there be a
formal schedule of matters specifically reserved
for the Board’s decision.
• Timely information - the Board should be
supplied with timely information to discharge its
duties.
• Review of internal controls annually. The review
should encompass all material controls including
financial, operational and compliance controls
and risk management systems
The application of the principles of the QCA code by
Steppe Cement are published on Steppe Cement’s
website.
BOARD OF DIRECTORS
The Board’s primary objective is to protect and
enhance long-term shareholders’ value. The Board
is responsible for:
The QCA has published a set of corporate governance
guidelines for as a minimum standard to follow for
companies, such as those listed on AIM, which adopt
the QCA. The QCA guidelines are less rigorous
than the Combined Code and recommendations,
examples of which include the following:
•
•
formulating the Group’s strategic direction and
major policies;
review performance of the Group and monitor
the achievement of management’s goals;
• Separation of Chairman and Chief Executive
Officer (CEO) roles -both roles should not be
performed by the same individual.
• approval of the Group’s financial statements,
annual report and announcements;
21
Annual Report 2020 Corporate Governance
• 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.
Performance evaluation
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
22
Steppe Cement Ltd. Corporate Governance
competitive in attracting, retaining and motivating
people of the highest quality. Where necessary,
independent advice on the appropriateness of
remuneration packages is obtained.
Independence advice and insurance
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 Board has established
the Nomination
Committee, the Remuneration Committee and the
Audit Committee and delegated certain functions
to these committees as set out in each Committee’s
Terms of Reference.
Board Meetings
During the year ended 31 December 2020, 7 board
meetings were held.
The following is the attendance record of the
directors:
Nomination Committee
The Committee comprises of majority independent
Non-Executive Directors. The Terms of Reference of
the Nomination Committee was approved by the
Board. The Nomination Committee meets at least
once a year.
The Nomination Committee’s members 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
the
and
knowledge
achievements, credibility and background and ability
of the candidates to contribute effectively to the
Board and Group.
individual, experience,
recruitment of
Directors
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Xavier Blutel
(Non-Executive Chairman)
Javier Del Ser Perez
(Chief Executive Officer)
Rupert Wood
(Non-Executive Director)
7
7
7
7
7
N/A
N/A
7
7
7
7
7
Committee meetings are held concurrently with the board meetings.
23
Annual Report 2020
Corporate Governance
The functions of the Nomination Committee
include:
• Review annually the structure, size and
composition of the Board taking into account
the Group’s strategies;
•
Identify and nominate the potential candidates
to the Board for approval;
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.
Remuneration Committee
The Remuneration Committee comprises entirely of
independent Non-Executive Directors. The functions
of the Remuneration Committee are governed by
the Terms of Reference which was approved by
the Board. The Remuneration Committee meets at
least twice (2) a year. The principal objectives of the
Committee are to ensure that the broad remuneration
policy and practices of the Group reflect the level
of responsibilities, performance, relevant
legal
requirements and high standards of governance.
In determining such policy, the Committee shall
ensure that remuneration levels are appropriately
and competitively set to attract, retain and motivate
people of the highest quality.
The functions of the Remuneration Committee
include:
• Determine and review the broad remuneration
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
24
Audit Committee
The Audit Committee comprises entirely of
independent Non-Executive Directors. The functions
of the Audit Committee are governed by the Terms
of Reference which was approved by the Board. The
Audit Committee meets at least three times (3) a
year.
The principal objectives of the Committee are to
monitor and review the adequacy, integrity and
compliance of the Group’s financial reporting and
policies, internal controls system and procedures
including risk management, and compliance and the
external audit process. The Committee shall make
the necessary recommendations to the Board to
achieve its objectives.
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,
Steppe Cement Ltd. Corporate Governance
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
regularly with shareholders on
communicates
the Group’s
strategy, financial performance,
developments and prospects via issuance of annual
and interim financial statements to shareholders,
stock exchange announcements and in meetings.
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
The Group’s internal control system is designed
to safeguard the Group’s assets and enhance the
shareholders
internal
control system is designed to manage rather than
investments. The Group’s
fully eliminate the risk of failure to achieve business
objectives. Therefore, the internal control system can
only provide reasonable but not absolute assurance
against material misstatement or loss.
Key elements
The key elements of the Group’s internal control
system are:
• Control - an organisational structure is in place
with clearly defined levels of responsibility and
authority together with appropriate reporting
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
action. The budgets are
regularly
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 2020 Nomination Committee
Report 2020
Dear Shareholder,
It is said that necessity is the mother of invention – and whilst not always the only driver
of innovation, the last 18 months has seen your Company and its management, Board and
Committees adapt and innovate.
The Nomination Committee was only able to meet in person once, at the time of the January
2020 Board meeting. Subsequently the Committee held its meetings remotely via Zoom
or teleconference a further six times, either at the time of Board meetings or during Board
updates.
As mentioned in the Chairman’s Letter, given the travel restrictions imposed in 2020 due
to the pandemic, the Committee elected to consider the issue of Alternate Directors in
the second quarter of 2020, in case a physical Board Meeting in Malaysia was not possible
later during the calendar year 2020 (this has normally taken place at the time of the AGM,
habitually in June). In the event, after due consideration, the Committee recommended to
the Board the appointment of two Alternate Directors, Gan Chee Leong and Charles Tingey,
representing the CEO Javier del Ser and Rupert Wood respectively, should this eventuality
be necessary.
In the end, travel to Malaysia was either impossible or logistically too difficult and costly
and so the Committee and Board approved a Board Meeting held on October 28th 2020
in Malaysia itself with the two Malaysian resident Alternate Directors, the meeting being
Chaired by your Company’s Chairman Xavier Blutel remotely via Zoom.
Throughout the year the Committee also discussed and monitored the Management and
Board structures to ensure appropriate resilience given the changing situation throughout
the year. At points last summer the Management team on the ground were desperately
stretched, many falling ill with Covid-19 around the same time. By outstanding teamwork,
communication, dedication and loyalty to each other and the business, they managed not
only to keep the show on the road, but to manage the plant with only a very small degree of
business interruption, demonstrating a level of resilience, commitment and fortitude which is
to be commended. I salute them, and all the staff who persevered in such challenging times.
On behalf of the Nomination Committee I would like to thank both Gan Chee Leong and
Charles Tingey for their work in support of your Company.
Yours faithfully
Rupert Wood,
Nomination Committee Chairman
26
26
Steppe Cement Ltd.
Steppe Cement Ltd. Audit Committee
Report 2020
Dear Shareholder,
Last year was an unusual one for everyone – looking
promising at first, then dire, and ending reasonably
well, all things considered. The same can be said of
your Audit Committee and its work, which has been
forced to conduct its work remotely since January
2020.
The Committee held seven meetings throughout the
year, with several further calls and informal meetings.
For triage purposes, in the initial period of the
pandemic, the Committee focused on supporting the
Board in its crisis management of immediate risks,
rather than the areas such as structural refinement
improvement. Subsequently as the
or process
situation stabilised, and as the factory continued to
perform ahead of any previous realistic expectation,
the financial situation remained not only stable but
benign. The Committee’s attention then moved to
more of the traditional governance, oversight and
controls arena. The total of 4p in dividends paid to
shareholders in 2020 is testament to the resilience of
the business and its management, even faced with
deeply challenging times.
Ensuring the timely completion of the 2020 Audit
was important given business interruption caused by
the pandemic and knock on effect to timeline, and
required additional attention from the Committee
last March/April. I am pleased to report your
Company’s Management and our Auditor, Deloitte,
performed to a high standard despite logistical
and travel difficulties, as well as individuals falling
ill from Covid-19 and the general distancing and
health restrictions. The 2020 Audit was a smooth
process, albeit slightly delayed and the logistical
issues notwithstanding, also involving the routine
revaluation of certain fixed assets required every 5
years.
As you will remember from last year’s Report, the
Audit Committee had recruited a Head of Internal
Audit, a new role for your Company, from Philip
Morris Malaysia (previously Alcatel and Ernst & Young)
who joined the Company in May 2020, to review its
working practices, procedures and protocols and
assist the management and Audit Committee in their
roles of oversight and monitoring.
The travel restrictions and lockdown imposed by
both the Malaysian and Kazakh governments made
it impossible for him to start this role at the factory,
so he was forced to work remotely from home
in Malaysia until he could travel to Karaganda in
December last year. He made a promising start at
the factory, and has been most helpful in identifying
areas that need strengthening in terms of procedure
and oversight, as well as process. However, due to
family reasons, and given the difficulty in practical
terms of travel to see family during vacation, he
decided to return to Malaysia and resigned from his
position, leaving in April.
insight and communication available
With the
from being on the ground and physically present,
Internal Audit was able to re-examine many of the
reviews and memos previously worked on remotely,
updating some of these and communicating this
to the Committee. These included reviews of
Procurement (known as the Procure to Pay cycle),
Security, Inventory, Payroll, Receivables (Order to
Cash), Health & Safety, Transport and Logistics, and
a general Risk Assessment.
The Committee once again reviewed and monitored
the Insider Lists, the Company’s Whistleblowing
Protocols and reviewed the Risk Register draft
that the Head of Internal Audit had drawn up. This
remains work in progress following his departure.
The Committee will be discussing how to move
forward – there are a few options but pandemic
related issues complicate any straight replacement
with an ex-patriate. We are hopeful that an interim
or hybrid step can be taken.
Yours faithfully
Rupert Wood,
Audit Committee Chairman
27
Annual Report 2020 FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
(In United States Dollar)
28
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
30 - 33
34
35
36 - 37
38 - 40
41- 44
Notes to the financial statements
45 - 102
Statement by a director
104
Annual Report 2020
29
29
Annual Report 2020 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 2020, 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 34 to 102.
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 2020, 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’ International Code of Ethics for Professional Accountants (Including
International Independence Standards) (“IESBA Code”), and we have fulfilled our other ethical responsibilities
in accordance with the By-Laws and the IESBA Code.
Key Audit Matters
Key audit 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 matter.
30
Steppe Cement Ltd. Key audit matter
How our audit addressed the key audit matter
Valuation of property, plant and equipment under
revaluation model
The carrying value of property, plant and equipment
amounted to USD48.9 million
(2019: USD55.8
million), representing 60.1% of the total assets as of
31 December 2020 (2019: 59.3%).
During the current financial year, the directors
engaged an independent professional valuer and
revalued the Group’s land and building accounted
for under the revaluation model. The net book value
of the revalued asset was USD7.1 million (2019:
USD8.0 million).
The valuation of the land and building represent a
key audit matter due to complex judgement inherent
in the valuation exercise that takes into consideration
several factors including, but not limited to, the
nature of the property, its location and the current
economic conditions. Land is valued using the
market comparable approach and the recoverable
amount of the buildings are determined based on
depreciated replacement cost approach.
Significant inputs used in the discounted cash flow
model are disclosed in Note 10 to the financial
statements.
We discussed with management the future plans of
the manufacturing entities and economic outlook in
the coming years.
Our audit procedures included the following:
• Obtained the external valuation report and
agreed the recoverable amounts in the report
to the Group’s financial information;
• Obtained an understanding of the valuation
the
methodology
mathematical accuracy of the valuation report;
validated
used
and
• Assessed the competence, capabilities and
objectivity of the independent professional
valuer which includes determining whether
matters were noted that might affect their
objectivity or imposed scope limitations on the
valuation exercise;
the
• Engaged internal valuation experts to work
independent professional valuer
with
to challenge the methodology, underlying
assumptions and significant inputs used in the
discounted cash flow model to ensure they are
reasonable;
• physically inspected the property, plant and
equipment and assessed that they are operating
and in a working condition; and
• assessed
reasonableness of management’s
disclosure of the valuation methodology and
significant inputs as 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 2020.
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.
31
Annual Report 2020 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.
32
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, actions taken to eliminate
threats or safeguards applied.
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 - 02939/01/2022 J
Chartered Accountant
Labuan
31 May 2021
33
Annual Report 2020
STATEMENTS OF PROFIT AND LOSS
FOR THE YEAR ENDED 31 DECEMBER 2020
The Group
The Company
Note
2020
USD
2019
USD
2020
USD
2019
USD
Revenue
Cost of sales
4
74,774,297
79,929,953
10,796,326
9,915,657
(42,439,633)
(46,244,126)
-
-
Gross profit
32,334,664
33,685,827
10,796,326
9,915,657
Selling expenses
General and
administrative
expenses
Interest income
Finance costs
Net foreign exchange
loss
Other income, net
Profit before
income tax
Income tax expense
5
6
7
8
(12,966,168)
(13,371,624)
-
-
(6,225,928)
(5,921,545)
(311,871)
(318,980)
199,332
128,735
(1,249,051)
(2,061,008)
(808,977)
1,817,314
(84,400)
166,115
934
-
(3,981)
82,507
6,023
-
(35,941)
-
13,101,186
12,542,100
10,563,915
9,566,759
(1,983,727)
(2,835,709)
-
-
Profit for the year
11,117,459
9,706,391
10,563,915
9,566,759
Attributable to
shareholders of the
Company
Earnings per share:
11,117,459
9,706,391
10,563,915
9,566,759
Basic and diluted (cents)
9
5.1
4.4
The accompanying notes form an integral part of the financial statements.
34
Steppe Cement Ltd. STATEMENTS OF PROFIT AND LOSS AND OTHER
COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2020
The Group
The Company
2020
USD
2019
USD
2020
USD
2019
USD
Profit for the year
11,117,459
9,706,391
10,563,915
9,566,759
Other comprehensive
(loss)/income:
Items that will not be reclassified
subsequently to profit or loss:
Revaluation gain on property,
plant and equipment, net of tax
Increase in provision for site
restoration
Items that may be reclassified
subsequently to profit or loss:
Exchange differences arising
from translation of foreign
operations
760,291
(74,671)
-
-
(5,228,388)
572,722
Total other comprehensive (loss)/
income
(4,542,768)
572,722
-
-
-
-
-
-
-
-
Total comprehensive income for
the year
6,574,691
10,279,113
10,563,915
9,566,759
Attributable to the shareholders
of the Company
6,574,691
10,279,113
10,563,915
9,566,759
The accompanying notes form an integral part of the financial statements.
35
Annual Report 2020 STATEMENTS OF FINANCIAL POSITION
FOR THE YEAR ENDED 31 DECEMBER 2020
The Group
The Company
Note
2020
USD
2019
USD
2020
USD
2019
USD
Assets
Non-Current Assets
Property, plant and
equipment
Right-of-use assets
Investment in subsidiary
companies
Loans to subsidiary com-
pany
Advances
Other assets
Total Non-Current
Assets
Current Assets
Inventories
Trade and other
receivables
Other assets
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
13
27
16
17
48,856,410
55,807,917
3,483,259
6,140,152
-
-
-
-
-
-
-
-
-
5,992
1,900,656
2,426,938
36,294,519
36,197,767
30,110,000
30,140,000
-
-
-
-
54,240,325
64,380,999
66,404,519
66,337,767
11,097,613
10,811,542
-
-
2,332,410
5,790,278
6,775,995
8,847,922
304,946
1,435,100
-
405,147
-
-
-
-
-
-
39,712
30,079
3,644,038
3,682,896
5,848
15,944
8,213,680
9,014,360
1,352,950
261,798
Total Current Assets
27,027,787
29,704,223
8,174,505
9,155,743
Total Assets
81,268,112
94,085,222
74,579,024
75,493,510
36
Steppe Cement Ltd. STATEMENTS OF FINANCIAL POSITION
FOR THE YEAR ENDED 31 DECEMBER 2020
The Group
The Company
Note
2020
USD
2019
USD
2020
USD
2019
USD
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
18
19
19
19
20
21
22
23
24
25
20
21
23
26
73,760,924
73,760,924
73,760,924
73,760,924
2,370,706
2,015,943
(118,514,344)
(113,285,956)
-
-
-
-
100,325,002
100,386,012
631,352
1,576,763
57,942,288
62,876,923
74,392,276
75,337,687
2,368,296
2,076,668
4,559,927
1,492,432
3,892,851
4,306,929
4,651,541
1,421,368
150,878
74,435
10,648,201
14,347,124
4,075,078
6,203,453
1,531,039
4,429,053
1,830,755
106,420
705,278
1,405,123
6,420,573
2,190,586
81,387
560,053
-
-
-
-
-
-
-
-
-
-
-
-
-
-
186,748
155,823
-
-
-
-
-
-
-
-
Total Current Liabilities
12,677,623
16,861,175
186,748
155,823
Total Liabilities
23,325,824
31,208,299
186,748
155,823
Total Equity and
Liabilities
81,268,112
94,085,222
74,579,024
75,493,510
The accompanying notes form an integral part of the financial statements.
37
Annual Report 2020 3
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*
STATEMENTS OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2020 Annual Report 2020Steppe Cement Ltd.
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2020
The Company
Share
Capital
USD
Distributable
Retained earnings/
(Accumulated losses)
USD
Net
USD
As of 1 January, 2020
73,760,924
1,576,763
75,337,687
Total comprehensive income for the year
Dividends paid (Note 19)
-
-
10,563,915
10,563,915
(11,509,326)
(11,509,326)
As of 31 December, 2020
73,760,924
631,352
74,392,276
As of 1 January, 2019
73,760,924
399,237
74,160,161
Total comprehensive income for the year
Dividends paid (Note 19)
-
-
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
The accompanying notes form an integral part of the financial statements.
40
Steppe Cement Ltd.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2020
The Group
The Company
2020
USD
2019
USD
2020
USD
2019
USD
CASH FLOWS
FROM/(USED IN)
OPERATING ACTIVITIES
Profit before income tax
13,101,186
12,542,100
10,563.915
9,566,759
Adjustments for:
Depreciation of property,
plant and equipment
Depreciation of right-of-use
assets
Amortisation of site
restoration costs
Dividend income
Loss on disposal of property,
plant and equipment
Interest income
Finance costs
Net foreign exchange
loss
Provision for obsolete
inventories
Credit loss allowance for
doubtful receivables
Allowance for advances
paid to third parties
Reversal of provision for
obsolete inventories
Deferred income
6,873,876
6,880,944
2,116,952
2,285,530
-
-
-
-
-
-
-
-
1,410
-
(9,441,251)
(8,678,970)
26,546
140,656
-
-
(199,332)
(128,735)
(1,356,009)
(1,242,710)
1,249,051
2,061,008
702,427
84,400
100,475
36,146
813,812
433,412
69,152
142,400
(170,345)
(108,310)
(118,792)
(246,290)
-
-
-
-
-
-
-
-
1,339
-
-
-
-
-
41
Annual Report 2020 STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2020
The Group
The Company
2020
USD
2019
USD
2020
USD
2019
USD
Operating profit/(loss) before
working capital changes
24,575,490
24,114,189
(233,345)
(353,582)
Movement in working capital:
(Increase)/Decrease in:
Inventories
(2,528,062)
2,704,172
Trade and other receivables
2,167,282
(2,687,961)
-
-
-
-
Loans and advances to
subsidiary companies
Advances and prepaid
expenses
(Decrease)/Increase in:
-
-
(76,385)
(63,520)
(390,332)
(1,514,504)
10,096
(9,240)
Trade and other payables
(1,538,598)
(354,224)
-
-
Accrued and other liabilities
449,819
(2,002,941)
30,925
(903,911)
Cash Generated From/(Used In)
Operations
22,735,599
20,258,731
(268,709)
(1,330,253)
Income tax paid
(2,925,488)
(493,734)
-
-
Net Cash From/(Used In)
Operating Activities
CASH FLOWS
FROM/(USED IN)
INVESTING ACTIVITIES
Purchase of property, plant and
equipment
Contribution to site restoration
fund
Proceeds from disposal of
property, plant and equipment
Dividends received from
subsidiary
Interest received
Net Cash (Used In)/From
Investing Activities
42
19,810,111
19,764,997
(268,709)
(1,330,253)
(3,108,678)
(2,837,509)
(33,825)
(14,982)
134,630
149,482
-
-
-
-
-
-
-
-
11,509,326
199,332
128,735
1,359,861
8,389,233
1,568,481
(2,808,541)
(2,574,274)
12,869,187
9,957,714
Steppe Cement Ltd. STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2020
The Group
The Company
2020
USD
2019
USD
2020
USD
2019
USD
CASH FLOWS FROM/(USED IN)
FINANCING ACTIVITIES
Proceeds from borrowings*
Repayment of borrowings*
Repayment of lease liabilities*
7,414,558
(9,657,053)
(2,014,790)
7,834,646
(9,432,630)
(1,929,741)
-
-
-
-
-
-
Dividends paid
Interest paid
(11,509,326)
(8,389,233)
(11,509,326)
(8,389,233)
(1,240,129)
(2,036,609)
-
-
Net Cash Used In Financing
Activities
(17,006,740)
(13,953,567)
(11,509,326)
(8,389,233)
NET (DECREASE)/
INCREASE IN CASH AND
CASH EQUIVALENTS
EFFECTS OF FOREIGN
EXCHANGE RATE
CHANGES
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF YEAR
CASH AND CASH
EQUIVALENTS AT
END OF YEAR (Note 17)
(5,170)
3,237,156
1,091,152
238,228
(795,510)
57,713
-
-
9,014,360
5,719,491
261,798
23,570
8,213,680
9,014,360
1,352,950
261,798
43
Annual Report 2020 STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2020
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
2020
Borrowings (Note 20)
10,313,424
(2,242,495)
(1,273,580)
6,797,349
Lease liabilities (Note 21)
6,497,515
(2,014,790)
(575,302)
3,907,423
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
[1] Non-cash movements primarily relates to foreign currency exchange differences, accrued interests and in
relation to the previous financial year, impact on initial adoption of IFRS 16.
The accompanying notes form an integral part of the financial statements.
44
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 31 May 2021.
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
Amendments to IFRSs that are mandatorily effective for the current year
In the current year, the Group and the Company have applied a number of amendments to IFRSs
issued by IASB that are mandatorily effective for an accounting period that begins on or after 1
January 2020.
IFRSs
Amendments to
IAS 1 and IAS 8
Amendments to
IFRS 3
Amendments to
IAS 39, IFRS 9,
and IFRS 7
Amendments to
IFRS 16
Amendments to References to the Conceptual Framework in IFRS
Standards
Definition of Material
Definition of Business
Interest Rate Benchmark Reform
COVID-19 - Related Rent Concessions1
1 The Group and the Company elected to early adopt the amendments to IFRS 16.
45
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020
The application of these amendments to IFRSs 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.
New and amendments to IFRS in issue but not yet effective
IFRSs
IFRS 17
Amendments to
IFRS 3
Amendments to
IFRS 4
Amendments to
IFRS 9, IAS 39,
IFRS 7, IFRS 4
and IFRS 16
Amendments to
IFRS 10 and
IAS 128
Amendments to
IFRS 16
Annual Improvements to IFRS Standards 2018 - 20203
Insurance Contracts4
Reference to the Conceptual Framework3
Extension of the Temporary Exemption from applying IFRS 94
Interest Rate Benchmark Reform - Phase 21
Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture5
COVID-19 - Related Rent Concessions Beyond 30 June 20212
Amendments to
IAS 1
Classification of Liabilities as Current or Non-Current and
Disclosure of Accounting Policies4
Amendments to
IAS 8
Amendments to
IAS 16
Amendments to
IAS 37
Definition of Accounting Estimates4
Property, Plant and Equipment: Proceeds before Intended Use3
Onerous Contracts - Costs of Fulfilling a Contract3
1 Effective for annual periods beginning on or after 1 January 2021.
2 Effective for annual periods beginning on or after 1 April 2021.
3 Effective for annual periods beginning on or after 1 January 2022.
4 Effective for annual periods beginning on or after 1 January 2023.
5 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 IFRSs will have no material impact on the financial
statements of the Group and of the Company.
46
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 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;
•
is exposed, or has rights, to variable returns from its involvement with the investee; and
• has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate
that there are changes to one or more of the three elements of control listed above.
When the Company has less than a majority of the voting rights of an investee, it has power over
the investee when the voting rights are sufficient to give it the practical ability to direct the relevant
47
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020
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 interest and dividend income.
48
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 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.
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
i.e. deferred income, measured as the difference between proceeds received and the fair value of
the loan based on prevailing market interest rates.
Foreign Currencies
The individual financial statements of each group entity are presented in the currency of the primary
economic environment in which the entity operates (its functional currency). For the purpose of the
financial statements of the Group, the results and financial position of each entity are expressed in
United States Dollars (“USD”), which is the functional currency of the Company, and the presentation
currency for the financial statements of the Group and of the Company. The functional currency of
the principal subsidiary companies, Karcement JSC and Central Asia Cement JSC (“CAC JSC”), is
the Kazakhstan Tenge (“KZT”).
In preparing the financial statements of the individual entities, transactions in currencies other than
the entity’s functional currency are recorded at the rates of exchange prevailing on the dates of
the transactions. Monetary items denominated in foreign currencies are retranslated at the rates
49
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 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.
The principal closing rates used in translation of foreign currency amounts are as follows:
1 Sterling Pound (“GBP”)
1 Euro (“EUR”)
1 Ringgit Malaysia (“MYR”)
1 Russian Ruble (“RUB”)
1 USD
Retirement Benefit Costs
2020
USD
1.3649
1.2216
0.2489
0.0135
KZT
420.71
2019
USD
1.3210
1.1213
0.2443
0.0161
KZT
381.18
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 (2019: USD555)
from employee’s 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.
50
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 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.
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.
51
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020
Leases
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.
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.
Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore
the site on which it is located or restore the underlying asset to the condition required by the terms
and conditions of the lease, a provision is recognised and measured under IAS 37. To the extent that
the costs relate to a right-of-use asset, the costs are included in the related right-of-use asset, unless
those costs are incurred to produce inventories.
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.
52
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 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 a 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.
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.
53
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 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
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.
54
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 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.
(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).
55
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020
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.
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 recovered
from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will
be received and the amount of the receivable can be measured reliably.
Equity
Ordinary shares are classified as equity. Distributions to holders of ordinary shares are debited
directly to equity and dividend declared on or before the end of the reporting period is recognised
as liability. Costs directly attributable to equity transactions are accounted for as a deduction, net of
tax, from equity.
Contingent Liabilities
Contingent liabilities are not recognised in the statement of financial position but are disclosed
unless the possibility of any outflow in settlement is remote.
56
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 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.
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)
(b)
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.
All the Group’s and the Company’s financial assets meet the definition of financial assets
at amortised cost.
Amortised cost and effective interest method
The effective interest method is a method of calculating the amortised cost of a financial
asset and of allocating interest income over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash receipts
(including all fees and points paid or received that form an integral part of the effective in-
terest 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 mea-
sured at initial recognition minus the principal repayments, plus the cumulative amorti-
sation 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.
57
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 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.
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
end of the reporting period. 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.
58
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 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).
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:
significant financial difficulty of the issuer or the borrower;
(a)
(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;
it is becoming probable that the borrower will enter bankruptcy or other financial
reorganisation; or
the disappearance of an active market for that financial asset because of financial difficulties.
(d)
(e)
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.
59
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020
Where lifetime ECL is measured on a collective basis to cater for cases where evidence of
significant increases in credit risk at the individual instrument level may not yet be available, the
financial instruments are grouped on 1) Nature of financial instruments; 2) Past-due status; 3)
Nature, size and industry of debtors; and 4) External credit ratings where available.
The grouping is regularly reviewed by management to ensure the constituents of each group
continue to share similar credit risk characteristics. If the Group has measured the loss allowance
for a financial instrument at an amount equal to lifetime ECL in the previous reporting period,
but determines at the 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.
60
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 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 2020. Valuation
techniques used by the professional valuers are subjective and involved 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 2020, 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 2020, loss allowance for doubtful trade receivables amounted to USD1,340,469
(2019: USD626,053) (Note 15) and on advances paid to third parties amounted to USD119,054
(2019: USD334,454) (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 2020, provision for obsolete and
slow-moving inventories amounted to USD1,921,024 (2019: USD2,197,359) (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% (2019:
13%) is used as it reflects current market assessment of the time value of money and the risk specific
to site restoration obligation.
61
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 4.
REVENUE
The Group derives its revenue from the transfer of cement at a point in time. Transmission of electricity
is determined to be a single performance obligation satisfied over time and represents a promise
to transfer to the customer a series of distinct goods that are substantially the same and have the
same pattern of transfer to the customer. The Group primarily operates in one geographic location
(segment) in Karaganda, Kazakhstan and as such, no segmental information is presented.
The Group
The Company
Sale of manufactured goods
74,762,650
79,917,889
2020
USD
2019
USD
Transmission and distribution
of electricity
Dividend income
Net interest income
11,647
12,064
-
-
-
-
9,441,251
1,355,075
8,678,970
1,236,687
2020
USD
-
-
2019
USD
-
-
Total
74,774,297
79,929,953
10,796,326
9,915,657
The Group applied the practical expedient under IFRS 15 not to disclose the aggregate amount of
the transction price allocated to performance obligations that are unsatisfied (or partially satisfied)
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
2020
USD
2019
USD
2020
USD
2019
USD
Interest expenses on:
- Bank loans
- Lease liabilities
Unwinding of discount on
provision for site restoration
398,540
631,442
868,901
925,933
8,922
23,507
Others
210,147
242,667
Total interest expense for
financial liabilities not
classified as at FVTPL
1,249,051
2,061,008
-
-
-
-
-
-
-
-
-
-
Other finance charges comprise mainly bank and other commitment charges incidental to secure
loan facilities from financial institutions as disclosed in Note 20.
62
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 6.
NET FOREIGN EXCHANGE LOSS
The Group
The Company
2020
USD
2019
USD
2020
USD
2019
USD
Net foreign exchange loss
(808,977)
(84,400)
(3,981)
(35,941)
During the year, the appreciation in the value of USD and RUB against KZT resulted in foreign
exchange losses on the cash and bank and bank loans primarily denominated in USD and RUB
respectively.
7.
PROFIT BEFORE INCOME TAX
Profit before income tax includes the following income/(expenses):
The Group
The Company
2020
USD
2019
USD
2020
USD
2019
USD
Reversal of provision for
obsolete inventories
Allowance for advances
paid to third parties
Credit loss allowance for
doubtful receivables
Amortisation of deferred
income
Depreciation of property,
plant and equipment
170,345
118,792
(69,152)
(142,400)
(813,812)
(433,412)
108,310
246,290
(6,873,876)
(6,880,944)
Employee benefit expenses
(4,874,390)
(5,091,238)
Depreciation of right-of-use
assets
(2,116,952)
(2,285,530)
Loss on disposal of
property, plant and
equipment
Amortisation of site
restoration costs
Provision for obsolete
inventories
(26,546)
(140,656)
-
(1,410)
(100,475)
(36,146)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Employee benefit expenses include contributions paid by the Group and the Company to defined
contribution plans amounting to USD471,933 (2019: USD452,265) and USD2,986 (2019: USD237)
respectively.
63
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020
8.
INCOME TAX EXPENSE
The Group
The Company
2020
USD
2019
USD
2020
USD
2019
USD
Income tax:
- current year
- prior year
1,771,721
266,326
27,291
-
Deferred tax (Note 22)
184,715
2,569,383
Total
1,983,727
2,835,709
-
-
-
-
-
-
-
-
Under the Labuan Business Activity Tax Act, 1990, no tax is chargeable on the Company’s Labuan
non-trading activities for the current and prior years of assessment. Effective 1 January 2019, a La-
buan company carrying on Labuan trading activities shall be charged at a tax rate of 3% on the
chargeable profits of the Labuan company for a particular 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% (2019: 20%), and Malaysian and Netherland subsidiar-
ies are subject to statutory tax rates of 24% (2019: 24%) and 25% (2019: 25%) respectively.
64
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 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:
The Group
The Company
2020
USD
2019
USD
2020
USD
2019
USD
Profit before income tax
13,101,186
12,542,100
10,563,915
9,566,759
Tax expense calculated
at domestic tax rates
applicable to the respective
jurisdictions
Tax effects of expenses not
deductible for tax purposes
Income not taxable in
determining taxable profits
Effect of unused tax losses
not recognised as deferred
tax assets
Income tax - prior year
2,517,693
2,308,029
303,160
476,952
(899,336)
-
34,919
27,291
50,728
-
Income tax expense
1,983,727
2,835,709
-
-
-
-
-
-
-
-
-
-
The tax expense calculated at domestic tax rates represents a blend of the tax rates of the jurisdictions
in which taxable profits have arisen.
65
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 9.
EARNINGS PER SHARE
Basic and diluted
The Group
2020
USD
2019
USD
Profit attributable to ordinary shareholders
11,117,459
9,706,391
Number of ordinary shares in issue at beginning
and at end of year
219,000,000
219,000,000
2020
2019
Weighted average number of ordinary shares
in issue
219,000,000
219,000,000
Earnings per share, basic and diluted (cents)
2020
5.1
2019
4.4
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 2020 and 2019.
66
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 l
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NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020Annual Report 2020Steppe Cement Ltd.
Land and buildings were revalued on 31 August 2020 by an independent professional valuer based
on market approach for freehold land and depreciated replacement cost for buildings respectively.
Valuation of buildings was arrived at by reference to the discounted cash flows method, as the
property is a production facility, which is a level [3] measurement in the fair value hierarchy.
The following significant inputs were used in preparing the discounted cash flow:
•
the forecast period was from September 2020 to December 2025;
• derivation of a terminal value using a constant growth model; and
• discount rate of 15.00% 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 USD7,076,092 as of
31 December 2020 (2019: USD8,015,638). 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
2020 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
2020
USD
192,442
490,786
2019
USD
212,399
818,481
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.
As at 31 December 2020, property, plant and equipment of a subsidiary company (Karcement JSC)
with a cost and net book value of USD6,060,992 and USD3,162,045 (2019: USD6,689,543 and
USD3,947,505) respectively are pledged as collateral for the government-subsidised loan (Note 20).
As of 31 December 2020, the cost of property, plant and equipment that is fully depreciated
amounted to USD5,883,604 (2019: USD2,033,966).
69
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 11.
RIGHT-OF-USE ASSETS
Cost
At 1 January 2019
Arising from adoption of IFRS 16
Exchange differences
At 31 December 2019
Exchange differences
At 31 December 2020
Accumulated depreciation
At 1 January 2019
Charge for the year
Exchange differences
At 31 December 2019
Charge for the year
Exchange differences
The Group
Railway wagons
Buildings
USD
USD
Total
USD
-
8,334,669
66,034
8,400,703
(789,333)
7,611,370
-
(2,278,538)
(10,102)
(2,288,640)
(2,110,476)
251,917
-
34,836
276
35,112
(3,299)
31,813
-
(6,992)
(31)
(7,023)
(6,476)
774
-
8,369,505
66,310
8,435,815
(792,632)
7,643,183
-
(2,285,530)
(10,133)
(2,295,663)
(2,116,952)
252,691
At 31 December 2020
(4,147,199)
(12,725)
(4,159,924)
Carrying amount
At 31 December 2020
3,464,171
19,088
3,483,259
At 31 December 2019
6,112,063
28,089
6,140,152
70
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 Amount recognised in profit or loss:
Interest expense on lease liabilities
Expense relating to short-term leases
Income from sub-leasing of right-of-use assets
Total cash outflow for leases
The Group
2020
USD
631,442
3,502,631
1,174,910
2,646,232
2019
USD
925,933
1,563,704
1,099,006
2,855,674
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.
12.
INVESTMENT IN SUBSIDIARY COMPANIES
The Company
2020
USD
2019
USD
Unquoted shares, at cost
40,199,600
37,242,408
Net investment in a subsidiary company
94,920
2,955,360
Less: Accumulated impairment loss
40,294,520
(4,000,001)
40,197,768
(4,000,001)
Net
36,294,519
36,197,767
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 Company’s net investment in the subsidiary, it is stated at cost less
accumulated impairment loss, if any.
During the year, the Company subscribed for 10,423,167 additional ordinary shares in SCM at
USD2,957,192 by way of capitalisation of amount owing by the subsidiary company.
71
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 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
2020
%
2019
%
Malaysia
100
100
Malaysia
100
100
Investment
holding
Provision of
consultancy
services
Netherlands
100
100
Investment
holding
Direct Subsidiary
Companies
Steppe Cement (M)
Sdn. Bhd. (“SCM”)
Mechanical & Electrical
Consulting Services Ltd.
(“MECS Ltd”)
Indirect Subsidiary
Companies
Held through SCM:
Steppe Cement Holdings
B.V. (“SCH BV”)
Indirect Subsidiary
Companies
Held through SCH BV:
Central Asia Cement JSC
(“CAC JSC”)
Republic of
Kazakhstan
100
100
Sale of
cement
Karcement JSC
Republic of
Kazakhstan
100
100
Central Asia Services LLP
(“CAS LLP”)
Republic of
Kazakhstan
100
100
Production
and sale
of cement
Transmission
and
distribution
of electricity
72
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 13. OTHER ASSETS
The Group
The Company
2020
USD
2019
USD
2020
USD
2019
USD
VAT recoverable -
non-current
1,760,129
2,068,579
Site restoration fund
140,527
Quarry stripping costs
Site restoration costs
Others
-
-
304,946
131,298
193,740
33,321
-
Less: non-current portion
of other assets
(1,900,656)
(2,426,938)
2,205,602
2,426,938
Current portion
of other assets
Site restoration fund
304,946
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
A subsidiary company entered into a Subsurface Use Contract for mining of limestone and loam in
Karaganda, Kazakhstan and is obliged to contribute 1% out of the total expenditure incurred on
extraction of limestone and loam from the quarry annually to the site restoration fund.
In accordance with the Law on Land of the Republic of Kazakhstan and resource usage and
Environmental rehabilitations, the subsidiary company will be obliged to provide additional resources
in the event the site restoration fund is insufficient to cover actual site restoration and abandonment
costs in the future.
73
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 14.
INVENTORIES
The Group
The Company
2020
USD
2019
USD
2020
USD
2019
USD
Finished goods
Work-in-progress
Spare parts
Raw materials
3,130,122
3,812,649
399,409
5,025,089
2,248,630
632,491
5,118,941
1,501,745
Packing materials
648,128
585,944
Construction materials
Goods held for resale
Others
Total
43,983
38,551
5,646
48,835
1,484,725
1,302,650
13,018,637
13,008,901
Less: Provision for
obsolete inventories
(1,921,024)
(2,197,359)
Net
11,097,613
10,811,542
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The cost of inventories of the Group recognised as an expense during the financial year was
USD42,439,633 (2019: USD46,244,126).
The movements in the provision for obsolete inventories are as follows:
The Group
The Company
2020
USD
2019
USD
2020
USD
2019
USD
At beginning of year
(2,197,359)
(2,262,085)
Exchange differences
206,465
(17,920)
Provision for obsolete
inventories
Reversal of provision for
obsolete inventories
(100,475)
(36,146)
170,345
118,792
At end of year
(1,921,024)
(2,197,359)
-
-
-
-
-
-
-
-
-
-
As of 31 December 2020, inventories of USD4,729,702 (2019: USD4,424,634) were pledged to se-
cure the Halyk Bank JSC working capital facilities (Note 20).
74
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020
15.
TRADE AND OTHER RECEIVABLES
The Group
The Company
2020
USD
2019
USD
2020
USD
2019
USD
Trade receivables
2,849,499
5,659,381
Less: Loss allowances
(1,340,469)
(626,053)
Net
1,509,030
5,033,328
Other receivables:
VAT recoverable -
current
Receivables from
employees
Others
Dividend receivable
Interest receivable
421,571
239,092
86,055
315,754
30,668
487,190
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,610,895
8,678,970
165,100
168,952
Total
2,332,410
5,790,278
6,775,995
8,847,922
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.
75
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 Movement in the credit loss allowances for trade receivables is as follows:
The Group
The Company
2020
USD
2019
USD
2020
USD
2019
USD
At beginning of year
Exchange differences
(626,053)
(206,330)
52,573
(1,634)
Add: Impairment losses
(813,812)
(433,412)
Less: Write-offs
46,823
15,323
At end of year
(1,340,469)
(626,053)
-
-
-
-
-
-
-
-
-
-
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
2020
Not past due
<180 days
181-270 days
271-360 days
1-2 years
>2 years
Expected credit
loss rate
Gross carrying
amount at default
Lifetime ECL
USD
USD
3%
3%
10%
20%
64%
100%
427,232
390,913
166,233
459,200
417,171
988,750
11,834
11,728
16,624
91,840
266,989
941,454
2,849,499
1,340,469
76
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 Days past due
Expected credit loss
rate
Gross carrying amount
at default
Lifetime ECL
2019
Not past due
<180 days
181-270 days
271-360 days
1-2 years
>2 years
>3 years
1%
5%
10%
20%
33%
66%
100%
USD
USD
1,676,723
1,162,556
559,332
630,466
1,419,891
133,064
77,349
165,347
85,928
74,508
86,004
43,772
93,145
77,349
5,659,381
626,053
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.
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 certain property, plant and equipment of the Group.
77
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 16.
ADVANCES AND PREPAID EXPENSES
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
The Group
The Company
2020
USD
2019
USD
2020
USD
2019
USD
2,229,657
2,073,202
(119,054)
(334,454)
2,110,603
1,738,748
-
(5,992)
2,110,603
1,732,756
-
-
-
-
-
-
-
-
-
-
1,533,435
1,950,140
5,848
15,944
Total
3,644,038
3,682,896
5,848
15,944
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. Management uses its judgement to defer the expenses based on
the useful life of the refractory bricks and bag filters when consumed. The balance of the deferred
expenses will be amortised over the next 6 to 8 months of production.
78
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020
Movement of allowance for advances paid to third parties is as follows:
The Group
The Company
2020
USD
2019
USD
2020
USD
2019
USD
At beginning of year
(334,454)
(211,668)
Exchange differences
31,423
(1,677)
Add: Allowance for
advances paid
to third parties
Less: Write-offs
(69,152)
253,129
(142,400)
21,291
At end of year
(119,054)
(334,454)
-
-
-
-
-
-
-
-
-
-
17.
CASH AND CASH EQUIVALENTS
The Group
The Company
2020
USD
2019
USD
2020
USD
2019
USD
Cash in hand and at banks
5,984,116
1,939,857
1,352,950
261,798
Short-term deposits
2,229,564
7,074,503
-
-
Total
8,213,680
9,014,360
1,352,950
261,798
79
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 18.
SHARE CAPITAL
The Group and the Company
2020
USD
2019
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
19.
RESERVES
Revaluation reserve
Revaluation reserve represents the reserve arising from the revaluation of land and buildings of
subsidiary companies (CAC JSC, Karcement JSC and CAS LLP) performed by an independent
valuation appraiser.
Translation reserve
Exchange differences arising from the translation of assets and liabilities of foreign subsidiary
companies are recognised in other comprehensive income and accumulated in the translation
reserve.
Retained earnings
Any dividend distributions to be made by foreign subsidiary companies are subject to dividend
withholding tax ranging from 15% to 25% which may be reduced to 5% or waived subject to
compliance with the relevant tax treaties requirements. Deferred taxation has not been provided
for in the consolidated financial statements in respect of temporary differences attributable to
accumulated profits of these subsidiary companies as the Group is able to control the timing of
the reversal of the temporary differences and it is probable that the temporary differences will not
be reversed in the foreseeable future. Under the Malaysian tax law, any dividend income received
by Malaysian subsidiary companies will be credited into an exempt income account from which
tax-exempt dividends can be distributed. There is no withholding tax on dividends distributed by
Malaysian subsidiary companies.
Under the Labuan Business Activity Tax Act, 1990, any dividends received by the Company from
Steppe Cement (M) Sdn. Bhd., a subsidiary company incorporated in Malaysia, will be exempted
from tax. There is no withholding tax on dividends distributed to its shareholders.
80
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020
Dividends paid
During the year, the Company paid a first and final dividend of GBP0.03 (2018: GBP0.03) per ordinary
share of no par value each amounting to GBP6,570,000 (USD8,678,970) in respect of financial year
ended 31 December 2019 (2018: GBP6,570,000 (USD8,389,233)).
The Company also declared and paid an interim dividend of GBP0.01 amounting to GBP2,190,000
(USD2,830,356) during the year. No interim dividend was declared in the previous financial year.
Dividends proposed after reporting period
The board of directors of the Company proposed a final dividend of GBP0.025 per ordinary share
of no par value each amounting to GBP5,475,000 (USD7,472,828) in respect of the financial year
ended 31 December 2020. 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 2021. The dividends have not been recognised
as a liability as at 31 December 2020.
20.
BORROWINGS
Secured - at amortised cost
Bank loans
Bank loans:
Current
Non-current
The Group
2020
USD
2019
USD
6,797,349
10,313,424
4,429,053
2,368,296
6,420,573
3,892,851
6,797,349
10,313,424
81
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020
Details of bank loans are as follows:
Currency
Maturity
month
Interest
rate
The Group
2020
USD
2019
USD
Halyk Bank JSC:
Facility B
USD
November
2021
6.5% p.a.
-
4,131,746
Halyk Bank JSC
government
subsidised
facility for capital
expenditure
KZT
August 2022
6% p.a.
448,551
806,068
KZT
June 2025
6% p.a.
390,554
511,798
September
to November
2025
KZT
6% p.a.
1,048,718
1,453,290
Halyk Bank JSC
KZT
December
2027
6% p.a.
1,578,795
-
Halyk Bank JSC for
working capital
Altyn Bank JSC for
working capital
Accrued interest
Total outstanding
KZT
April 2021
6% p.a.
1,190,588
1,041,773
KZT
June 2021
12% p.a.
2,139,241
2,361,089
902
7,660
6,797,349
10,313,424
82
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020
Halyk Bank JSC facility
In the previous financial year, Facility B carried an interest rate of 6.5% per annum. The principal was
repayable over a 5-year period in 60 equal monthly instalments commencing from 23 December
2016 until the maturity in November 2021. Interest was payable monthly from 23 December 2016
until maturity. The facility was secured against property, plant and equipment with a net book value
of USD10,750,160 (Note 10). In August 2020, the Facility B has been fully settled in advance of the
maturity date of November 2021.
Halyk Bank JSC government-subsidised facilities
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 USD3,162,045 (2019: USD3,947,505) (Note 10). No further amounts are available for drawdown
from this facility.
On 29 December 2020, CAC JSC entered into a long-term facility agreement with Halyk Bank JSC
under the government program for KZT809 million (USD1,923,000) to acquire 70 additional railway
wagons for own use. The facility is repayable on 28 December 2027 and bears an interest rate of 6%
per annum. As of 31 December 2020, KZT 423million (USD1,005,000) is 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).
Halyk Bank JSC working capital facilities
During the year, CAC JSC and Karcement JSC entered into a short-term facility agreement with
Halyk Bank JSC for working capital requirements of KZT327 million (USD777,000) and KZT174 mil-
lion (USD414,000) respectively under the government programs bearing an interest rate of 6% per
annum. The short-term borrowings are repayable in April 2021 and are secured against inventories
of USD4,729,702 (2019: USD4,424,634) (Note 14).
As of 31 December 2020, all working capital facilities of KZT2.5 billion (USD5,942,000) with Halyk
Bank JSC are available for drawdown.
Altyn Bank JSC working capital facility
On 31 December 2020, 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 12% per annum with a maturity date of 30 June 2021.
83
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 21.
LEASE LIABILITIES
Operating leases analysed as:
Non-current
Current
The Group
2020
USD
2019
USD
2,076,668
1,830,755
4,306,929
2,190,586
Balance as at 31 December
3,907,423
6,497,515
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 2020:
Maturity analysis:
Year 1
Year 2
Year 3
Less: Future finance charges
The Group
2020
USD
2,211,712
2,211,712
8,557
4,431,981
(524,558)
2019
USD
2,868,338
2,441,076
2,438,773
7,748,187
(1,250,672)
3,907,423
6,497,515
84
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020
Balance as at 1 January
Increase arising from adoption of IFRS 16
Payment of lease liabilities
Finance costs (Note 5)
Exchange differences
The Group
2020
USD
6,497,515
-
(2,646,232)
631,442
(575,302)
2019
USD
-
8,369,505
(2,855,674)
925,933
57,751
Balance as at 31 December
3,907,423
6,497,515
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
2020
USD
2019
USD
2020
USD
2019
USD
At beginning of year
(4,651,541)
(2,054,758)
Exchange differences
466,400
(27,400)
Recognised in profit or loss
(Note 8)
Recognised in other
comprehensive income
(184,715)
(2,569,383)
(190,071)
-
At end of year
(4,559,927)
(4,651,541)
-
-
-
-
-
-
-
-
-
-
85
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 Movement in net deferred tax assets/(liabilities) of the Group is as follows:
Opening
balance
Exchange
rate
differences
Recognised
in profit or
loss
Recognised in
other
comprehensive
income
Closing
balance
USD
USD
USD
USD
USD
2020
Temporary
differences:
Property, plant and
equipment
Inventories
Trade receivables
Accrued unused
leaves
Tax losses
Payables
Others
Total
2019
Temporary
differences:
Property, plant and
equipment
Inventories
Trade receivables
Accrued unused
leaves
Tax losses
Payables
Others
(5,995,170)
438,798
125,211
16,400
763,746
35,346
(35,872)
555,522
(40,992)
(14,342)
445,490
(13,601)
147,497
(1,696)
8,818
(59,455)
(704,291)
(2,973)
30,336
(19,954)
(48,674)
(190,071)
(5,184,229)
-
-
-
-
-
-
384,205
258,366
23,522
-
12,419
(54,210)
(4,651,541)
466,400
(184,715)
(190,071)
(4,559,927)
(6,365,666)
(48,576)
451,749
41,265
3,506
696
419,072
(16,457)
83,250
19,035
139
(2,774)
3,767,061
16,457
(3,019,772)
53,709
(21,911)
343
35
(18,706)
(13,996)
-
-
-
-
-
-
-
-
(5,995,170)
438,798
125,211
16,400
763,746
35,346
(35,872)
(4,651,541)
Total
(2,054,758)
(27,400)
(2,569,383)
86
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 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
2020
USD
2019
USD
2020
USD
2019
USD
238,000
226,000
-
-
The Group
The Company
2020
USD
2019
USD
2020
USD
2019
USD
Deferred income
1,598,852
1,502,755
Less: Amount due within
12 months
(106,420)
(81,387)
Non-current
1,492,432
1,421,368
Movement of deferred income are as follows:
-
-
-
-
-
-
The Group
The Company
2020
USD
2019
USD
2020
USD
2019
USD
At beginning of year
1,502,755
1,629,508
Exchange differences
Additions
Recognised in profit or loss
(145,419)
349,826
(108,310)
11,819
107,718
(246,290)
At end of year
1,598,852
1,502,755
-
-
-
-
-
-
-
-
-
-
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.
87
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 As at 31 December 2020, the related assets in the amount of USD817,138 were put into use (2019:
USD1,595,396). During financial year, the Group recognised USD108,310 (2019: USD246,290) in profit
or loss as other income on a straight-line basis over the useful lives of these related assets.
24.
TRADE AND OTHER PAYABLES
The Group
The Company
2020
USD
2019
USD
2020
USD
2019
USD
Trade payables
Other payables
Amount due to related
parties
Others
Total
2,594,495
3,346,081
1,466,186
2,831,208
-
14,397
9,875
16,289
4,075,078
6,203,453
-
-
-
-
-
-
-
-
-
-
The credit period granted by creditors ranges from 1 to 30 days (2019: 1 to 30 days).
Other payables mainly arose from purchase of property, plant and equipment and spare parts.
25.
ACCRUED AND OTHER LIABILITIES
Accrued directors’ fees
Advances from customers
Accrued salaries
Accrued unused leave
Others
Total
The Group
The Company
2020
USD
148,974
851,475
300,338
90,112
140,140
2019
USD
117,662
776,822
294,792
74,248
141,599
2020
USD
2019
USD
148,974
117,662
-
-
-
-
-
-
37,774
38,161
1,531,039
1,405,123
186,748
155,823
88
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 26.
TAXES PAYABLE
The Group
The Company
2020
USD
2019
USD
2020
USD
2019
USD
Corporate income tax
210,302
12,955
Other taxes:
VAT payable
Royalties
Emission taxes
Pension fund
Personal income tax
Social tax
Withholding tax
Others
227,399
52,345
108,488
25,787
31,677
12,080
30,845
6,355
225,072
122,916
109,987
21,412
33,076
28,359
-
6,276
Total
705,278
560,053
27.
RELATED PARTIES
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Related parties include shareholders, directors, affiliates and entities under common ownership
(which the Group has the ability to exercise a significant influence).
Other related parties include entities which are controlled by a director, which a director of the Group
has ownership interests and exercises significant influence.
Receivables from/(payables to) related parties and other related parties, which arose mainly from
trade transactions and expenses paid on behalf, are unsecured, interest-free and are 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 USD30,140,000 (2019:
USD30,170,000) which bears interest at 8% per annum repayable by year 2033.
89
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 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:
Purchase of services
2020
USD
5,469
-
2019
USD
9,403
13,037
Payable to related parties
2020
USD
-
2019
USD
9,875
Other related parties
Office rental
Programming services
Other related party
Office rental
90
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020
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
2020
USD
2019
USD
Steppe Cement (M) Sdn. Bhd.
Dividend income
5,819,487
8,678,970
Karcement JSC
Interest income
2,085,075
2,121,687
MECS Ltd.
Interest income assigned
730,000
885,000
Subsidiary companies
Nature of
transactions
Receivable from subsidiary companies
2020
USD
2019
USD
Karcement JSC
Intercompany loans
30,140,000
30,170,000
Karcement JSC
Interest income
165,100
168,952
MECS Ltd.
Advances
9,712
79
Steppe Cement (M) Sdn. Bhd.
Advances
94,920
2,955,360
Total
30,409,732
33,294,391
91
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 Compensation of key management personnel
The remuneration of directors and other members of key management are as follows:
The Group
The Company
2020
USD
2019
USD
2020
USD
2019
USD
Short-term benefits
758,880
751,760
100,000
100,000
Short-term benefits include contributions paid by the Group and by the Company to defined
contribution plans amounting to USD26,642 (2019: USD32,641) and Nil (2019: Nil) respectively.
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
Alternate directors:
Gan Chee Leong (Alternate to Javier del Ser
Perez)
Charlie Tingey (Alternate to Rupert Wood)
The Company
2020
USD
2019
USD
30,000
30,000
40,000
30,000
40,000
30,000
-
-
-
-
Total
100,000
100,000
The alternate directors, Gan Chee Leong and Charlie Tingey, are paid allowances of USD500
respectively for their attendance in board meetings to represent Javier del Ser Perez and Rupert
Wood respectively.
92
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 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
2020
USD
2019
USD
1,910,839
8,213,680
5,551,186
9,014,360
4,075,078
679,564
6,797,349
3,907,423
6,203,453
628,301
10,313,424
6,497,515
The Company
2020
USD
2019
USD
Financial assets
At amortised cost:
Loans and advances to subsidiary companies
Cash and cash equivalents
30,314,812
1,352,950
30,339,031
261,798
Financial liability
At amortised cost:
Accrued and other liabilities
186,748
155,823
93
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 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.
94
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020
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i
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 Annual Report 2020Steppe Cement Ltd.
The Company
2020
Financial Asset
Cash and cash
equivalents
Financial Liability
Accrued and other
liabilities
2019
Financial Asset
Cash and cash
equivalents
Financial Liability
Accrued and other
liabilities
GBP
EUR
MYR
Total
546
72
35
653
44,467
-
34,190
78,657
702
77
10
789
40,650
-
29,355
70,005
96
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 The following table displays the Group’s and the Company’s sensitivity to a 20% increase and decrease
of the functional currency of each subsidiary company and the Company against the relevant foreign
currencies. A benchmark sensitivity rate of 20% is used to report foreign currency risk internally to key
management and represents management’s assessment of the reasonably possible changes in foreign
exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated
monetary items and adjusts their translation at the year end for a 20% change in foreign currency
rates.
The sensitivity analysis below indicates the changes in financial assets and financial 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
2020
2019
Impact on profit or loss and equity
USD
GBP
EUR
MYR
RUB
The Company
GBP
EUR
MYR
(56,536)
8,423
56,898
8,763
(377,446)
729,258
7,490
68,314
6,527
15,493
Impact on profit or loss and equity
2020
8,784
(14)
6,831
2019
7,990
(15)
5,869
97
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020
(ii)
Credit Risk
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.
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 coun-
terparties are banks with high credit-ratings assigned by international credit-rating agencies.
The Group recognised additional loss allowance of USD813,812 to reflect the increase in
credit risk of certain trade receivables that are past due at the end of the reporting period.
Apart from trade receivables, there is no significant increase in credit risk in other financial
assets since initial recognition.
(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 2020, CAC JSC’s long-term loan of USD1 million (2019: Nil) and working
capital facilities of USD5.9 million (2019: USD6.8 million) with Halyk Bank JSC are available for
drawdown at the discretion of the directors. The Group expects to meet its other obligations
from operating cash flows and proceeds from maturing financial assets.
98
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020
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A
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020Annual Report 2020Steppe 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 2020 and 2019, 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 values, based on current economic
conditions and specific risks attributable to the instrument. The fair values 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 values 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 values of cash and cash equivalents approximate their fair values 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 values
approximate fair values 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.
101
Annual Report 2020NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 As of 31 December 2020 and 2019, the fair values of borrowings approximate their carrying values,
except for the following:
Fair value
Carrying amount
2020
USD
2019
USD
2020
USD
2019
USD
Borrowings
473,290
4,775,951
391,457
4,651,204
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 4.9% per
annum (2019: 4.1% per annum).
29.
CAPITAL COMMITMENTS
The Group has outstanding amount of contractual commitments for the acquisition of property, plant
and equipment of USD2,172,435 as at 31 December 2020 (2019: USD1,068,012).
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.
SIGNIFICANT EVENTS DURING THE YEAR
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 nearly all year round.
The Group abides by the requirements as activated by respective governments which includes
frequent sanitisation and workforce social distancing measures.
The Group and the Company continue to monitor 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 pandemic.
102
Steppe Cement Ltd.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020 103
Annual Report 2020 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 state-
ments 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 2020
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
31 May 2021
104
Steppe Cement Ltd. NOTICE OF THE 2021 AGM
NOTICE OF THE 2021 ANNUAL GENERAL MEETING
NOTICE IS HEREBY GIVEN that the 2021 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, 7 July 2021 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 2020.
2.
FINAL DIVIDEND FOR THE FINANCIAL YEAR ENDED 31ST
DECEMBER 2020
RESOLUTION 2
To approve the payment of Final Dividend of GBP 0.025 per
ordinary share of no par value each in respect of the financial
year ended 31 December 2020.
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
105
Annual Report 2020 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.
106
Steppe Cement Ltd. 107
Annual Report 2020 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