Steppe Cement Limited

Interim / Quarterly Report • Sep 11, 2015

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RNS Number : 6420Y

Steppe Cement Limited

11 September 2015

Steppe Cement Ltd

Interim Results for the Half Year 30 June 2015

and General Market Update

1. Interim Results

Steppe Cement Ltd ("Steppe Cement" and "the Company") posted a consolidated loss after tax of USD2.2 million for the six months ended 30 June 2015.

	6 months ended 30 June 15	6 months ended 30 June 14	% of change
Sales (Tonnes)	717,654	709,459	1%
Consolidated turnover KZT million	8,279	9,125	(9%)
Consolidated turnover (USD Million)	44.7	51.8	(14%)
Consolidated loss after tax (USD Million)	(2.2)	(4.1)
Loss per share (Cents)	(1.0)	(1.9)
Average exchange rate (USD/KZT)	185	176

·     Sales increased by 1% in volume but decreased by 9% in Tenge ("KZT"). However, as a consequence of the continuous devaluation of the KZT against the USD, the turnover in USD decreased by 14%.

·     The average ex-factory price decreased from 10,797 KZT /tonne to 9,665 KZT /tonne or 10% during the period. The decrease was caused by the competition from Russian companies helped by the Rouble exchange rate and the reaction of the main local factories to keep their market shares. This situation evolved in line with the variations in exchange rate.

·     Despite the lower selling price, Steppe Cement's gross margin increased slightly from 29% to 30% due to the lower cost of operation from running only the dry lines. Excluding depreciation, cash gross margin increased more markedly from 36 to 43%.

·     Selling expenses per tonne decreased by 13% in USD as sales to Astana increased and the new fleet of wagons was fully utilized decreasing rent expenses.

·     General and administrative expenses decreased by 17% during the period or 6% if the provision for stocks is excluded.

·     The company booked foreign exchange losses of USD0.7 m in the first half compared with USD5.1 million in 1H 2014.

·     Despite the lower price environment and flat sales Steppe Cement generated USD7.3 million from operations before working capital changes in 1H 2015 compared to USD6.4 million in 1H 2014. This is mostly the consequence of lower production cost and tight control over expenses across the board. In addition receivables were reduced and payables increased in a concerted effort to maximize liquidity of the company. Cash was kept in USD as a hedge against a potential KZT devaluation, while complying with the requirements of all loan ratios.

·     The Kazakhstan economy is expected to grow at 3% in 2015.

·     Inflation has been maintained below 2% during 2015 but it is expected to increase in the coming months due to devaluation.

·     On 20 August 2015, the KZT was allowed to float and it sharply depreciated 30% from 188 KZT/USD to 240 KZT/USD. There is no current trading band for the KZT and its future evolution will be tied to the oil price as well as the Rouble KZT exchange rate. The company had, at the time of the devaluation, a net exposure of USD23 million in foreign loans.

2. Production, wagons and cost cutting measures

·     All production is now coming from the dry lines as the wet lines are mothballed.

·     Production costs per tonne decreased by 12% in KZT (or 21% excluding depreciation)

·     Line 5 is currently able to produce 3,000 tonnes of clinker per day and its cash cost per tonne is 16% lower than line 6 mostly due to energy savings.

·     Line 6 is able to produce 2,400 tonnes per day.

·     All of the new 330 railway wagons purchased in 2014 for cement transportation have been placed into operation. The total amount of debt related to the wagons outstanding as of end of June was USD13 million with USD2.2 million in principal payments payable yearly.

·     As the remaining wagons required by Steppe are not used year round, we have decided not to use the additional loan of USD15 million available from VTB to purchase additional units.  We will continue to rent during the summer season.

·     Significant efforts continued to be made to optimize utilities (water, heating, compressed air and electricity) as well as general expenses (headquarter, headcount and security).  The effects of these savings will be reflected in the second half.

3. Update on the Kazakh cement market

·     The Kazakh cement market increased by 10% during the first half of the year. Steppe Cement expects a market of 9.4 million tonnes for the full year 2015 from 8.5 million in 2014.

·     Steppe Cement decreased its market share from 19% in 1H2014 to 17% in 1H2015 as we chose to maintain a significant stock of clinker. We will recover some of the market share during the 2H as we have sold most of our stock in the third quarter.

·     Imports into Kazakhstan have grown by 8% in 2015 in light of the weakness of the Russian Rouble and despite the new cement factory that opened in the west of Kazakhstan. Imports remain at 12% market share, similar to last year.

·     Overall production of all factories in Kazakhstan has increased by 10% in 1H 2015 due a new factory commissioned (5%), increased productivity and faster use of clinker in stock when compared to 2014.

·     Exports from Kazakhstan now represent 1.5% of local production down from 6% a year ago. The relative strength of the Kazakh Tenge has forced the companies to sell almost all production locally.

·    Currently 62% of production in the country is coming from dry lines and 38% from wet lines.

·     Prices have increased in the second half as the factories have mostly run out of clinker stock and they are working at maximum capacity. For the rest of the year the cement price will depend on the demand / supply balance and the exchange rate with the Russian Rouble.

·     The Kazakhstan Government has continued its road building plan as well as the works in the International Exhibition to be held in Astana in 2017.

4. Financing

·     The debt position of the company on 30 June 2015 comprised:

o  A VTB Bank loan of USD22 million at 6.2% interest. A USD5.5 million principal payment was made in July 2015 and the Company retains a holding of USD5.5 million in cash to meet the USD5.5 million principal repayment due in November 2015. The remaining USD11 million is repayable during 2016;

o  A long term USD13 million loan outstanding to VTB Bank for the purchase of the wagons and repayable monthly till March 2019 at 7.2% and secured with the pledge of the wagons; and

o  A 1.45 billion Kazak Tenge bond outstanding for redemption in November 2017.

·     We have maintained KZT3.7 billion of available working capital lines from Halyk Bank and Altyn Bank.

·     On 19 June 2015 Steppe's operating subsidiaries signed a loan agreement with Halyk Bank JSC subsidised by government programs. The loan comes at a fixed interest rate of 6% per annum and is available for drawdown over the year to 19 June 2016. The loan totals 2,188 million KZT, and comprises of:

o  500 million KZT for 5 years working capital on revolving basis.

o  1,688 million KZT for capital investment of which

§ 1,188 million KZT have 2 years grace for principal and 8 years repayment

§ 500 million KZT with no grace period and 10 years repayment.

·     The loan will be used to partly replace the current working lines and for the capex requirements of 2015 and 2016 mostly in cement milling, utilities, packing and logistics.

·     Steppe Cement will not pay a dividend in this calendar year and will use the available cash flow to pay down mostly USD denominated debt.

A pdf copy of the announcement and the full interim financial statements is available on the company's website at www.steppecement.com.

Steppe Cement's AIM nominated adviser and broker is RFC Ambrian Limited.

Nominated Adviser: Contact Stephen Allen or Oliver Morse at +61 8 94802500.

Broker: Contact Charlie Cryer at +44 20 3440 6800

SUMMARY OF INTERIM FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 JUNE 2015 (UNAUDITED)

(In United States Dollars)

The Notes to the Interim Financial Statements form an integral part of the Condensed Financial Statements. Please visit the Company's website at www.steppecement.com to view the full interim financial statements.

STEPPE CEMENT LTD

(Incorporated in Labuan FT, Malaysia under the Labuan Companies Act, 1990)

AND ITS SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE PERIOD ENDED 30 JUNE 2015 (UNAUDITED)

		The Group				The Company
		6 months ended				6 months ended
		30 June 2015		30 June 2014		30 June 2015		30 June 2014
		USD'000		USD'000		USD'000		USD'000
Revenue		44,698		51,810		50		50
Cost of sales		(31,426)		(36,969)		-		-
Gross profit		13,272		14.841		50		50
Selling expenses		(7,398)		(8,463)		-		-
General and administrative
expenses		(4,326)		(5,199)		(235)		(296)
Operating income/(loss)		1,548		1,179		(246)		(246)
Interest income		1		1		-		-
Finance costs		(2,469)		(2,143)		-		-
Other expense, net		(1,372)		(5,441)		(11)		(39)
Loss before income tax		(2,292)		(6,404)		(196)		(285)
Income tax credit		51		2,285		-		-
Loss for the period		(2,241)		(4,120)		(196)		(285)
Attributable to:
Shareholders of the Company		(2,241)		(4,120)		(196)		(285)
Loss per share:
Basic (cent)		(1.0)		(1.9)

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE PERIOD ENDED 30 JUNE 2015 (UNAUDITED)

		The Group				The Company
		6 months ended				6 months ended
		30 June 2015		30 June 2014		30 June 2015		30 June 2014
		USD'000		USD'000		USD'000		USD'000
Loss for the period		(2,241)		(4,120)		(196)		(285)
Other comprehensive loss:
Item that may be reclassified subsequently to profit or loss
Exchange differences arising on translation of foreign subsidiary companies		(2,533)		(25,426)		-		-
Total other comprehensive loss for the period		(2,533)		(29,426)		-		-
Total comprehensive loss for the period		(4,774)		(29,426)		(196)		(285)
Attributable to:
Shareholders of the Company		(4,774)		(29,546)		(196)		(285)

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2015 (UNAUDITED)

		The Group					The Company
			Unaudited		Audited		Unaudited		Audited
			30 June 2015		31 Dec 2014		30 June 2015		31 Dec 2014
			USD'000		USD'000		USD'000		USD'000
Assets
Non-Current Assets:
Property, plant and equipment			142,329		151,695		-		-
Investment in subsidiary companies			-		-		30,500		30,500
Advances and prepaid expenses			815		51		-		-
Other assets			5,882		7,021		-		-
Total Non-Current Assets			149,026		158,767		30,500		30,500
Current Assets
Inventories			22,780		22,113		-		-
Trade and other receivables			7,891		3,949		-		-
Income tax receivable			1,300		1,211
Amount owing by subsidiary companies			-		-		40,210		40,377
Advances and prepaid expenses			2,348		2,514		18		6
Cash and bank balances			5,870		9,296		26		2
Total Current Assets			40,189		39,083		40,254		40,385
Total Assets			189,215		197,850		70,754		70,885

		The Group					The Company
			Unaudited		Audited		Unaudited		Audited
			30 June 2015		31 Dec 2014		30 June 2015
			USD'000		USD'000		USD'000		USD'000
Equity and Liabilities
Capital and Reserves
Share capital			73,761		73,761		73,761		73,761
###### Revaluation reserve			3,442		3,986		-		-
Translation reserve			(53,092)		(50,559)		-		-
Retained earnings/ (Accumulated loss)			88,805		90,503		(4,412)		(4,216)
Total Equity			112,917		117,691		69,348		69,545
Non-Current Liabilities
Borrowings			29,218		30,363		-		-
Deferred tax liabilities			7,197		7,400		-		-
Provision for site restoration			88		84		-		-
Total Non-Current Liabilities			36,503		37,847		-		-
Current liabilities
Trade and other payables			9,989		7,659		-		-
Accrued and other liabilities			8,567		6,639		1,406		1,334
Borrowings			20,575		27,089		-		-
Taxes payable			664		925		-		6
Total Current Liabilities			39,795		42,312		1,406		1,340
Total Liabilities			76,298		80,159		1,406		1,340
Total Equity and Liabilities			189,215		197,850		70,754		70,885

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD ENDED 30 JUNE 2015 (UNAUDITED)

			Non-distributable				Distributable
The Group	Share capital		Revaluation reserve		Translation reserve		Retained earnings		Total
	USD'000		USD'000		USD'000		USD'000		USD'000
Balance as at 1 January 2015	73,761		3,986		(50,559)		90,503		117,691
Loss for the period	-		-		-		(2,241)		(2,241)
Exchange differences arising on   translation of foreign subsidiary companies	-		-		(2,533)		-		(2,533)
Total comprehensive loss for the period	-		-		(2,533)		(2,241)		(4,774)
Transfer of revaluation reserve relating to the depreciation of property, plant and equipment through use	-		(544)		-		544		-
Balance as at 30 June 2015	73,761		3,442		(53,092)		88,806		112,917

			Non-distributable				Distributable
The Group	Share capital		Revaluation reserve		Translation reserve		Retained earnings		Total
	USD'000		USD'000		USD'000		USD'000		USD'000
Balance as at 1 January 2014	73,761		5,604		(25,622)		100,883		154,626
Loss for the period	-		-		-		(4,120)		(4,120)
Exchange differences arising on   translation of foreign subsidiary companies	-		-		(25,425)		-		(25,425)
Total comprehensive loss for the period	-		-		(25,425)		(4,120)		(29,545)
Transfer of revaluation reserve relating to the depreciation of property, plant and equipment through use	-		(592)		-		592		-
Balance as at 30 June 2014	73,761		5,012		(51,047)		97,355		125,081

The Company	Share capital		Accumulated losses		Total
	USD'000		USD'000		USD'000
Balance as at 1 January 2015	73,761		(4,216)		69,545
Total comprehensive loss for the period	-		(196)		(196)
Balance as at 30 June 2015	73,761		(4,412)		69,348
Balance as at 1 January 2014	73,761		(4,380)		69,381
Total comprehensive loss for the period	-		(265)		(285)
Balance as at 30 June 2014	73,761		(4,665)		69,096

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

FOR THE PERIOD ENDED 30 JUNE 2015 (UNAUDITED)

			The Group				The Company
			6 months ended				6 months ended
			30 June 2015		30 June 2014		30 June 2015		30 June 2014
			USD'000		USD'000		USD'000		USD'000
#### OPERATING ACTIVITIES
Loss before income tax			(2,292)		(6,404)		(196)		(285)
Adjustments for non-cash items			9,609		12,789		-		-
Operating Profit/(Loss) Before Working Capital Changes			7,317		6,385		(196)		(248)
(Increase)/ Decrease in:
Inventories			(767)		(3,390)		-		-
Trade and other receivables,			(4,702)		(5,192)		(12)		(11)
advances and prepaid expenses
Amount owing by subsidiary companies			-		-		167		6
Increase in:
Trade and other payables,			5,381		2,987		65		56
accrued and other liabilities
Cash Generated From/(Used In) Operations			7,229		790		24		(234)
Income tax paid			(94)		(1,135)		-		-
Interest paid			(2,432)		(2,058)		-		-
Net Cash Generated From/(Used In) Operating Activities			4,703		(2,403)		24		(234)
INVESTING ACTIVITIES
Purchase of property, plant and equipment			(669)		(10,343)		-		-
Purchase of non-current assets			(33)		(2,225)		-		-
Interest received			1		1		-		-
Net Cash Used In Investing Activities			(701)		(12,567)		-		-
FINANCING ACTIVITIES
Proceeds from borrowings			14,588		59,249		-		-
Repayment from borrowings			(21,829)		(44,853)		-		-
Net Cash (Used In)/Generated From Financing Activities			(7,241)		14,396		-		-
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS			(3,239)		(574)		24		(234)
EFFECTS OF FOREIGN EXCHANGE RATE CHANGES			(186)		(604)		-		-
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD			9,295		4,299		2		238
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD			5,870		3,121		26		4

This information is provided by RNS

The company news service from the London Stock Exchange

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