Steppe Cement Ltd Interim Results – London Stock Exchange

Steppe Cement Ltd

Interim Results for the Half Year ended 30 June 2016

and General Market Update

1. Interim Results

Steppe Cement Ltd Interim Results - London Stock ExchangeSteppe Cement Ltd (“Steppe Cement” and “the Company”) posted a consolidated loss after tax of USD1.5 million for the six months ended 30 June 2016.

 

6 months

ended

30 June 16

6 months

ended

30 June 15

% of change

Sales (Tonnes)

761,771

717,654

6%

Consolidated turnover KZT million

8,190

8,279

(1%)

Consolidated turnover (USD Million)

23.7

44.7

(47%)

Consolidated loss after tax (USD Million)

(1.5)

(2.2)

Loss per share (Cents)

(0.7)

(1.0)

Average exchange rate (USD/KZT)

345

185

 

·     The Company’s operating cash flows are in Tenge (“KZT”) but as it reports in USD, the results for the period have been significantly impacted by the substantial devaluation of the KZT between August 2015 and January 2016.

·     Sales increased by 6% in volume but decreased by 1% in KZT.

·     The average ex-factory price decreased from 9,665 KZT /tonne to 8,781 KZT /tonne or 9% during the period. This is against a background of a reduction in domestic cement consumption.

·     Steppe Cement’s gross margin decreased from 30% to 22.5% mostly due to the lower selling prices.

·     Selling expenses and administrative expenses decreased by 47% and 49% in USD but remained constant as a % of sales due to strong cost containment.

·     The company booked foreign exchange gains of USD0.4 million in the first half compared with losses of USD1.5 million in 1H 2015.

·     In the context of the lower exchange rate and pricing environment, the Company generated operating profit before working capital of USD 2.8 million in 1H 2016 against USD7.3 million in 2015.

·     The Kazakhstan economy is expected to remain flat in 2016.

·     Reported inflation has been 5.4% until the end of August 2016. For the full 2015 inflation was 13.8%.

·     The USD/KZT exchange rate has been fluctuating between 330 and 390 in 2016 and the RUB/KZT from 4.6 to 5.3.

 

2. Production costs

·     Cement production costs per tonne increased by 4% in KZT despite the 13.8% inflation because of the efforts to optimize utilities (water, heating, compressed air and electricity) as well as general expenses (headquarter, headcount and security).

 

3. Update on the Kazakh cement market

·     The Kazakh cement market decreased by 10% during the first half of the year. Steppe Cement expects a market of about 9 million tonnes for the full year 2016 down from 9.6 million in 2015.

·     Steppe Cement increased its market share from 16% in 1H2015 to 18% in 1H2016. We expect to achieve 19% for the full year. Export represented 4% of the volumes in the 1H2016 from none last year.

·     Imports into Kazakhstan have decreased by 63% in 2016 as the rouble exchange rate has returned to its historical level against the KZT. Imports represent 5% of the market down from 12% last year.

·     Overall production of all factories in Kazakhstan has remained stable at 4 million tonnes for the 1H2016.

·     Exports from Kazakhstan now represent 4% of local production up from 1.5% last year.

·    Currently 73% of production in the country is coming from dry lines up from 62% last year.

·     Prices have been increasing in the second half as the market decline is slower than expected and inflation is starting to adversely affect production costs.

·     Road building activity as well as construction in Almaty and Astana remains strong.

 

4. Financing

The debt position of the company as of 30 June 2016 comprised:

·     A VTB Bank loan of USD11 million at 6.2% interest p.a. A USD5.5 million principal payment was subsequently made in July 2016. The final principal repayment is due in November 2016.

·     A long term USD10.7 million loan outstanding to VTB Bank for the purchase of the wagons and repayable monthly till March 2019 at 7.2% interest p.a. and secured with the pledge of the wagons.

·     A 1.45 billion Kazakh Tenge bond outstanding for redemption in November 2017.

·     A loan of KZT2,188 million with Halyk Bank JSC subsidised by the government. The loan comes at a fixed interest rate of 6% per annum and comprises of:

o    KZT500 million for 5 years working capital on revolving basis;

o    KZT1,688 million for capital investment of which:

§  KZT1,188 million have 2 years’ grace for principal and 8 years’ repayment; and

§  KZT500 million with no grace period and 10 years’ repayment.

·     We have maintained KZT3.9 billion of available working capital lines from Halyk Bank and Altyn Bank including the KZT500 million previously mentioned. The current interest rates are 6% p.a. in USD and 14% p.a. in KZT.

·     As of 10 September 2016, total bank debt net of cash amounts to USD28 million of which 64% is denominated in USD and the balance in KZT. 

Share