Steppe Cement Ltd Reports 1H15 results

Steppe Cement, Kazakhstan, has reported its 1H15 results.

Sales increased by 1% in volume but decreased by 9% in Tenge (KZT). As a consequence of the continuous devaluation of the KZT against the US$, the turnover in US$ decreased by 14%. The average ex-factory price decreased from KZT10 797 /t to KZT9665 /t due to competition from Russian companies. Despite the lower selling price, gross margin increased 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 t decreased by 13% in US$, as sales to Astana increased and the new fleet of wagons was fully utilised. The company booked foreign exchange losses of US$0.7 million in 1H15 compared with US$5.1 million in 1H14. Despite the lower price environment and flat sales, US$7.3 million was generated from operations before working capital changes in 1H15 compared to US$6.4 million in 1H14, as a consequence of lower production costs and tight control over expenses.

Production, wagons and cost cutting measures

All production is now coming from the dry lines; the wet lines have been mothballed. Production costs per t decreased by 12% in KZT (or 21% excluding depreciation). Line 5 is currently able to produce 3000 t of clinker with cash cost per t 16% lower than line 6 due to energy savings. Line 6 is able to produce 2400 tpd. All 330 railway wagons purchased in 2014 for cement transportation have been placed into operation with related outstanding debt at US$13 million at the end of June.

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 t for FY15 from 8.5 million in 2014. Steppe Cement decreased its market share from 19% in 1H14 to 17% in 1H15 as the company chose to maintain a significant stock of clinker. Imports into Kazakhstan have grown by 8% in 2015, but remain at 12% market share. Overall production of all factories in Kazakhstan has increased by 10% in 1H15 due to the commissioning of a new plant 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 comes from dry lines and 38% from wet lines. Prices have increased in the second half as plants have mostly run out of clinker stock and are working at maximum capacity. For the rest of the year the cement price will depend on the demand/supply balance and exchange rate with the Russian Rouble. The Kazakhstan Government continues its road-building plan.

Financing

On 19 June 2015 Steppe’s operating subsidiaries signed a loan agreement with Halyk Bank JSC, subsidised by government programmes, totalling KZT2188 million. 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.

Adapted from press release by Rebecca Bowden

Read the article online at: https://www.worldcement.com/europe-cis/11092015/steppe-cement-ltd-interim-results-534/