Annual Results

Annual results (unaudited) for the year ended 31 December 2010

Steppe Cement Ltd ("Steppe Cement" or "the Company") is pleased to announce its annual results (unaudited) for the year ended 31 December 2010:

 CEO Statement 

Steppe Cement continued to improve its volumes while the market confirmed the turnaround started in the second half of 2009, even though cement prices remained flat. Steppe Cement reduced its losses to USD 3.7 million, increased its capacity utilization to 75% and continued operational improvements that helped offset the effects of low cement prices and higher utility and transportation costs. Steppe Cement managed to successfully raise additional equity in November 2010 with proceeds mainly to be utilised towards the repayment of the bonds due in August 2011. Steppe Cement stands to benefit from both the deleveraging of its balance sheet and Tenge strength against the USD. The cement market continues to improve and Steppe Cement has started to reconsider the completion of line 5 subject to better outlook in market prices and financing.

The market volume increased by 12% in 2010 and we expect continued growth in 2011

The Kazakh cement market demand in 2010 amounted to 5.7 million tonnes, an increase of 12% compared to 5.1 million tonnes in 2009, confirming the recovery announced in the second half of 2009. Our expectations are that overall market demand in 2011 will increase by 7% to 6.1 million tonnes, a level close to that achieved in 2006.

Imports declined again in 2010 and the share of local producers increased from 78% to 80%. Average cement prices were stable when compared to the previous year in Tenge and USD terms at USD 54 per tonne ex-factory or approximately USD 63 per tonne delivered.

Steppe Cement managed to increase its volumes by 24% and its market share from 18% to 20%. We are seeking to maintain our market share and increase prices in 2011. 

The dry line continues to improve its performance while wet lines costs have been optimised

The four wet lines produced 597,513 tonnes in 2010, a reduction of 5% when compared to 2009. The dry line contributed 556,361 tonnes, an increase of 90% over 2009. This trend will continue in the coming years as the capacity of line 6 increases and line 5 is brought into production.

The wet lines can produce 2,000 tonnes of clinker per day or 2,450 tonnes of cement per day. However, preference is given to the dry line whenever technically possible.

Line 6 produced up to 2,100 tonnes of clinker per day in 2010 and it is now able to produce 2,500 tonnes per day of clinker or the equivalent of 3,100 tonnes of cement. Improvements in 2010 included pre heater fans, cooler, a new burner, modifications to the cooler, changes in the kiln inlet seal and the pre-heater.

We have improved the cement mills and they allow us to produce at least 150,000 tonnes of cement per month. We intend to run the wet lines and line 6 to their maximum capacity during the summer months and carry some stock during the winter months. 

Costs increased in 2010 driven by external inputs (electricity, coal and transport) but were partly offset by higher productivity and lower fuel consumption

During 2010, we had increases in the cost of electricity, coal and transportation while we managed to reduce the labour cost and the fuel consumption per tonne. This allowed us to limit the cash cost increase from USD 37 to USD 38 per tonne.Selling expenses reflecting mostly delivery costs increased from USD 8.2 per tonne in 2009 to USD 10.5 per tonne. This was due to a combination of higher wagon rental rates, rates charged by the Kazakhstan TemirZholy (the national railway company) and the fact that more cement was sold into markets further from the factory, such as Almaty, where a major sales effort was made.General and administrative expenses increased by 4% from 2009 while the official inflation rate was 7.8% in 2010.

In 2011, we again expect increasing costs of electricity and transportation that will be partly offset by the increasing productivity from the dry line resulting in lower energy consumption per unit of production. We intend to start a number of projects to reduce the impact of the inflation in utility prices. 

The labour count stands at 1,057 as of March 2011 compared with 1,125 in March 2010. We have 763 employees in the wet lines and administration and 294 in the dry line.

The Kazakh economy has continued to rebound in 2010, helped by higher commodity prices. According to National Bank of Kazakhstan the Gross Domestic Product grew by 7% in 2010. The government has maintained its program of road and railway construction and infrastructure investment in the main cities.Some of the main Kazakh banks have completed the restructuring of their debts and cut sharply the credit to the construction sector and the economy at large. We are now seeing signs of increased lending activity although the recovery will probably only be felt in 2012.

The VAT and corporate income tax rate remain at 12% and 20% respectively and it seems that further revisions are unlikely during 2011. Karcement, the wholly owned subsidiary of Steppe Cement, enjoys a 0% income tax rate until 2014.

Finance cost and loans

In 2010, depreciation and finance costs amounted to USD 9.3 million and USD 6.2 million respectively. 

During 2010, we successfully renegotiated the EBRD and HSBC loans. The loan's maturity was extended by two years to September 2015 and the interest increased to an average of Libor (6 months USD) + 5.9% from Libor (6 months USD) + 4.7%.In November 2010, Steppe Cement issued 25 million new shares in the AIM market of the London Stock Exchange at 40 pence per share that raised GBP 9.7 million net of expenses. The total number of outstanding shares stands at 179 million reflecting a stronger capital base. The proceeds were kept in cash or used to reduce short-term loans.Steppe Cement expects to repay the KZT 2.7 billion bonds listed in the Kazakhstan Stock Exchange in August 2011.As of 31 December 2010, the total indebtedness decreased to USD 73.7 million down from USD 80.7 million in 2009 and the cash reserves stood at USD 9.5 million. As of 8 June 2011, the cash balance exceeded USD 15 million.

Steppe Cement undertook a revaluation of the land and buildings during 2010 in line with the practice of revaluing the properties every five years. The result has been an increase of the value of properties by USD 12.7 million that is reflected in the fixed assets and equity.

We have restarted the budgeting and evaluation of the pending works to complete the refurbishment of line 5. The decision of the continuation will be made based on the evolution of the market, the competition, and the availability of long term financing.

Dividends will not be proposed in respect of the 2010 financial year. Neither is it expected that a dividend will be proposed in respect of the 2011 financial year.

 Javier del SerChief Executive Officer

Annual Report and Annual General Meeting 2011

Steppe Cement expects to release its 2010 Annual Report on its web site www.steppecement.com during the week commencing 20 June 2011.

The Company's Annual General Meeting will take place in its Malaysian Office at Suite 10, 10th Floor, West Wing, Rohas Perkasa, 8 Jalan Perak, Kuala Lumpur, Malaysia on, 4 July 2011 at 2.30 p.m.

Steppe Cement's AIM nominated adviser is RFC Corporate Finance Ltd.

Contact Stephen Allen or Trinity McIntyre on +61 8 9480 2500.

STEPPE CEMENT LTD

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

AND ITS SUBSIDIARY COMPANIES

INCOME STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2010

STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2010

STATEMENTS OF FINANCIAL POSITION

AS OF 31 DECEMBER 2010

STATEMENTS OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2010