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This is why the Steppe Cement share price has slumped 14%!

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UK share markets are flattish in start-of-week trading as stubborn inflation-related fears and poor Chinese trade data sap investor confidence. Whilst movements are unspectacular the same can’t be said for the Steppe Cement (LSE: STCM) share price on Monday.

Prices of the building materials supplier have tanked 14% in morning trade to 45p per share. The Steppe Cement share price had fallen to a six-week low of under 42p at one stage.

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Steppe Cement — which manufactures cement in Kazakhstan — has slumped due to a negative reception to full-year financials.

Kazakh sales tipped to slow in 2021

Sales volumes at the company slipped 4% year-on-year in 2020 to 1.65m tonnes, it said. This annual droppage came in spite of sales growth in the broader Kazakh cement market. Volumes across the country rose 6% from 2019 levels to 9.4m tonnes.

The AIM-quoted share said that its own local sales decreased 6% “due to milling limitations during two months of the high season.” Export sales rose 20% year-on-year, however.

Production at Steppe Cement’s Karaganda cement factory in central Kazakhstan ran at 85% of capacity last year. It said that Line 5 produced 938,074 tonnes of cement last year because of two planned maintenance stops. Line 6 recorded output of 707,670 tonnes, meanwhile, in line with guidance.

Looking ahead, Steppe Cement said “the market demand in 2021 seems strong despite the effects of Covid-19 temporary lockdowns”. However, the business expects demand growth in Kazakhstan to cool from last year’s levels. It predicts an increase of between 2% and 4% “as oil prices have recovered and the government stimulus packages continue.”

The company is expecting total production at its Karaganda asset to rise to 1.75m tonnes in 2021.

Steppe Cement’s profits grow despite revenues drop

Steppe Cement’s lower volumes in 2020 caused total revenues to drop 6% year-on-year to $74.8m. Still, this didn’t derail strong profits growth at the business and on a pre-tax basis these rose 14% to $11.1m.

This was also despite a 3% drop in average selling prices, to $45.40 per tonne. Steppe Cement’s cost of production per tonne fell by the same percentage from 2019 levels thanks to lower electricity and coal costs. General and administrative costs rose by $600,000 year-on-year to $6.2m because of higher provision for doubtful debts and the withholding of $400,000 of tax on transfers from its Karcement arm to the holding company.

Capital investment at the company slowed in 2020 and Steppe Cement spent less than $1m in total. This reduced spending was directed towards packing improvements and steps to reduce power consumption. The reduction was due to “Covid-19 restrictions mostly during the summer of 2020,” which meant the company didn’t have a full complement of engineers.

Steppe Cement has targeted capital investment of $3m in 2021 to make up for the lower expenditure last year. It expects maintenance capital expenditure to fall from 2020’s levels of $2m too.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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