The FBRK editorial team continues its series of publications dedicated to the analysis of the financial statements of Kazakhstan's socially entrepreneurial corporations (SECs). Today, we will examine the financial statements of SEC «Shymkent» for 2023, which demonstrate moderate revenue growth alongside a significant reduction in the volume of cash on deposits and a concentration of resources on social programmes in the region.
In 2023, SEC «Shymkent» showed positive growth momentum, although not as impressive as some other regional corporations. According to the consolidated financial statements, the company's revenue amounted to 2.32 billion tenge, and its net profit was 24 million tenge. 
The non-consolidated statements show slightly lower revenue figures – 2.04 billion tenge, while net profit is almost identical – 23.97 million tenge.
Notably, unlike many other SECs, the corporation «Shymkent» paid dividends to shareholders totalling 1.52 billion tenge, despite its modest net profit. This may indicate a policy aimed at returning investment to shareholders, even if it means a significant reduction in its own financial reserves.
The corporation's asset structure deserves particular attention. The total amount of financial assets according to the consolidated statements amounted to 27.65 billion tenge, of which 7.16 billion tenge were short-term financial assets measured at amortised cost, and 15.21 billion tenge were other short-term financial assets. Long-term financial assets measured at amortised cost amounted to 5.28 billion tenge.
A feature of SEC «Shymkent»'s financial activities in 2023 was a significant reduction in the volume of funds in bank deposits – to 1.51 billion tenge compared to 15.34 billion tenge in 2022.
At the same time, the corporation placed 13.6 billion tenge in REPO transactions through JSC «Kazpost» at rates of 14.75-15% per annum. This reallocation of financial resources may indicate a change in liquidity management strategy or a search for more profitable short-term investment instruments.
The deposit portfolio of SEC «Shymkent» is distributed across several banks with yields ranging from 14.75% to 15.75% per annum. The largest amounts are placed in JSC «Nurbank» (431 million tenge at 15.75%), JSC «Freedom Finance Kazakhstan» (375 million tenge at 15.5%) and JSC «Bereke Bank» (305 million tenge at 15.2%).
Participation in social programmes plays a significant role in the corporation's activities. The SEC's balance sheet includes liabilities under the Stabilisation Fund for food products amounting to 8.77 billion tenge. Funding comes from the «Department of Agriculture and Veterinary Medicine of the City of Shymkent» and is intended for the purchase of socially significant food products, as well as providing loans to private enterprise entities at a rate of no more than 1% per annum for a period of up to 3 years without payment of remuneration.
The company's personnel expenses raise certain questions regarding efficiency. According to the consolidated statements, 714.6 million tenge was allocated for staff remuneration (33.9 million in cost of sales, 62.8 million in selling expenses, and 618 million in administrative expenses).
At the same time, remuneration for key management personnel reached 131.7 million tenge for 16 people (an average of 8.23 million tenge per person) (compared to 100.8 million tenge for 13 people (an average of 7.75 million tenge per person) in 2022).
The non-consolidated statements show slightly smaller amounts – 113.6 million tenge for 11 people (an average of 10.33 million tenge per person) (79.7 million tenge for 7 people (an average of 11.39 million tenge per person) in 2022).
The investment activities of SEC «Shymkent» are represented by participation in several projects. The company owns a 49% stake in the LLC MFO «Shymkent Atameken», established in April 2021 jointly with the Chamber of Entrepreneurs to provide micro-loans to individuals and legal entities. The share of profit from this organisation for 2023 amounted to 31.1 million tenge.
Furthermore, SEC «Shymkent» owns a 42.36% stake in LLC «Management Company «Shymkent Bus», which is engaged in passenger transportation by urban transport. The authorised capital of the transport company is 173.5 million tenge. However, as of the end of 2023, losses recognised under the equity method exceeded the amount of the investment by 102.9 million tenge, indicating financial difficulties in this project.
It should be noted that the activities of SEC «Shymkent» have previously attracted public attention. In 2021, News Price published a large-scale investigation into JSC «SEC Shymkent» under the leadership of then-chairman Baurzhan Kankin. Journalists revealed how state Socially Entrepreneurial Corporations, instead of developing regions, increase Kazakhstan's external debt and enrich management through schemes involving budget funds, land, and the parallel growth of family businesses.
The investigation uncovered serious financial violations. In 2019, the Accounts Committee discovered financial violations in the work of the Shymkent Akimat totalling 2 billion tenge and inefficient planning amounting to more than 10 billion tenge. Of particular note is the fact that JSC «SEC Shymkent» issued bonds worth 10 billion tenge at 9.75% per annum without notifying the Ministry of Finance, leading to additional interest costs of 2 billion tenge.
Furthermore, in the financial statements for 2019, the company reported income of 3.7 billion tenge from the sale of fixed assets, even though their value at the beginning of the year was only 11 million tenge. This raises serious questions about the reliability of the financial statements and possible asset manipulation.
Despite promises of transparency and efficiency, under the leadership of Baurzhan Kankin, the SEC carried out operations contrary to the interests of the state and the region, which significantly reduced the effectiveness of the corporation as a tool for regional development.
Analysing the financial statements of SEC «Shymkent» for 2023 in the context of the organisation's history, it can be concluded that the corporation combines commercial and social functions, but at the same time shows relatively modest financial results. The significant reduction in deposits while maintaining substantial management personnel expenses requires particular attention regarding the efficiency of resource use.
The payment of large dividends despite low net profit also raises questions about the long-term sustainability of the chosen financial strategy. At the same time, the implementation of important social functions, such as maintaining the stabilisation fund for food products, confirms the significant role of the corporation in the economic and social sphere of the region.
Given the history of financial violations uncovered in the past, it is likely necessary to strengthen oversight of the financial activities of SEC «Shymkent» and ensure greater transparency in the use of state funds.
We previously analysed the financial statements of SEC «Astana» for 2023. In future publications, the FBRK editorial team plans to continue the analysis of the financial statements of other regional SECs, which will allow for a comprehensive picture of the effectiveness of these development institutions and their contribution to Kazakhstan's economy.
To be continued...