Nov 2015 Financial News

TCL keeping Bajan plant…cutting cement price, layoffs to make Arawak fit

Nov 12, 2015

TCL chairman Wilfred Espinet says the regional cement producer is committed to keeping its Barbados subsidiary operational, as he unveiled plans to reduce the workforce at Arawak Cement, invest money in the plant to improve its efficiency and increase the company’s export earnings.

Speaking at a news conference at the Accra Beach Hotel in Barbados on Monday, TCL’s group CEO, Jose Luis Seijo said Arawak had experienced a 10 per cent improvement in its efficiency in the last six months and as a result, TCL has decided to pass on some of those gains on to its Barbadian customers, by reducing the cost of cement in that market this week.

The TCL directors declined to provide details of price reduction in the Barbados market, citing the need to communicate the decision to its customers first.

Espinet said the current board of directors—which was elected in September 2014—had concerns that some of TCL’s subsidiaries were losing money and the thinking was that these companies would either be fixed or sold.

“We have done a great deal of work on these companies and the management has decided that Arawak is a company that justifies us not only maintaining it, but investing heavily in it.”

He said the company plans to invest US$10 million at Arawak over the next three years, increasing the production efficiency of the operations.

There are also plans to reduce Arawak’s cost of production by reducing its current headcount of 200 by 40 workers.

Espinet said Arawak currently produces about 210,000 metric tonnes of cement a year, of which 76,000 tonnes is sold on the Barbados market and about 135,000 tonnes is exported.

He said the cement group plans to double the export of the commodity from Barbados in two years, which would increase exports to about 270,000 metric tonnes and the plant’s total production to at least 346,000.

He said Arawak currently earns US$20 million from the export of cement, and is the island’s second largest export earner. The business executive said that in two years time, if exports doubled, he expected that the plant would be the largest single export contributor to Barbados.

The TCL chairman explained that Arawak which is located in the parish of St Lucy, would be able to double its exports as there are plans to increase the capacity of the plant as well as improve its capacity utilisation.

Seijo said the demand for cement had declined by 65 per cent to 76,000 metric tonnes in the last ten years, while Espinet added in that period Arawak had an average annual increase of 4 per cent, which he argued was lower than the food index and the overall retail price index in Barbados.

Addressing an argument in Barbados that Arawak is able to increase the price of its product regularly because of the high tariffs that protect the company against cement imports, Espinet said: “Arawak makes a greater contribution to the Barbados economy than the protection it receives.”

On Tuesday, Barbados Minister of Industry and Commerce, Danville Inniss was quoted in the Nation newspaper as saying the government is preparing to reduce the tariff on imported cement from 60 per cent to 5 per cent. Inniss said he was concerned that Arawak sold cement cheaper in the Eastern Caribbean than in Barbados.

Away from the brink

In September 2014, TCL was on the brink of extinction, as the company decided to place a temporary halt on its principal and interest payments to its creditors, which was considered to be a condition of default.

Since the new board took over TCL on August 19, 2014, the fortunes of the company have been transformed.

For the first nine months of 2014, TCL declared an after-tax profit of $63.66 million, from revenues of $1.58 billion.

For the first nine months of 2015, the regional cement producer declared an after-tax profit of $419.25 million, which is more than six times the $63.66 million, for the corresponding period in 2014, from revenues that totaled $1.63 billion, just 3.1 per cent more.

TCL reduced its total liabilities (both current and non-current) from $2.77 billion for the first nine months of 2014 to $2.03 billion in 2015 and now has total net assets of $1 billion, almost doubled the $571 million for the first nine months of 2014.

The strengthening of TCL’s balance sheet was achieved by the company raising US$57.1 million from a rights issue in March this year and a two-stage debt restructuring exercise, which involved the group replacing high-cost debt amounting to US$280 million ($1.8 billion) as at September 2014, with a five-year, floating rate loan of US$200 million, which was arranged by Credit Suisse and Citibank.

As a result of its improved financial performance, the company’s share price has skyrocketed from $0.95 in May 2013 to $3.81 on Monday.

 

Source:
Business Guardian, BG7
Thursday November 12, 2015