Mar 2009 Financial News

Carib Cement's profit jump on improved efficiencies... but FX losses drag down bottom line

Mar 18, 2009

Were it not for a near-14 per cent devaluation in the Jamaican dollar against its main trading counterpart - the US dollar - Caribbean Cement Company would have seen an increase in its net profit last financial year.

The cement manufacturer made an operating profit of $949 million in 2008, 19 per cent higher than the $798 million it made during 2007.

Carib achieved this on higher revenue up from $7.84 billion to $8.81 billion, despite a 7.9 per cent reduction in sales volume.

Higher finance costs - $377 million compared to $138 million in 2007 - dragged down the bottom line, which showed a reduction in net profit from $522 million in 2007 to $416 million last year.

"This decline is due primarily to the very significant increase of $213m in foreign exchange translation losses during 2008, which is included in Finance Costs," said the company in its report to shareholders.

The reduction in cement volume sales from from 813,448 tonnes during the 12 months to December 31, 2007 to 748,723 tonnes last year, reflected tightening economic conditions, but the cement manufacturer said it maintained market share of 86 per cent.

To mitigate the effects of the sliding dollar, Carib Cement said in its report that "an aggressive export marketing programme is being pursued and, with the increased competitiveness of our product externally from the further devaluation of the Jamaican currency during the first quarteexpect exports to constitute at least 15 per cent of total sales for 2009."

A few weeks ago, the cement manufacturer's marketing manager Alice Hyde told the Business Observer that her company was expected to send approximately 200,000 tonnes of cement overseas and has even shipped clinker - one of the main ingredients of cement - to Trinidad.

The export drive is also expected to fill the gap created between production capacity, particularly in light of the company's expansion, and local demand. Domestic construction has been estimated to have declined by as much as 10 per cent.

The company commissioned the first phase of its US$170-million Expansion & Modernisation Programme, during the December quarter and has realised reduction in production expenses and a significant improvement in the profitability of the Group.

"Almost one-half of the net profit after tax for the year was earned in this quarter despite the major foreign exchange translation losses sustained in that period," said the report to shareholders.

"The scheduled completion of the cement mill expansion in the second quarter of 2009 will further improve the efficiency of the plant and, with the much improved production from Kiln 5, export sales in 2009 will be critical to maintaining output at the 2008 level."

The company complained again that "the local market is expected to remain soft and, with dumped cement from China still being imported into Jamaica without imposition of the 89.79 per cent duty ruled by the Anti Dumping Commission, high inventory levels of both clinker and cement are already putting strain on the Group's liquidity position."


Source:
Jamaica Observer
Wednesday, March 18, 2009

http://www.jamaicaobserver.com/magazines/Business/html/20090317T200000-0500_147738_OBS_CARIB_CEMENT_S_PROFIT_JUMP_ON_IMPROVED_EFFICIENCIES.asp