May 2010 Financial News

A poor first quarter for Caribbean Cement

May 12, 2010

Caribbean Cement Company Limited (CCCL) reported poor first-quarter performance linked to falling sales domestically and on the export market — for which the underperforming economy got blame — and also increased debt.

The debt charges this quarter were not due to the plant expansion project completed two years ago, but other liabilities, the company said Tuesday.

Its long and short term debts now total J$4.8 billion.

The majority of the financing for the plant upgrade was provided by parent company Trinidad Cement Limited, which carries the loan on its books, said CCCL finance manager Orville Hill.

To secure the debt, TCL owns "moveable sections of the equipment" on Kiln 4, Kiln 5 and Mill 5 at the Rockfort, Kingston plant, Hill said.

"TCL carries the debt so they own the asset," said Hill. "We pay a lease."

In this soft market, in which CCCL is fighting to be the sole provider of domestic cement with pushback from Government on behalf of importers, the Kingston-based plant sold 157,649 tonnes of cement in Jamaica, a decline of 20,000 tonnes or 11 per cent compared to the March 2009 quarter.

It exported 39,004 tonnes of cement to triple last year's 13,169 tonnes, but its overseas sales of clinker were dramatically reduced from 70,698 tonnes to just 4,451 tonnes in the current period, a 94 per cent decline.

The three income streams brought in revenue of J$2.16 billion this period, compared to J$2.6 billion year on year.

"The continuing contraction in the Jamaican economy and the resultant reduction in the demand for cement, along with the loss of sales to imported dumped cement, are the primary reasons for our disappointing financial performance," said chairman Brian Young and director Dr Rollin Bertrand in a co-signed statement to shareholders.

The men also took the opportunity to jab the Government for its stance on making room for importers, saying it recently sold cement to Dominican Republic and was charged a 30 per cent duty on its products, whereas cement entering Jamaica paid nil duty up to last yearend, and only pays 15 per cent now.

The 15 per cent is a Caricom agreed charge for cement entering the region, and is not peculiar to Jamaica. Jamaica is still trying to have the duty waived on a 15-20 per cent quota of the market, for which it needs Caricom's approval.

Caribbean Cement made an operating profit of J$84.7 million in its first quarter ending March 2010, but the out-turn was one fifth the J$418.6 million made on operations in the comparative 2009 period.

The operational gains were further depleted by a J$74.8 million debt financing bill that doubled in this quarter; and while CCCL closed the three-month period with net profit of J$4.6 million, it was a stark 96 per cent reduction on the J$130 million made in last year's first quarter, and a signal that the company may face another difficult period after its J$144 million loss in FY 2009.

Trinidad Cement Limited (TCL), putting a positive spin on its subsidiary's Q1 results, said Jamaica managed to breakeven despite high energy costs and decline in sales.

TCL too suffered from depleted sales, and notwithstanding a TT$10.1 million deal for the sale of two concrete subsidiaries from which the Trinidad company, booked a gain of TT$8.95 million, its net profit position was depressed by 31 per cent, from TT$50 million in Q1 2009 to TT$34.6 million in the Q1 2010 period.

Young and Bertrand, however, are telling shareholders that CCCL will likely improve sales through the export market, naming Haiti — which is under reconstruction after its capital was devastated by earthquake on January 12 — Belize and Bahamas as prospects for new business.

The company will also be freed from some of its debt for now, having got shareholder approval to convert US$15 million (J$1.34 billion) owed to parent TCL, for which Bertrand is group chief executive officer, to equity equivalent to 15 million redeemable preference shares.

The deal has boosted CCCL's capital base from J$3.24 billion at yearend December 2009 to J$4.58 billion.

But its working capital position remains fragile at just under J$13 million of excess current assets over short-term liabilities, though it has improved from a negative J$47 million at December 2009.

Within the context of falling sales and depleted liquidity — operating cash flows are also in deficit of J$143 million while net cash is a negative J$71 million — the Kingston operation has secured further assistance from TCL, which has agreed to reschedule the Kiln 4 operating lease payments "resulting in a reduction in lease charges, as Carib Cement transitions through this difficult period," the board members said.

The savings were not disclosed.

The plant upgrade has been billed as a US$177 million project but Caribbean Cement at December 2008 disclosed total commitments of J$18.5 billion (US$230.844 million) in operating leases to TCL.

The 2009 annual report with more current data is not yet available, but it would not reflect the US$15 million debt-to-preference equity conversion earlier this year.

The company has also pledged to defend its local market share, securing victory earlier in April - post its March result — when the Anti-Dumping and Subsidies Commission issued its preliminary ruling in CCCL's favour that American-made Vulcan cement was partially dumped.


Source:
business@gleanerjm.com
Wednesday May 12, 2010

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