Dec 2010 Financial News

Huge losses at Carib Cement. Cement manufacturer turning to South America after bleeding near $1 billion.

Dec 08, 2010

Following a near $1billion loss for its third-quarter ended September 30, 2010, Caribbean Cement Company Limited (CCC) is looking to expand to a South American country early next year.

Group CEO Dr Rollin Bertrand said the company would expand to the continent by the first quarter of 2011, but efforts to uncover which country were unsuccessful as the Business Observer was told that negotiations with the country are at a 'sensitive stage'.

The Caribbean Cement Company plant in Rockfort, Kingston

"We have initiated discussions for the supply of significant volumes of product to a South American country, which will improve our asset utilisation and restore reasonable returns," wrote Bertrand in a statement accompanying the financial results.

The move comes as CCC reported a loss of $924.5 million for the third quarter ended September 30, 2010, more than three times the $291 million in losses suffered during the corresponding quarter last year.

The loss was due to a combination of factors that included a reduction in domestic sales, which cost the company $300 million; accrued redundancy costs of $93 million and the shut down of a Kiln for 40 days during August and September at a cost of $400 million. However, the shutdown of the kiln resulted in net positive cash flows of $113 million during the shutdown period as the company's clinker inventory was converted into cement which was then sold for cash.

Indeed, revenues from the sales of clinker more than doubled over the prior year's quarter from $8.1 million to $21 million. However, while sales in the cement for export grew by $22 million to $43.7 million, cement sales for the local market declined by $35 million to $117 million for the quarter. The sales for the company's cement in the domestic market has declined by approximately 31 per cent over the last three years according to CCC.

"The situation has been exacerbated by the continued and increased levels of dumped cement in the local marketplace, aided and abetted by inconsistencies in the recent rulings of the Anti Dumping Commission," Bertrand reported. The Commission has given the greenlight to imported cement from the US and the Dominican Republic to be sold in Jamaica with dumping margins of 59.7 per cent and 84.69 per cent respectively. The dumping margin is the amount by which the imported item is sold below the home market price. The necessary adjustments are made to take account of differences in sales conditions, taxation and other things which affect price comparability between the country of origin and the other market.

According to CCC, the importers have been increasing their level of imports and thus account for 38 per cent of domestic sales between August and September, while their market share has also grown to 19 per cent in August and 28 per cent in September.

"As a result of all the factors mentioned above, the quantity of cement sold by the company to domestic customers for the third quarter was 23 per cent below the prior year period and 17 per cent below the corresponding nine months," noted Bertrand. "This indicates that the situation continues to deteriorate at an accelerated pace," he said.

Sales volume in the company's cement has decreased to 39,000 tonnes per month during the third quarter of 2010, down from over 70,000 tonnes in 2006 when expansion efforts by the company was expected to yield increased sales volumes for CCC.

Continued negative cash flows indicate that CCC's current situation is unsustainable. Cash generated by operations, the day to day running of the business, has remained in the red quarter on quarter, ending at $1.4 billion at the end of the nine months in September. In an effort to recover, CCC has converted its US$15 million debt owed to the parent into redeemable preference shares, has reshechuled its operating lease of kiln 4 in January and has incurred $800 million of long term debt and $300 million of short term debt provided by the parent company. However, CCC's long term viability is contingent on its being able to generate sufficient cash from its operations to run the business.

The directors noted that further cost reduction methods and the recent infrastructure restoration projects by the government could cause a turnaround in its prospects.


Source:
By Alicia Roache Business Observer reporter
roachea@jamaicaobserver.com
Jamaica Observer
Wednesday December 8, 2010

http://www.jamaicaobserver.com/business/Huge-losses-at-Carib-Cement_8216628#ixzz17X47hYqy