May 2011 Financial News

Carib Cement turns to exports

May 27, 2011

Jamaica's largest manufacturer of cement is increasingly turning to the export market in an effort to boost sagging revenues. Caribbean Cement Company is beset by falling sales and profits, an increase in imports in the local market and a contracting economy that has seen a fall-off in big projects.

However, Carib Cement is making a concerted effort to employ new strategies to redress declining sales. A ray of hope comes in the form of the infrastructure projects announced by Minister of Transport Mike Henry. A number of road projects are due to come on stream with the Chinese leading the way here. Carib Cement should see a piece of this action and it could not come at a better time.

Speaking with Caribbean Business Report at the Jamaica Pegasus in New Kingston, General Manager of Carib Cement, Anthony Haynes said: " We are predicting that we are at the end of the recession. Cement and economic growth are strongly correlated. We know from our own records that our cement sales for the first quarter of 2011 was comparable within one per cent of that of the same quarter in 2010. Now, that tells us that after fourteen consecutive quarters of contraction, at the very least we have bottomed out. I am willing to bet you that in GDP terms we will not see negative growth this year.

"The Jamaica Development Investment Fund has been very good for construction and has given us a good fillip. We started seeing it in the last quarter of 2010 and we definitely saw it this year. We know that there are some notable projects in place. But what is also very heart-warming to us is that there is a sense that business confidence is returning. There are two big hotel projects in the pipeline and Digicel is building its world headquarters in downtown Kingston. The government has also embarked on a number of state housing projects and there are some private sector housing projects due to come on stream. We are seeing it and feeling it that things are turning around and we are looking for that uptick."

J$250 million loss for the quarter

For the three months ended March 31, 2011 posted revenues of J$2 billion, a marginal decrease on the J$2.1 billion registered for the same quarter in 2010. Local cement sales fell to 142,637 tonnes compared to 157,649 for the same period last year. Export sales proved far more promising, at 52,063 tonnes compared to 39,004 for the same quarter last year. Carib Cement posted a net loss for the period under review of J$250 million as opposed to a profit of J$4.5 million for the corresponding period last year.

Clinker production was 6 per cent below the 2010 record performance and was impacted by rising energy costs. Nevertheless, Carib Cement still was able to increase its clinker export sales to 18,480, a significant increase on the 4,451 tonnes sold for the same period in 2010.

The Directors' Statement over the signatures of Chairman Brian Young and Group CEO Dr Bertrand Rollins explains the negative impact that rising electricity prices had on Carib Cement's operations. Addressing this issue the Statement reads: " Political instability and rising geopolitical tensions in the Middle East have occasioned the price of heavy fuel oils rising by 25 per cent over the average price for 2010, and this directly impacts electricity prices."

From 2008 to 2011, Carib Cement has lost 33 per cent of its domestic market. This has been due in part to imports from the Bicknell boys of Tankweld's imports of Vulcan Cement and imports from Norman Horne's Arc Cement which have undoubtedly taken market share away from the country's largest supplier of cement. Whether it will regain that lost 33 per cent and push back the importers remains to be seen.

Haynes readily concedes that the importers have impacted Carib Cement's volumes of sales but also points to a 10 per cent fall in net revenues and a record year last year for manufacturing but falling sales. He noted the issue of rising oil prices and its impact on the company's operations.

Carib Cement concentrates on the Caribbean Basin and South and Central America for its export markets. Its strategies have developed upon looking at niche markets. If one looks at say Montseratt, which takes 600 tonnes, Carib Cement has to find a way to deliver a small shipment in a very efficient way. Therefore it has to employ logistic skills in serving its markets. The company ship sizes range from 2,500 to 3,500 tonnes. Now if it had to service say, the Japanese market, which has been devastated by a horrendous earthquakes, its ships would have to transport around 40,000 tonnes per trip.

"Unfortunately it is difficult for us to compete. We have very high energy costs , high input costs, a fairly small home market which makes the recovery of your overheads difficult. In the Caribbean, commodities is not the way for us to go," said Haynes.

Looking to the export market

The Minister of Trade, Industry and Commerce Karl Samuda has commended Carib Cement for increasingly looking to exports to shore up shortfalls in the home market and is calling on Jamaican companies to follow its examples. Caribbean Cement's Business Development Consultant Tasty Blackman has done a commendable job seeking out new markets and championing the brand abroad. She has already helped to position the brand in Haiti, Belize and the Dominican Republic.

Earlier this month Carib Cement closed a deal with a reputable distributor in Cap- Haitien which is in the north of the country . Carib Cement's parent company, TCL, has formed an alliance with the WIN Group of the Mev family. This sees Carib Cement leasing land in Haiti which gives it access to a port. By next week, Carib Cement will be sending shipments of 3000 to 4000 tonnes of cement straight into Port-au-Prince twice a month. According to Haynes, Carib Cement will ship 150,000 tonnes of cement into Haiti this year and aims to triple that over the next three years.

"Our ambition for Haiti is to go in and build the brand and, as the country starts to develop, become a major supplier of cement. The aim is to ship 500,000 tonnes to Haiti within the next three years. Haiti is a key pillar for us to optimise our investment in our plant," explained Carib Cement's General Manager.

The plant at Rockfort in Kingston , Jamaica, is presently running at 60 to 70 per cent utilisation which in effect means that the company is paying for a 100 per cent of the plant and using just 60 per cent of it. In 2008 the company saw the plant producing 1 million tonnes of cement a year and that was expected to grow into the future but that has not materialised thereby putting the company in a difficult predicament. However, Carib Cement was able to double exports last year and the mission is to do so again his year.

It must be noted, however, that every time Carib Cement enters a new export market, it has to displace an existing player there. In most cases that player is the Mexican giant Cemex which can prove to be a forbidding task.

Dominican Republic

CARIB cement has made a foray into the Dominican Republic which is a 3 million tonne -a- year market. Unfortunately it has encountered resistance, with the authorities holding its shipments and citing non-compliance with its bureaucratic procedures for doing so. It has now caused a rift in trading relations between the two countries.

The importance of this market cannot be understated bearing in mind that Jamaica does 700,000 tonnes a year, with Haiti now doing a million tonnes a year. For many years the Dominican Republic has been a closed market. If Carib Cement were to get 5 per cent of that market it could fundamentally change its business model in that it no longer will have to ship small volumes to small markets and the freight costs will become a lot better.

"The Dominican Republic , like Haiti, is very important to us. We are getting obviously a very strong push-back from the cement producers across there. It has taken us a year to get through the bureaucracy and protocols in that country. I think Minister Samuda's strident stance is very appropriate . He has demonstrated a consistency in how he deals with these issues. What he is doing is batting for Jamaican products.

"We have a so-called free trade area within CARICOM, we have formed CARIFORUM and there is the EPA. You can't have all these agreements and then see them frustrated by very narrow nationalistic interests. As a company we have done our best and complied with the system. Here I would like to thank Minister Samuda because when we hit the roadblock, he intervened and his support was most forthcoming. I am greatly appreciative of that," declared Haynes.

With the Jamaican government peparing to announce a slew of infrastructure projects, one would have thought that it would be incumbent on contractors and builders to use local products, thus giving a boost to the local economy. Perhaps Carib Cement could be written into specs bearing in mind that the company is sure that it can comply with any international standard. It should have the opportunity to offer its product to big construction companies coming into Jamaica. Here Haynes sees Carib Cement prices as being very competitive. The Chinese have expressed great interest in Jamaica, and Carib Cement has not hesitated in going out to meet them and negotiated how best to meet their supply and demands. The same applies to the recently announced NHT projects - it is a question of how best Carib Cement can play a role here.

Business development and looking to exports is very much a part of Carib Cement's strategy to bolster sales. Here Tasty Blackman sees that this should be obvious not only to Carib Cement but to all Jamaican businesses.

Blackman contends: " Jamaica is a market of 2.5 million people whereas the Dominican Republic has 11 million people and lies in close proximity to Jamaica. It has opportunities for product and growth. You have to study marketing you hope to enter carefully and make sure your product can meet the requirements and needs of those markets.. One has to pay particular attention to freight costs, knowing the regulations and forming relationships that are successful to business development. Both with the private sector and government entities. You have to comply with the intended export market one hundred per cent. You cannot afford to be remiss here and I cannot stress enough how critical this is.

"There are tremendous opportunities out there for Jamaican products and services, but we need to go and look for them and do the necessary research. Because those markets do not come to you. The free market rules. China is looking to come into the Jamaican market and we have to understand what it wants and demands if we are to do business successfully.

"We see ourselves as the supplier of choice for the region and that has become our mission. We have a number of things going for us including the fact that we are English-speaking and we are training our people to be bilingual. We believe that our product and relationship skills distinguish us from our competitors. We had to become culturally sensitive and strengthen our after-sales support. As a smaller manufacturer relative to the traditional bigger ones we are agile and we are responsive to their needs to cater to their specifications and modifications whenever they need it."

Belize

Carib Cement are pursuing opportunities with the runway at the airport in Turks Caicos and the near-complete airport in Belize. It is now attempting to corral a number of these projects throughout the region.

This year, the company has extended its footprint in Belize, a market which has a number of manufacturers in close proximity. Blackman says that the Carib Cement brand there is well recognised and respected. She also notes a cultural connection between Belize and Jamaica which has helped the company. Belize, she adds, has been very receptive to Carib Cement, with it to some extent displacing Cemex there. It now has 30 per cent of the market there and ships 3,000 tonnes a month.

Recently there has been a prevailing view that CARICOM has been ineffectual and in fact has been a hindrance rather than a help. Haynes has not experienced that and says that Carib Cement has been well greeted in Belize, St Kitts and the Cayman Islands. He sees the challenge of entering non English-speaking markets like Haiti and the Dominican Republic where it is not only linguistic hurdles that have to be overcome but cultural ones as well.

Returning to profitability

The quarter ended March 31,2011 was not a particularly good one for Carib Cement but it is determined not to let that define its year . How does Haynes view the upcoming quarters and how does he intend to return to profitability?

" It is going to take us a little while to crawl out of the hole that we are in. There are a number of positives for us and that includes our entrance into Haiti. We have big ambitions for South and Central America. There is a dam being built in Costa Rica and Colombia's GDP is growing at a very good clip. We were not successful on bidding on the Panama Canal project, but never mind that.

" As we push for revenue growth and sales, another worry is the financing costs we have for these assets that are underutilised. Re-engineering the debt of the TCL Group will no doubt help us because it will reduce the debt service obligations that we have. That will allow us to build a little war chest for operational purposes.

"I think it is important that we do not become too optimistic and have an expectation that everything in the world will become wonderful overnight. I think that in a year to eighteen months' time, Caribbean Cement will definitely be getting itself out of this hole and back into profitability mode. The plan is to get a windrush from both the domestic and export markets."


Source:
Al Edwards
Jamaica Observer
Friday May 27, 2011

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