Jul 2013 Financial News

TCL’s on the rebound—Bertrand

Jul 11, 2013

After three years of audited losses and five years during which the value of the company has declined by over 90 per cent, TCL chief executive Rollin Bertrand on Tuesday expressed confidence that the financially troubled cement producer, which is based in Claxton Bay, has finally turned around its fortunes.

Speaking in an exclusive interview with the Business Guardian on Tuesday in the Hyatt hotel lobby, Bertrand based his assessment of TCL’s future prospects on the company’s declaration of $14.1 million in unaudited after-tax profits for the first quarter of 2013 compared with a loss of $74.8 million for the same January to March period last year.

He also based his turnaround assessment on his insider’s knowledge of sales and profits at the company, which has not paid its shareholders a dividend since 2007.

Asked what he would say to the TCL shareholders, who have suffered a decimation in the value of their shares in the last five years, Bertrand said: “I would say to the TCL shareholders what the Cemex and Citibank boards told their shareholders: We are on the rebound. We got hit by a global economic crisis, but we managed it and managed our way through it and we are now on the rebound.

“So, hold on to your shares because the value is going up.”

Accounting for the losses totaling nearly $700 million that the company experienced in 2010, 2011 and 2012 and the fact that it was insolvent in 2011, Bertrand said TCL, like many other cement companies, was subjected to the global and regional crises that began in 2008, which were most strongly felt in the construction industry.

In the Caribbean, governments are the main drivers of infrastructure spending that uses the cement and concrete produced by TCL, he said, and most regional governments are financially strapped.

Bertrand argued that many of the cement producers in the world, such as Cemex, La Farge and Holcim were even more harshly impacted by the reduction in infrastructural spending that resulted from the 2008 “financial tsunami” than TCL.

Core business

Bertrand said TCL’s financial position today is mainly due to the global and regional issues, and not any big-picture mistakes that the company made.

“Strategically, we have not made any mistakes. If in 2005 when we were expanding Carib Cement (TCL’s Jamaican sunsidiary), we knew that a global economic crisis was coming and we still went ahead, then one could argue that we made a strategic error.

“From where I sit, we were encouraged by our lenders, our shareholders, by all of our stakeholders to expand and modernise our operations.

“We invested in our core business. We did not squander any money. We went in to larger markets in order to improve shareholder value.

“So from a strategic perspective, I believe we have done the right thing,” Bertrand said.

He said the fact that the expansion in Jamaica blew past its US$135 million budget by 50 per cent and missed its targeted completion date was not as a result of management mistakes.

He said it was “very common” for projects in that period to be over their budgets, as the company was told by the International Finance Corporation, the member of the World Bank Group and a co-financier of the expansion project.

“The feedback from the IFC was that all projects during that time period were over budget as a consequence of the rising prices of steel, copper and other commodities just before the crash,” said Bertrand, adding that the problems the company faced with the expansion project were “external impacts” and not of TCL’s creation.

Bertrand said: “I want to make the point that our lenders did not raise any red flags and they did a full audit of the expansion. Our external auditors did a full review of the expansion and raised no flags. There was no corruption, mismanagement or slackness. It was simply a rise in commodity prices.”

The cost overrun was financed by internally generated funds and by overdraft, Bertrand explained, as the lenders “did not take us particularly seriously,” when approached about additional funding. “I think that was an oversight on their part.”

He said TCL’s decision to complete the project was most important as the worst thing that could have happened to the company would have been not to finish the expansion project.

Bertrand said that if markets contract for the goods produced by a capital intensive, low variable cost, high break even industries—as the cement industry is—the only thing that a company can do is find new markets.

TCL has been pursuing four new markets over the last three years: Haiti, the French West Indies, Brazil and Venezuela, in an arrangement that involves cement from Jamaica for that country’s debt under the Petrocaribe oil pact.

TCL has already entered the Haitian and Brazilian markets, is about to start supplying to Martinique and Guadeloupe and is looking to finalise arrangements to supply Venezuela.

OWTU ‘unreasonable’

The TCL chief executive is not willing to concede that the 92-day strike carried out by the Oildfields Workers Trade Union (OWTU) from February 2009 was a management misstep either.

“I don’t see that as a mistake either because you can’t tell me that I must cut costs and manage costs—labour being a major cost—and yet when I take a stand to manage costs, you tell me it was a mistake,” he said.

Bertrand said TCL explained the dire financial circumstances that the company was in to the OWTU “on numerous occasions.”

He said the trade union was “unreasonable” to strike “as it did not have to put the company and its members through 92 days of suffering for an outcome that is happening now, which is the matter is before the Industrial Court.”

During the first half of 2012, the TCL board and executive had to manage both the strike and the completion of the $2 billion debt restructuring agreements.

In his 2012 CEOs statement in the TCL annual report, Bertrand described the debt restructuring agreements as containing onerous conditionalities.

Bertrand said he did not agree that the board’s signing off on debt restructuring agreements that contained onerous conditionalities was a mistake.

“At the end of the day, you have to balance many issues when you are in senior management,” he said. “We could not have allowed the company to continue in that state of limbo.”

He cited the drying up of TCL’s working capital as one example of the uncertainty caused by the 18 months of negotiation for the debt restructuring. TCL’s lack of access to working capital led to nervous customers and suppliers and employees being in a state of uncertainty.

Bertrand said: “If you strip away the impairment and one-off issues such as debt restructuring, a major aspect of the poor performance in 2011 and 2012 was the absence of working capital. We were running the business on cash.”

Given the lack of working capital, which caused the shutdown of the plant in Jamaica as it needed to sell cement to pay for inputs, TCL had to close off the debt restructuring negotiations at some point.

He said TCL pointed out the onerousness of some of the restructuring conditions during the negotiations and after the agreements were signed.

Imposing two foreign directors on the TCL board was “not reasonable,” said Bertrand, because of the cost involved in flying them down. He also argued that the operational monitoring imposed by the lenders makes recommendations for plant improvements, but the debt restructuring agreements cap capital expenditure at US$15 million.

“No restructuring is perfect, but I think there are certain aspects of this restructuring the lenders would need to reflect on and possibly help the company and improve going forward,” said Bertrand.

Onerous debt

He said the ability of TCL to negotiate leniency from its lenders would be related to the performance of the company, its ability to meet its financial targets and its convenants.

As a result of the “onerous” conditions imposed by the lenders, TCL is looking to negotiate a new US$300 million debt restructuring next year and is already talking with lenders, including some foreign financial institutions.

This would result in lower interest rates on the company’s debt.

In the run-up to tomorrow’s annual general meeting, the TCL board turned down a proposal by some minority shareholders, representing 5.68 per cent of the company, to nominate five new representatives to be voted on by the TCL shareholders to join the board.

Bertrand said he believes Cemex, the Mexican cement giant that owns 20 per cent of TCL, will support the re-election of the five current directors of the local company’s board at tomorrow’s annual general meeting.

Five TCL directors retire by rotation and have offered themselves for re-election: Bevon Francis, Carlos Hee Houng, Brian Young, Jean Michel Allard and Bertrand.

Asked why he believed Cemex would support the current TCL board, Bertrand said: “Because I believe that they do not have a difficulty with the current board.”

Cemex acquired its 20 per cent stake in TCL in 1994 from the Government, which had commenced the privatisation of the Claxton Bay company in 1990. Cemex now owns 49,953,027 shares in TCL. The value of its stake in TCL has declined from $511 million at the end of June 2008 to $49.9 million today.

The TCL chief executive said he also believes that Cemex controls Baleno Holdings Inc, a mysterious company that is not registered locally, which owns 20,500,000 TCL shares or 8.21 per cent of the company.

Asked why he referred to Cemex as controlling 28 per cent of TCL if he did not have the evidence, Bertrand said: “It’s a perspective that some people have. We tried to get evidence but it was not forthcoming.”

Asked again why he believed that Baleno was Cemex, the TCL executive said: “When I asked who are the beneficial owners of Baleno, I don’t get an answer. So, you know, on the balance of probabilities.”


Source:
Anthony Wilson
Trinidad Guardian
Thursday July 11, 2013

http://www.guardian.co.tt/business-guardian/2013-07-11/tcl%E2%80%99s-rebound%E2%80%94bertrand