Jul 2015 Financial News

TCL’s profits skyrocket from one-off gain of 197 million

Jul 20, 2015

Regional cement producer, TCL, which suffered four years of losses between 2010 and 2014, on Friday reported half year after-tax profit for 2015 that was more ten times better than it produced last year, according to the company’s unadited results for the period January to June, 2015, which were published on Friday.

For the first six months of the year, TCL’s recorded an after-tax profit of $335.4 million, which was substantially higher than the $32.8 million the company reported in the comparable period in 2014.

The 922 per cent increase in TCL’s profit so far for 2015 was largely due to the $197 million one-off gain that the company took for the restructuring of its debt earlier this year.

That debt restructuring exercise involved paying off the existing bondholders with a new nine-month, US$245 million loan ($1.57 billion), which resulted in TCL benefitting as a result of early repayment.

In an earlier attempt at debt restructuring, involving an expensive, ten-day, six city roadshow in the US and Canada in May 2014, former TCL CEO Rollin Bertrand attempted to raise US$300 million on the US junk-bond market. That attempt ended in failure as the potential North American investors demanded stricter covenants and higher interest rates than the company was paying at that time. Bertrand was terminated by the board by letter on September 22, 2014 following a review of his performance.

But even without the one-off gain of $197 million, TCL’s earnings seem impressive. While the company reported a marginal increase in its revenue of 1.3 per cent to just over $1 billion, its earnings before interest, tax, preciation, impairment, loss on disposal of property, plant and equipment and net debt restructuring jumped by over 54 per cent to $319.4 million from $207 million.

TCL’s operating profit—which includes depreciation, impairment and loss on disposal of property, plant and equipment—soared by 86 per cent to $264.3 million for the first six months of 2015 from $141.9 million for the same period in 2014.

And the Claxton Bay-based company, which has subsidiaries and operations throughout the region, experienced a 728 per cent hike in its profit before tax, which moved to $368.6 million in 2015 from $44.5 million in 2014. TCL’s taxation charge for the first six months of this year was $33.4 million, which is nine per cent of its profit before tax, while the taxation charge for the same period in 2014 was $11.7 million, which was 26.3 per cent of its profit before tax.

In the directors’ statement, the company pointed out: “In light of the fact that the US$245 million ($1.57 billion) bridge loan has a maturity tenor of nine months, the full amount of this liability is reflected as current liabilities in the statement of financial position.

“As a consequence, the working capital has moved from a surplus of $0.6 billion at March 31st, 2015 to a deficit of $0.8 billion at June 30th, 2015. Net cash balance at the end of Q2 2015 was $529.7 million compared to $77.1 million at Q2 2014.”

Contacted for comment on the company’s results on Friday night, TCL chairman Wilfred Espinet told the Sunday BG: “The board of directors feel very excited at the results that have been coming out of TCL since the restructuring exercise began. There is justification for what was done at TCL as the results prove.

“We are all realistic enough to know that there are headwinds—partly caused by the uncertainty as a result of the imminent general elections and also the international environment—but we feel that the company is better equiped to handle those headwinds than it was previously.”

The TCL chairman said the improved results reflected the substantial changes in how the company has been functioning, since the new board took over in August 2014.

“Stakeholders should take note of two things: the benefit that was derived from the early payment of the debt and the haircut that the company was afforded from our creditors.

“Secondly, we have already begun to see the benefits from tighter management of the company’s operations. That’s reflected in the fact that we have had savings in energy costs in both Jamaica and Barbados as we have switched our fuel to a less expensive commodity.”

Espinet explained that TCL was able to leverage its more cordial relationship with Mexican cement giant Cemex, its largest single shareholder, to get access to less expensive sources of petcoke.

“We are using a less expensive fuel in both Jamaica and Barbados, which has reduced our cost of production in both of those countries. These better prices are as a result of Cemex’s buying power. This is one way in which the synergy between TCL and its largest shareholder is working.”

Following a successful rights issue in March—which resulted in TCL raising US$57.1 million and issuing 128.8 million new shares—the shareholding of Cemex in TCL increased from 20 per cent to 39 per cent. The total amount of the rights issue subscribed by Cemex, through a holding company called Sierra Trading, was US$44.8 million. That was 78.5 per cent of the total contributed by TCL’s shareholders to the rights issue.

The decline in the cost of fuel in Barbados and Jamaica has resulted in a reduction in the cost of production at the Arawak Cement in Barbados and at the Caribbean Cement operation in Jamaica. At Arawak, that reduction in the cost of production has led to a decline in the losses reported by the TCL subsidiary in Barbados, said Espinet. In Jamaica, sales have increased, which along with the reduced cost of production has resulted in wider margins.

The TCL chairman also said that while the company’s production performance has been better, its management of cash has improved partly due to the fact that the company is getting better terms from its suppliers.

Espinet said: “Based on the enhanced cash flow from the better management of cash, we have decided to pay off part (US$20 million) of the US$245 million short-term loan. This means that the long-term debt that we are now looking to finance will be a maximum of US$225 million.”

TCL entered into a bridge loan credit agreement with Credit Suisse Cayman Islands branch, Citibank International Banking Facility and Citibank Trinidad as initial lenders. The interest rate of the 9 month loan is LIBOR + 6.25 per cent with quarterly increments of 1 per cent.

Both Credit Suisse and Citibank have indicated that they are committed to take part in the long-term debt, which would be a syndicated loan.

He said the company is focused on driving further internal efficiency enhancement. TCL is hoping to achieve this by the realignment of all of the stakeholders.

“What we have done so far has been a balance sheet restructuring, but what we need to do in the future is an operational restructuring to enhance efficiencies and to satisfy the expectations of all stakeholders: customers, employees, creditors and the shareholders,” said Espinet.

Asked if the company’s results would cause the board of directors to revise its projection of dividend payments in two years, Espinet said: “We indicated at the special meeting in February that by 2017 we would be back to a dividend environment and we think that that outlook is a prudent one.”

Looking forward to Tuesday’s annual meeting of the company, which will be held at the Trinidad Hilton ballroom starting at 5 pm, Espinet said that TCL is committed to open and transparent disclosure of information.

“We have nothing to hide and we will answer all of the questions asked by the shareholders.”

 

Source:
ANTHONY WILSON
anthony.wilson@guardian.co.tt
Sunday Business Guardian, SBG3
Sunday July 19, 2015