The rise and fall of cement, construction - Carib Cement 3Q loss drags down parent TCL

The rise and fall of cement, construction - Carib Cement 3Q loss drags down parent TCL
Published: 21 November 2008

Caribbean Cement Company Limited is predicting that the market for cement will remain soft into December and that demand will likely hit four-year lows, tracking with a downturn in construction activity reported at the top of the week by the Planning Institute of Jamaica (PIOJ).

Within the September quarter when the PIOJ reported that economic activity in the construction sector declined in real terms by 1.8 per cent, Caribbean Cement also reported that its sales had fallen by 6.5 per cent or by 12,164t relative to the 2007 quarter.

"This reflected lower levels of activities in both residential and non-residential components due to a downturn in both civil engineering and Northern Jamaica Development Project and a reduction in housing starts and completion," said the PIOJ Monday at its quarterly briefing on the real economy.

For the first nine months of the calendar year, cement sales were down by 27,523t, or 4.6 per cent, and tracking with it, construction GDP recorded negative growth, at -0.5 per cent.

Based on Wednesday Business’ estimates, Carib Cement’s volume sales will likely end the year at or around 785,000 tonnes if the company matches its sales performance in the fourth quarter of 2007, still insufficient to take it within striking distance of the 813,448t sold throughout 2007.

Those projections could change if Caribbean Cement, as it says it will, ’aggressively targets’ additional market outside of Jamaica in the final quarter.

Improved asset utilisation

In early August, General Manager Anthony Haynes told Wednesday Business that the target for exports was five to seven per cent of production within the fourth quarter, but now the company in the statement accompanying its newly released nine-month earnings report says it would triple that to 15 per cent in a push for improved asset utilisation.

The revision follows depressing earnings for the company in the third quarter with a reported a loss of US$99m (reduced to a net loss of US$57m after tax credits), notwithstanding a US$450m gain in revenue to US$2.27bn in the three month period, but plans to return to profitability in the December quarter through cost controls and gains in efficiency expected from the new kiln commissioned last quarter.

The company has stumbled in its performance year to date because of increasing transportation costs, utilities and fuel to fire up its kilns. Its profitability has suffered a 41 per cent cut as a result.

In the nine months to September 30, the company made US$215m; in the same period a year ago, net profit was US$365m - a near US$150m difference.

Notwithstanding, revenues have climbed by more than US$1.1bn to US$6.6bn on the back of pricier cement. A year ago, Cement Company grossed $9,198 per tonne, this year the average is US$11,596/t.

Indeed Caribbean Cement reports that its market has increased to 85 per cent within the period, though it sold lower volumes. Based on PIOJ figures, however, its share would have been almost seven percentage points higher, at 91.6 per cent.

Increased production

"Total cement-supplied production and imports to the market increased by 3.6 per cent to 191,922 tonnes," the agency said.

"A total of 15,565 tonnes of cement was imported during the review quarter, while no cement was imported during the corresponding quarter of 2007."

Nevertheless, Caribbean Cement continues to protest the government’s decision to extend the waiver of the Common External Tariff on cement imports for another 12 months, denying the monopoly cement producer the protection it once successfully sought while it expanded the Rockfort plant.

Carib Cement had argued that it needed safeguards against imports to protect its market if it were to remain viable after investing heavily in the multimillion Rockfort project - the cost of which was last revised to US$177m, up from the original US$120m estimate - to bring capacity to 1Mt. Work is now underway on Mill 5, the completion of which has been pushed back from the first quarter of 2009 to the second quarter.

The Jamaican company’s performance year to date has also taken a toll on its parent, Trinidad Cement Limited, whose profits fell from TT$145 million in September 2007 to TT$129 million in the current nine-month period. Rockfort was the only operation within the group to fall below its 2007 performance,

TCL said delays in commissioning the new Kiln 5, which began July 11 and was completed in September due to intervening storm, Gustav, in addition to a soft cement market, were chief contributors to the TT$32m cut in group operating profit.

Both TCL and Carib Cement are operating with negative cash of TT$233m and J$183m, respectively, and both are heavily in debt.

Already highly leveraged, TCL says it is hunting another US$25m long term loan to "enhance liquidity", having borrowed short term in the third quarter to facilitate expansion and modernisation activities in the group.

TCL’s long term debts of TT$1.6bn already outpace total equity by more than TT$40m.