The cost of claims against Caribbean Cement Company Limited (CCCL) for damages due to defective cement is expected to exceed the initial provision of $160 million. Alice Hyde, CCCL marketing manager, made this disclosure on Wednesday, at the Mayberry Investments Limited investor seminar held at the Knutsford Court Hotel. Caribbean Cement Company plant
"We will have to revise the provision for damages and publish the new amount accordingly" said Hyde. According to her, the actual amount that CCCL was exposed to is not fully known as the $160 million provision is "outside" CCCL’s insurance coverage. Hyde would not disclose the amount CCCL’s insurance provider has paid to claimants.
That said, Hyde told the audience that CCCL has paid out $100 million so far. She expects that the situation will soon be resolved. "We have about 1,000 complaints and have visited or addressed 80 per cent of those complaints. Some of these have moved into claims with dollar values attached; we have settled a significant quantity of these claims," Hyde stated. "By the end of the year, we will close off the claims in the system."
In February, Carib Cement, in error, released defective cement into the market, triggering a severe shortage and sending the construction sector into a tailspin.
"There was a quality issue earlier this year where we inadvertantly distributed bad cement," said Hyde in attempting to explain the problem. "We introduced a new material into the cement creation process. The problem is that when you introduce a new product, you must ensure that the equipment is calibrated properly. This was not done. At the same time we had grindability and milling efficiency problems."
According to Hyde, between January to June 2005, sales were 461,000t and between July and December that year this fell by 15 per cent to 401,000t. Operating profit for the same two periods declined by 252.3 per cent from $247.8 million to negative $4.5m. By the six month period ended June 2006, the full extent of the cement debacle revealed itself. Profit after taxes was a negative $234.3 million.
However, Hyde sees CCCL’s fortunes on the upswing. Firstly she noted that the company took corrective action to ensure quality output.
"We had self-initiated recalls. We shut down the plant in March for maintenance work and resume use of original raw material" said Hyde. "We sought guidance from experts in cement manufacturing and we developed a professional collaboration with the Bureau of Standards for more frequent testing."