Amidst an environment of increasing prices and cement demand, Trinidad Cement Limited (TCL), the Caribbean’s premier cement provider, delivered a weak half year performance (report local financial commentators). For the six month period ended June 30th 2006 EPS decreased 37.5 per cent from T$0.32 to T$0.20 of the corresponding prior half year period.
Despite recording a 15.15 per cent increase in Revenues at the top line to T$837.8m, TCL’s Operating Profit suffered mainly due to quality issues incurred by the Group’s subsidiary Caribbean Cement Company Limited (CCCL) in the first quarter. These quality issues lead to the recall of substandard cement issues and subsequently a halt in production and sales. A first quarter provision of T$15.5m was made for potential customer claims arising from non conforming cement. Additionally, CCCL faced increased operating costs associated with fuel and power expenses which eventually translated into a first quarter loss per share (LPS) of J$0.22. Ultimately, a poor first quarter performance by CCCL took a it’s toll on the Group’s half year performance with Operating Profit decreasing 36.5 per cent from T$145.3m to T$92.3m.
A quarterly analysis of the Group’s performance indicates that an improved performance by CCCL in the second quarter translated into an improved second quarter performance. Operating profit for the second quarter increased by 56.0 per cent from $35.9m in the first quarter to $56.3m, accompanied by a corresponding increase in quarterly operating profit margins from 9 per cent to 13 per cent. An improved second quarter operating performance ultimately filtered into an improved second quarter group eps of $0.12, an increase of 50 per cent from the first quarter eps of $0.08.
The second half performance of TCL will depend to a large extent on the recovery efforts of CCCL. Whilst some of the issues related to cement production in the first quarter have been resolved, the company continues to incur higher fixed costs associated with the importation of cement owing to the combination of halted production in the first quarter and current cement shortages in Jamaica. The Group’s Chairman also disclosed that CCCL continued to be impeded by increased energy costs in the second quarter of the financial year. These factors aside, CCCL will also have to contend with increased competition in the remaining quarters of the year as the Government of Jamaica removed the special tariff on imported brands of cement earlier in the year.
TCL continues to be affected by high energy costs and is now faced with the daunting prospects of increased market competition. These factors are expected to adversely affect the Group’s bottom line. Even at the current price of $6.50 and a projected EPS of $0.50 TCL is trading at a forward PE multiple of 13 times.