Carib Cement loses J$190m in three months

Carib Cement loses J$190m in three months
01 June 2006

Caribbean Cement Company reportedly lost J$190m (US$2.94m) between January and March this year - with the deficit during the quarter following a 2005 full financial year in which the cement producer posted a dramatic reduction in net income. The company had a net profit of J$169m during the 2005 financial year, compared with J$842m in 2004.

The 2006 first quarter loss - that reversed profit of J$155 million during last year’s similar quarter - in part reflects costs associated with the crisis that was triggered with the discovery that the company had, in February, inadvertently placed sub-standard cement on the Jamaican market.

Carib Cement’s chairman, Brian Young, and Dr Rollin Bertrand, the CEO of Trinidad Cement, Carib’s parent, said the company had allocated J$160 million for possible claims related to the poor quality cement. That provision was a major cause of the loss for the quarter.

During the quarter, cement output dipped by 7.8 per cent below the volume of the comparative three-month period last year, to 213,368t. But revenue only slipped by 1.8 per cent to J$1.51bn, the slippage having been tempered by a price increase that benefited the company during the third quarter.

Carib Cement’s loss therefore was price-driven. For, during the quarter, the cement manufacturer had to suspend production, and recalled deliveries to the market while it investigated the cause and source of the inferior product. It resorted to importing cement to fill the gap - which it said was a relatively costly undertaking.

The cement firm also reported that between January and March, it had to absorb on additional J$100 million in fuel and power costs, plus net finance charge of J$47.4 million - the latter, according to the directors "due to higher borrowings and exchange losses".

The company also provided J$160 million against claims from players in the construction sector who were victimised by the inferior cement and who have sought compensation from the cement producer.

The result is that Carib Cement chalked up pre-taxation loss of J$290 million, compared with pre-taxation profit of J$218 million during last year’s first quarter. A J$107 million tax gain reduced this year’s pre-tax loss to net loss of J$190 million.

In a forward-looking advisory to shareholders, the directors seemed guardedly optimistic that the company can return to normalcy by the end of the current financial year. "We have resolved our production issues with regard to non-conforming cement and production and sales have resumed at near normal levels," said the chairman and group CEO.

They cautioned however, that "with the local market for cement being greater than our current production capacity and the difficulties in sourcing cement from overseas, the Common External Tariff (CET) of 40 per cent (was) removed in May 2006 to accommodate the import of cement over a twelve-month period".

The CET was put in place two years ago to protect Carib Cement from cheap imports while it undertook a US$123 million expansion and modernisation. The tax made it all but impossible for anybody to bring cement into Jamaica and effectively compete with Carib Cement, and so created a monopoly market for the producer. But the import duties were removed in light of the recent shortage to allow other players to bring cement into Jamaica.

The Carib Cement directors expect this development to affect the company’s performance. They also blamed the reduced profit on poor weather conditions "which resulted in a significant shortfall of clinker production". They said that five per cent increase in prices in July was designed to partially recover the "significant increases in energy costs in the latter part of 2005".

The company said that due to the less than positive outlook for the year, it is expected that "our parent company will have to provide further financial support to be able to meet our financial commitments in respect of the expansion and modernisation programme".
Published under Cement News