From Jamaican Gleaner

Negotiations on a new deal with Caracas to supply an additional 240,000 tonnes of clinker is on hold while Venezuela deals with its social unrest, says General Manager of Caribbean Cement Company Limited Anthony Haynes.

That deal would be the company’s second supplying clinker to Venezuela, following the 100,000-tonne contract that was executed in December and runs to April.

Caribbean Cement wants to tie up the new agreement in time for a seamless transition from the old contract to the new.

“The talks are ongoing but have been derailed by the upheaval,” said Haynes. “They are on pause.”

However, the Jamaican cement producer is bullish on eventually securing a new one-year arrangement with the South American country, and is hoping to secure an even better price than the US$8.5-million deal secured for the 100,000 tonnes of clinker.

Haynes said, however, that given the higher volumes, he suspects Caracas may be seeking a lower unit price.

Building on last year’s growth

Caribbean Cement hopes to grow both its domestic and export sales this year, building on its performance last year.

The cement company, based at Rockfort in Kingston, this week reported one of its best performances in recent years in which all its sales segments, export cement and clinker and domestic sales, all grew in 2013, leading to record turnover of $12 billion, compared to $9 billion the previous year.

The company also transformed an operating loss of $1.56 billion to an operating profit of $1.15 billion. But while its debt servicing bill was lower, due to a debt deal tied to parent Trinidad Cement Limited (TCL), the obligation alongside the cement maker’s foreign-currency exposure together erased its operation surplus, leading to pretax losses of $3 million in 2013.

It took tax credits of $117 million to push the cement producer over the profit threshold. With the boost, Caribbean Cement made net profit of $114 million or 13 cents per share.

The result is nonetheless a triumph for Caribbean Cement which, a year before, made pre-tax losses of $2.7 billion, or $3.35 billion after taxes.

Caribbean Cement’s sales in its home market last year totalled 594,764 tonnes versus 536,349 tonnes sold in 2012.

The company said the 11 per cent spike in local sales volume was due to increased market share, which came amid an overall decline of two per cent across the industry even as the local economy was shaking off some of its malaise.

History shows that once the Jamaican economy picks up, cement sales follow; that one per cent economic growth traditionally leads to three to four per cent rise in cement sales, says Haynes, but who then tentatively forecast growth in cement sales of one to two per cent this year, notwithstanding expectations that the local economy will expand.

“I am being extremely cautious,” he told the Financial Gleaner, “because last year we were hoping and hoping, but not much happened.”

The two per cent estimated market decline noted by Caribbean Cement in the statement to shareholders appended to its yearend earnings report is within the margin of error, said Haynes, who noted Thursday that the industry performance is best described as being fairly static or flat.

The two per cent decline followed a four per cent contraction in 2012.

“We have noted the evidence of growth in the Jamaican economy, which normally augurs well for the construction industry. The year, however, has seen a sluggish start for cement sales and we maintain a cautious outlook for the domestic market in 2014. However, we expect this situation to be corrected as the year progresses,” said the company’s abridged yearend report.

Caribbean Cement gained market share last year when a former rival, importer Arc Systems, became one of its clients, but some of the improvements in revenue were due to price spikes, Haynes acknowledged.

Its markets are improving just as parent TCL has sealed a deal with creditors to lengthen its debt profile, creating breathing room for the parent and its subsidiaries. As part of the group restructuring that resulted, TCL poured fresh capital into Caribbean Cement—through conversion of US$37 million ($3.7b) of debt owed to the parent to preference shares and injection of another US$38 million ($3.8b)—which pumped up the Rockfort plant’s book value to a positive $4.7 billion from negative equity of $2.9 billion.

Caribbean Cement’s auditors caution, however, that the Jamaican subsidiary’s fortunes rest on the future performance of TCL and its ability to generate cash to service its restructured debt obligations.

TCL made a net profit of TT$67 million in 2013, compared to a net loss of TT$388 million in 2012. The company was also cash positive, with TT$39 million in hand.

PHOTO: Anthony Haynes, general manager of Caribbean Cement Company Limited. – File

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