Carib Cement seeks more debt conversion
CARIBBEAN Cement Company is looking to convert a significant portion of its debt due to its parent into equity by the end of June.
The proposal is still under consideration, but more than half of the US$81 million ($8 billion) owed to Trinidad Cement Limited (TCL) is expected to be exchanged for preference shares, according to Carib's general manager, Anthony Haynes.
The shares being considered are much like the ones approved in early 2010, when US$15 million in debt to TCL was converted to redeemable preference shares, which carried no promise of dividend payments beyond those made to ordinary shareholders.
Carib would, at its discretion, pay a dividend on the new shares at a rate no lower than any to be paid on ordinary stock units, if they make any dividend payments at all.
The debt conversion, along with stability in the currency exchange market and no additional significant foreign exchange translation losses, as well as improved cement sales should get Carib back in the black.
But the cement manufacturer said it "could not continue to operate without the financial support of TCL" due to its negative capital base increasing to $3.4 billion and a significant build- up in clinker inventory — as production exceeded sales.
It posted a net loss of $497 million during the three months to March 31, compared to a loss of $625 million in the corresponding period of 2012, although non-cash foreign exchange translation losses of $449 million accounted for 90 per cent of the negative result.
The Jamaican dollar experienced 5.2 per cent devaluation over the first three months of 2013.
Interest expense also climbed from $108 milion during the three months to March 31, 2012 to $146 milion during the review quarter.
The higher debt service cost and foreign exchange losses wiped away the $98- million operating profit the company posted during the quarter, compared to the $475 million operating loss a year earlier.
Carib previously reported a modest operating profit late last year, after nine consecutive quarters of losses.
The $15-million operating profit for the three months to September 30 reflected a trend of shrinking losses since December 2011.
However, operating loss for the last quarter of 2012 ran close to $816 million, albeit largely due to higher impairment losses and depreciation, without which operating losses for the three-month period would have been closer to $100 million.
The manufacturer posted higher revenue during the first quarter of 2013 — $2.7 billion, compared to $2.3 billion in the corresponding quarter in 2012.
"The improvement in our domestic sales was entirely due to increased market share as the overall domestic market declined", according to Carib, but price increases also helped.
Carib imposed a 16.5 per cent average price increase in January, which followed a 9.2 per cent hike last June.
It implemented a further three per cent price increase last month.
Cement sales volume into the domestic market increased by seven per cent year-over-year to 152,000 tonnes in the first quarter of 2013, which was the highest volume sold to the domestic market in three years.
On the other hand, export volumes of cement continued its decline from last June, and at 32,700 tonnes in the March 2013 quarter was the lowest since December 2009.
Haynes said that economic conditions in some of Carib's overseas market softened, but he expected a rebound from the "temporary fall-off" soon.
Combined, Carib's annualised cement sales volume is still below the 2005 peak of 862,400 tonnes, much less the 1.2-million-tonne cement manufacturing capacity it currently has.
"The Group's longer term survival is predicated on significant expansion in both domestic and export sales to take full advantage of the investment in the plant's productive capacity," said the company in a statement accompanying the financial accounts. "Management is pursuing various strategies to improve both."
Already, it secured one of the traditional cement importers and rival — Arc Systems — as a customer, which should add another 50,000 tonnes to domestic sales annually.