The cost for Caribbean Cement Company Limited's 30 per cent capacity expansion of its Rockfort plant has gone up from its original US$30 million ($4.6 billion) price tag to a new figure of US$40 million ($6 billion).
The increased cost for the expansion doesn't come as a surprise when considering the historic levels of inflation being observed across the globe. Even Carib Cement has seen its fuel and electricity costs go up by 41 per cent to $4.09 billion for the first nine months of the year.
Facing the rising cost of inputs, the company implemented an eight per cent price increase in January and hiked prices again in May by seven per cent, matching the increases set by majority shareholder Trinidad Cement Limited.
"Like most companies, we have been impacted by inflationary pressure caused by the COVID-19 pandemic, and the war affecting eastern Europe, resulting in higher fuel, power, and shipping costs. Notwithstanding, we will remain vigilant and continue to employ the necessary strategies to mitigate the effects of these exogenous shocks," the Carib Cement third-quarter report signed by Chairman Parris A Lyew-Ayee and Managing Director Yago Castro Izaguirre said.
Carib Cement has an annual maintenance programme that lasts for three weeks. The last one was in July 2021, which saw its kiln being out of operation for 25 days. The company imported 65,000 metric tonnes of cement to meet the market demand. This resulted in the company recording an expense of $1.04 billion relative to $73.40 million for the comparative third quarter. Castro indicated last year in the preliminary stages that connection works were expected to be made during the general maintenance programme. However, Carib Cement did not undertake its planned major maintenance during the third quarter of this year.
"The postponement of the planned maintenance is attributed to the excellent output of the cement kiln this year, as well as the delay in the arrival of key spare parts needed to conduct the general overhaul works," the Carib Cement report added.
The planned expansion was originally announced in August 2021 with the upgrade originally scheduled for the second half of 2022. The company broke ground on August 24 for the expansion of Kiln-5 with the expansion set to be completed in the second half of 2024.
The project should increase the cement company's production by an additional 300,000 metric tonnes, from one million to close to 1.4 million tonnes a year, as Carib Cement focuses on increasing its exports. The expansion will see novel grinding additives introduced to the manufacturing process and enhance the production of low clinker products in the Caribbean. Although there has been improved notifications about the expansion, Carib Cement is still unable to answer how the expansion will be funded.
"We are in the final stages of the engineering phase and in obtaining permits from the local authorities. Very soon we will begin to procure the equipment needed for this initial phase of the project, designed to not only expand our capacity, but also allow us to optimize our heat consumption in the manufacturing process, and therefore, reduce the carbon footprint of our cement facility in Jamaica," said Cemex SAB de CV Chief Executive Officer Fernando A Gonzalez at the ground-breaking ceremony.
While Castro confirmed at the July 19 annual general meeting (AGM) that the company's volumes sold were flat in the first six months of the year, Carib Cement's sales have continued to soar, driven by the price increases. Revenue for the third quarter grew 12 per cent to $6.17 billion with net profit coming in at $1.21 billion, compared to the $43.71 million earned in the prior quarter which was affected by the shutdown and import of cement.
For the overall nine months, revenue is up 11 per cent to $19.68 billion with the consolidated net profit 36 per cent higher at $4.25 billion. This is just shy the $4.34 billion net profit recorded for 2021.
As a result, Carib Cement's earnings per share (EPS) came in at $5.00 with the trailing twelve-month EPS at $6.42.
Despite these improved results, Carib Cement's minority shareholders remain relatively unfazed by the record profits. This is due to Cemex using a poll to force through a master services and intellectual property agreement at the 2021 AGM, which meant that Cemex could charge up to four per cent of consolidated revenues as a fee paid quarterly. Cemex has collected $401.64 million for the first nine months of the year as a royalty and service fee based on the agreed rate for 2022 being set at a maximum of two per cent. Cemex owns 79.04 per cent of Carib Cement's ordinary shares through Trinidad Cement Limited.
This has resulted in the stock price from relative peaks of $146.12 in October 2021 to a 52-week low of $55.12 in recent weeks. Even Mayberry Jamaican Equities (MJE) Limited, which was the largest Jamaican affiliated shareholder up to September 2021, has dumped its position from 13,447,860 shares to 6,270,997 shares in September 2022. It was MJE's largest disposal in the second and third quarter at $62.46 million and $30.96 million respectively.
"If there's no common ground, we'll step away. Sometimes, we announce we're selling our position, like in the case of Carib Cement where it's publicly known. All our cement shares are for sale. That ain't gonna change unless the policies of the company change, and I don't think Cemex is gonna change them. So, we're coming out of that one for sure," said MJE Executive Chairman Christopher Berry on CVM TV's Business Live Extra recently.
Carib Cement, however, remains debt-free and paid its first dividend in 17 years of $1.5032 per share or $1.28 billion. The company currently trades at a price to earnings ratio of 9.00 times based on a price of $57.75. It's book value of $22.02 gives it a book value of 2.62 times.
Carib Cement's total asset base is up 14 per cent to $30.42 billion which was largely driven by its cash balance of $1.11 billion and inventories of $4.53 billion. Total liabilities are down two per cent to $11.68 billion with none of Trinidad Cement's preference shares repaid so far in 2022. Shareholders equity closed the period at $18.75 billion.
Carib Cement has increased its receivable in Cemex Innovation Holdings AG's deposit investment account from $308 million (US$2 million) in the first quarter to $1.1 billion (US$7.2 million) in the most recent quarter. It generates interest at a rate equal to the Western Asset Institutional Liquid Reserves Fund rate minus 30 basis points on a daily basis of a year of 360 days.
Cemex Innovation has had a sub-agreement for intellectual property with Carib Cement as of January 1.