CARIBBEAN Cement Company’s management is viewing South America as the market that could potentially bring the local cement maker back to profitability.

The company incurred a $912.4 million pre-tax loss during the three months to June 30, 2011, up from the loss before tax of $326.4 million in the comparative period last year, which brought accumulated net losses over the past two years well over $2.5 billion.

In a note to shareholders accompanying its recent financial statements, Carib Cement’s managements said “a number of significant new sales contracts are being pursued which have the potential to return CCCL to profitability”.

“Our negotiations to enter the South American markets, while protracted, continue to show promise and this continues to be a key focus point for management,” said the cement manufacturer. “These new sales will enable us to better utilise our new kiln and mill and provide us with increased volumes and revenues to strengthen our liquidity position.”

Carib’s parent — Trinidad Cement Limited (TCL) — said the group has already executed supply arrangements for the Brazilian market for construction projects related to the 2014 World Cup and was pursuing supply arrangements into Venezuela, French West Indies and Haiti.

Carib Cement said it expects to see an increase in its export sales as it consolidates its entries into Haiti and the Dominican Republic, while its parent said “a long-term lease has been executed that will enable the group to establish a warehouse (in Haiti), in the first instance, through which sales will be expanded”.

In the meantime, export volumes, which have helped to keep the local manufacturer’s plant assets working, still doesn’t generate more revenues and contribution to profit than domestic sales.

Revenues declined from $2.13 billion to $1.96 billion on higher domestic sales volume of cement (from 135,227 tonnes to 136,079 tonnes) and lower export volumes (cement down from 50,079 tonnes to 49,170 tonnes and clinker down from 23,006 tonnes to 9,447 tonnes).

Very low export sales in May were due to two of Carib Cement’s key vessels being delayed in the Dominican Republic, which imposed a series of non-tariff barriers to frustrate our entrance into that market.

Domestically, however, Carib sees domestic demand and the economy moving on a “modest growth path” but “based on historical buying patterns, the third quarter domestic sales are likely to be slow”.

Another factor on which Carib’s return to profitability is hinged is the debt re-profiling exercise currently being undertaken by the parent company, which is projected will be concluded by the end of September.

CCCL’s major productive assets which are leased from TCL and its own fixed and floating assets are included in the security for these loans and should lenders enforce their security, there is a material risk that CCCL may not be able to continue as a going concern. However, upon the successful reprofiling of TCL’s debt, directors propose to negotiate with TCL a reduction in the lease charges to the CCCL Group.

The lease tacked on more than $1 billion annual to the local manufacturers operating lease while its operating loss increased from $344.6 million in the three months to June 30, 2010 to $789.8 million during the quarter under review.

Higher energy also contributed to the increase in operating loss.

“This year global petroleum prices have increased by more than 40 per cent following the increase in geopolitical tensions in the Middle East, in the latter part of 2010,” said the company in its statement to shareholders. “This in turn has translated to significant increases in both electricity and kiln fuel, key inputs into the manufacture of cement. Due to the presence of increasing quantities of dumped cement in the domestic market, our prices have been suppressed and we have been unable to recover the increases of more than $300 million in electricity and fuel costs.”

TCL added that there were “unplanned plant stoppages at the Jamaica and Barbados plants from delays in securing coal and spare parts as a result of working capital rationing. Carib Cement’s working capital deficit widened from $139 million to $2.1 billion over the year to June 30, 2011, although the company improved its cash position from negative $100.6 million to negative $31.6 million.

Added the statement to shareholders: “The directors have a reasonable expectation that the CCCL Group will have, based on the plans and strategies as outlined in the preceding paragraph, adequate cash flows and profitability that will allow the CCCL Group to continue in operational existence in the foreseeable future. For these reasons, the Directors continue to adopt the going concern basis in preparing these financial statements.”