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Pan Caribbean Sugar takes $7b hit

Published:Friday | April 22, 2016 | 12:00 AMCamilo Thame
Sugar cane being harvested at Monymusk in Clarendon.


Pan Caribbean Sugar Company (PCSC) took a $7.3-billion hit to its bottom line in 2015.

The latest reported deficit follows on $3.2 billion in net loss the year before.

The Chinese-owned sugar manufacturer went deeper into the red primarily because of a $5.5-billion impairment loss on Monymusk, its Clarendon-based factory.

The valuation which resulted in the one-off charge was done as management noticed a "deterioration of business performance of PCSC due to the drop in world sugar price", according to a filing by the sugar company's parent with the Hong Kong Stock Exchange.

Still, the operator of Frome and Bernard Lodge sold its raw sugar for an average $79,000 per tonne and its molasses for $15,000 per tonne last year, up from $77,200 and $14,900, respectively, in 2014.

The company sold 50,900 tonnes of raw sugar and 35,200 tonnes of molasses in 2015, compared with 54,900 tonnes of raw sugar and 31,400 tonnes of molasses the year before. Its revenue therefore fell from $4.6 billion to $4.5 billion.

However, the increase in sugar price coupled with a 2.8 per cent drop in cane cost, a four per cent reduction in sugar production cost and a 1.9 per cent decrease in the cost to make molasses, resulted in the company posting a gross profit of $205 million, from a gross loss of $434 million in 2014.

There was also a decrease in fair value loss on biological assets of approximately $727 million, mainly due to a near seven per cent improvement in expected sugar cane yield resulting from the upgraded irrigation network.

"The expected average sugar cane yield for biological asset as at December 31, 2015 is 57.2 tonnes per hectare, compared to 53.6 tonnes per hectare as at December 31, 2014," said the filing.

The company spent over $3 billion on its industrial and agricultural rehabilitation in Jamaica last year, completing the first and second phase of factories upgrade in Frome Estate and Monymusk Estate.

Now, PCSC says it will be able to rely on one factory to maintain its business operation as it contemplates scaling back operations in Jamaica to counter effects of oversupply, increased cane price and depressed sugar prices over the past five years.

"(This has) led to a serious mismatch between cane price and sugar price, underlining

the imperative need for rationalisation of our business operation in Jamaica," said the company in its filing. "One of the possible solutions will be to scale down the operation by suspending one of its factory temporarily to preserve the working capital for the PCSC."

The company would resume production at that facility when the improvement in operating environment, such as better sugar prices, is achieved or a restructuring plan, such as a joint venture with a new investor, could be realised.

It's not all doom and gloom for Pan Caribbean. It expects to see a single-increase in international sugar price for the 2016-17 crop. Also, it projects that cane cost will decrease by double digits in the next crop year as it anticipates the end of a three-year supply contract between Tate and Lyle and Jamaica Cane Products Sales.

What's more, a new 10-megawatt turbine, using bagasse to produce electricity, is expected to slash PCSC electricity cost and generate additional revenue when excess power is sold to the national grid.

"PCSC is in discussions with the Office of Utilities Regulation and the Energy Sector Enterprise Team and the Jamaica Public Service regarding a licence and a power-purchase agreement," said the company.

"The local management expects that cogeneration in Frome Estate will soon become an additional income source for PCSC."