Wed | Dec 12, 2018

Caribbean Cement plotting return to export market

Published:Friday | July 27, 2018 | 12:00 AM
Peter Donkersloot Ponce, general manager of Caribbean Cement Company Limited.
Caribbean Cement Company Limited, at Rockfort, Kingston.
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Caribbean Cement Company Limited, the sole maker of cement in Jamaica, plans to restart exports next year as it finalises its expansion drive, which led, contrastingly, to the importation of cement to fill demand.

At the same time, the cement maker remains cautious in revealing precise figures regarding the annual net savings arising from its buy-back of assets from its immediate parent company, a key element in unlocking efficiency at the Rockfort plant.

"I would love to restart exports to markets such as Bahamas, Bermuda, Grenada and the Caribbean," said Peter Donkersloot Ponce, general manager of Caribbean Cement, at the end of the annual general meeting held at the Spanish Court Hotel in Kingston on Thursday.

The company plans to ramp up annual production to 1.2 million tonnes of cement by year end. It currently produces some 900,000 tonnes per annum.

The company stopped exporting last year in order to focus on its capital expansion set for completion this calendar year. The capital spend surpassed US$50 million over a three-year period and focused on building a coal mill and adding new elements to its production lines.

Exports of cement in 2017 totalled 35,050 tonnes versus 119,100 tonnes in 2016.

"While we do our maintenance plan, we need to focus on our local market because when there is maintenance, there is downtime for the equipment. In order to have that downtime, we stopped exports," said Donkersloot. "So in order to get that downtime, I quit exports and then in the future return," he said.

In 2017, Caribbean Cement actually imported 36,000 tonnes of cement in order to fill demand during periods of maintenance and expansion works at Rockfort. That became the first time since 2008 that the company supplemented the market with imports.

Despite the pullback from exports, the company still hit record revenue levels in 2017 at $16.5 billion, compared to $15.8 billion in 2016, due to increased local demand and higher margins for local cement.

"Next year we will start exporting again," Donkersloot promised.

In regard to the asset buy-back, it ended the US$25-million annual lease payments to immediate parent company Trinidad Cement Limited. Other costs will come on board, namely depreciation of the asset that will now revert to its books along with finance costs associated with a US$96-million loan it sourced from Cemex to finance the buy-back.

"I want to be very careful about giving guidance. I will give the way to calculate the saving, but you are not going to see 12 months of that saving, but maybe seven months or eight months," Donkersloot said, while explaining that the agreement occurred months into the current financial year.

The costs associated with depreciation should run over 17 years, he said. The asset value under the transaction is US$118 million, which puts the annual depreciation charges at US$6.9 million. The annual financing costs associated with a US$96 million loan priced at seven per cent, would be US$6.7 million, not including one-time fees.

Together, at US$13.6 million, they equate to savings of 55 per cent on the US$25 million in lease payments that Caribbean Cement had been making to Trinidad Cement.

Donkersloot cautions, however, that there are other considerations in deriving a value for the net savings from the deal.

"It is very important that we understand that you have some level of saving, but on the other hand you have other expenses," Donkersloot said. "The depreciation should stay flat, but interest costs should reduce over time as we pay down."

The asset buy-back involved Kiln 5 and Mill 5 at Rockfort.

Meanwhile, for the first quarter ending march, Caribbean Cement posted revenue of $4.3 billion, up six per cent year-on-year. Its adjusted earnings before interest, tax, depreciation, amortisation and restructuring costs fell 11 per cent to $606 million.

The lower earnings was due to the scheduled annual maintenance of Kiln 5 and Mill 5, performed during February and March. Quarterly profit also dipped three per cent year-on-year to $510 million.

steven.jackson@gleanerjm.com