By Ashford Meikle, ContributorTHE UNAUDITED results of the Caribbean Cement Company Limited for the quarter ending March 31, 2004 have revealed a 400 per cent increase in the company's net profit.
The company's after tax profit for the period galloped to $163 million, bettering the $43 million it posted for the same period in 2003. At first glance, it seems that the company is back on path to reward its shareholders with healthy profits: the $43 million it returned in 2003 was actually a 263 per cent dip compared to the $163 million it earned in the first quarter of 2002.
Caribbean Cement Company Limited is the country's largest manufacturer and supplier of cement, controlling approximately 96 per cent of the local market. Its nearest competitor is Mainland International, the hardware giant headquartered in March Pen, Spanish Town, St Catherine.
INCREASED PRODUCTION
The company owes its impressive net profit returns to an increase in cement production.
Last year production declined owing to extensive repair done on kiln 4, one of the company's largest production facility. In their statement to shareholders, directors Brian Young and Rollin Bernard noted that "cement production and sales increased approximately 33 per cent." Based on the numbers, Carib Cement produced almost 20 million tonnes of cement in the first quarter of the year compared to the corresponding period in 2003 when the factory could only mange to produce 152 million tones.
It appears though that Carib Cement has not returned to an optimal level of efficiency in production as it did in the first quarter of 2002 when it produced over 605 million tonnes of cement.
What this has meant is that the company's operating profit /revenue ratio which at present stands at 18 per cent (improving on the 16 per cent in 2003) has not returned to the 2002's level when it stood at 20 per cent.
The shareholders of Carib Cement will no doubt breathe a sigh of relief since the EPS for both diluted and basic shares rose by almost 400 per cent, moving to 19 cents from five cents. Still, this is substantially lower than the 53 cents the stocks earned in 2002.
But while Carib Cement owes much of its revenues to improving efficiency at its plant and maximising production at its subsidiary, Jamaica Gypsum and Quarries Limited, this does not tell the true picture.
WINDFALL
The truth is, the company came into a windfall based on the Government's decision to increase the duties on imported cement. The Government's actions, regarded in some quarters as unfair protectionism, essentially meant that Carib Cement continues to maintain a monopoly in cement sales. The directors indirectly alluded to this when they acknowledged that the company's share of the market which was 77 per cent per cent in the first quarter of 2003 had increased to 96 per cent for this quarter.
The directors remain guarded in their assessment of the company's performance for the rest of the year. The Anti-Dumping and Subsidiaries Commission's ruling on the safeguard application is not expected before July.
In the meantime, it is likely that the company will have to contend with Mainland International attempts to recapture its share of the market which Carib Cement now enjoys. In April, Mainland International imported 36,500 tonnes of cement at a cost of US$4 million which customs, contrary to Bureau of Standards certification, determined was Portland cement, thus attracting the duty of 170 per cent plus Common External Tariff (CET). Mainland had to pay import duties of $100 million far more than the $30 million it had budgeted for.
