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Major shocks derail Cement Company profit

By George Jude, Freelance Writer

DESPITE reporting a net profit for the first time since 1996, general manager of Caribbean Cement Company, Arun Goyal, said the company could have done much better than the $359.6 million posted for January-December 2000, were it not for unfair trading practices, devaluation of the Jamaican dollar and the increase in the price of oil.

Caribbean Cement was purchased by Trinidad Cement (TCL) in April 1999 for approximately US$70 million, and has so far invested $225.9 million in upgrading the plant and the introduction of new management processes. It was hoped that the new CCC would have made a bigger dent on the $2.356 billion accumulated deficit on its books at the beginning of the 2000 financial year, the first full year of operation for the new owners, TCL group which has approximately 559 million units in the name of TCL (Nevis) and approximately 72 million units in the name of Trinidad Cement.

But between June 1999 and August 2000, Mainland International imported 44,900 metric tonnes of cement and Caribbean Cement had to wait until this year before it got a provisional ruling by the Anti-Dumping and Subsidies Commission (ADSCO) classifying the imports as dumping and requiring the importers to pay 170 per cent duty until its final ruling is gazetted on June 11.

Mr. Goyal said the possibility of a larger profit in 2000 was thrown off course, citing the first of three major reasons in an interview with The Financial Gleaner following Caribbean Cement's annual general meeting (AGM) last Friday. He said, "When we bought the plant, we put money into it, managed our cash prudently and achieved over 90 per cent in performance but we never expected to have to deal with unfair trading practices, which caused us to lose 18 per cent of our market share by the end of the financial year in December 2000".

The main concern expressed by Caribbean Cement shareholders at the AGM related to the anti-dumping case and the fact that it had taken a year to stop Mainland from dumping cheap cement on the Jamaican market. Says Mr. Goyal: "We had to explain to them (shareholders) that there was no legislation when the dumping started and that it had to be in place and a process worked out to hear our case, and we had to assure them that the process had worked and the ruling would be announced on time."

In addition to the dumping, the devaluation of the Jamaican dollar vis-a-vis the US dollar, and the increase in oil prices are said to have compounded Caribbean Cement's problems in 2000, especially as most of its inputs are denominated in US dollars. That year, the local currency lost value, coming from approximately $42.00:US$1 and finishing at $45.70: US$1, while oil prices rose from approximately US$15 a barrel to US$30 a barrel.

Mr. Goyal said, "Whereas in the past, Caribbean Cement had been able to adjust its price to take account of devaluation and increases in fuel prices, this time, it is not possible to adjust (lower) our price to compete with the imported cement." He added, "We have had to continue giving discounts to customers in order to maintain market share."

The Caribbean Cement general manager said, "Since most of our inputs are denominated in US dollars, the situation was compounded by the devaluation of the Jamaican dollar and the increase in oil prices". All of this continued into the first quarter (January-March 2001), according to Mr. Goyal.

Caribbean Cement's woes were a subject of interest at the anti-dumping case held at the Jamaica Conference Centre April 30-May 4, as Mainland International's lawyers attempted to show that Caribbean Cement's inefficiency had led to a shortage of cement on the local market which Mainland International was trying to fill. Their case was supported by three dealers, William Shougary, Anthony Hendricks and Paul Gracey, who were invited by the Commission to give evidence.

All the dealers told the Commission of their past problems with Caribbean Cement's inability to supply, the company's lack of respect for them, and their desire to see the local cement market open up to competition.

Another highlight of the hearing was an order by the Commission for CCC's lawyers to apologise to Mainland International's lawyers for wrongfully accusing them of clandestine tactics. The incident was reported the following day in The Gleaner's Wednesday Business of May 2, which prompted a media release by ADSCO informing the public of the serious nature of the accusation, its demand for an apology in the proceedings and in writing to counsel for Mainland International, and compliance by CCC's lawyers.

The accusation was made on Tuesday, May 1, when lawyers for Mainland International attempted to submit into evidence, a report on Caribbean Cement's financial statements which showed consistent working capital deficits as proof that Caribbean Cement had been having problems supplying the market. The working capital deficit recorded in 2000 was $725.7 million which was slightly lower than the $821.8 million deficit reported in 1999 and a huge improvement over deficits of $3.703 billion in 1998 and $1.544 billion in 1997. The gross profit margin in 2000 was just 13.48 per cent with the base sales figure of $3.078 billion representing an increase of just 5.5 per cent over 1999.

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