Profit at Jamaica’s sole cement producer, Caribbean Cement Company was flat in the December quarter last year, with $1.48 billion earned compared with $1.5 billion in 2021, profit for the full year to December rose a solid 24 percent to a record $5.4 billion from $4.34 million in 2021.
The improved full year results flowed from an 8.4 percent rise in sales revenue to $25.8 billion, from $23.84 in 2021. Revenues were almost flat for the December quarter at $6.15 billion against $6.04 billion in 2021.
There was a notable improvement in gross profit margin that increased to 44 percent from 41 percent in 2021 as cost of sales rose by a mere 3.3 percent to $14.5 billion from $14 billion in 2021 that includes depreciation of $1.4 billion, down from $1.45 billion in 2021 and fuel and electricity that surged 37 percent from $4.1 billion, to $5.6 billion in 2022. The net effect is that Gross profit rose 15.5 percent for the year, to $11.36 billion from $9.8 billion in 2021. The moderate rise in direct cost, “was mainly attributable to the company’s decision not to undertake its planned major maintenance during the third quarter, compared to 2021,” the company stated in the release containing the results.
Administrative expenses rose close to the rise in revenues by 14 percent to $942 million in the year from $827 million while Selling Distribution and logistics expenses rose just 4 percent to $1.74 billion from $1.67 in 2021. Included in the administrative expenses are Management fees of $200 million, up slightly from $195 million in 2021 and royalty fees of $475 million with none in 2021 and write off of $120 million for non-recoverable GCT costs with none in 2021. Personnel remuneration and benefits amounted to $2.64 billion during the year, up from $2.5 billion in 2021, but actual salaries and wages were modestly lower at $1.97 billion versus $1.98 billion in 2021.
Finance cost declined in the year to $581 million from $671 million in 2021, which include a charge of $402 million during the year and $376 million for 2021 for unwinding discount on the redemption of the preference shares. The company has fully liq uidated the debt and there should be no charge in 2023 for this item
Gross cash flow generated from operations amounted to $8.8 million and was reduced by increased working capital of $5 billion to $3.8 billion. The net cash flow provided funding for the acquisition of fixed assets costing $1.26 billion, the payment of $1.26 billion in dividends. They also paid off the balance of $1.84 billion due on preference shares to Trinidad Cement.
At the end of December, shareholders’ equity stood at $20 billion with long term borrowings at a mere $608 million.
Current assets ended the period at $7.1 billion, up from $4.3 billion in 2021 including trade and other receivables of $650 million, cash and bank balances of $575 million with $5.48 billion of inventories up from $3.44 billion in 2021. Current liabilities ended the period at $6.1 billion, down from $8.5 billion in 2021. Net current assets ended the period at $1.1 billion.
Earnings per share came in at $6.33 when compared to $5.10 in 2021. IC Insider.com forecasts $7.50 per share for the fiscal year, with a PE of 7.7 times current year’s earnings based on the price of $57.50 the stock traded at recently on the Jamaica Stock Exchange Main Market with a net asset value of $23.54 and 2.5 times book value.
The company paid a dividend of $1.53 cents for the first time in 17 years in September last year.
This cost incurred for the unwinding of the discount for the repayment of the preference shares will not recur in 2023 also the write off of non-recoverable GCT cost, countering these savings will be the annual major maintenance that was not incurred in 2022, at the same time Fuel and electricity cost should fall from the Ukraine war induced spike in worldwide oil prices that has since moderated form the peak of more than US$120 per barrel to around $80 currently.
The company outlook was summarized by management, “we will ensure that our operations remain resilient by employing sound cost management strategies in this challenging economic environment.
Additionally, we expect to have a similar or better level of productivity and efficiency of the kiln in the future on completion of our planned major maintenance in 2023. During the previous quarter, the groundbreaking of our major kiln expansion project took place. This important investment will improve the self-sufficiency of the industry in Jamaica to comfortably meet growing demand, while setting the foundation to supply other export markets, effectively strengthening the external sector of our economy and essentially the country’s growth.”
The above expansion plan projected to increase the plant capacity by up to 30 percent should be completed by the second half of 2024 and will lower the unit cost of producing cement if it leads to a sufficient increase in sales volume. That won’t take place until 2025.
The stock is selling at a discount to its normal value but seems to weight down by higher interest rates and a slowdown in activity in the construction sector, but all signs point to lower interest rates in the second half of the year and continuing for a while, as such these negative factors will soon pass. With the expansion to come on stream in 2024, the stock remains a good long term buy.