Last year, Trinidad Cement reported a huge loss of $390 million including a loss of $64 million due to minority shareholders in its subsidiaries. Compare that to results of the first quarter of this year, when the company was able to turn around their fortunes and recorded a surplus.

The Group recorded Earnings before Interest, Taxation, Depreciation and Amortisation (EBITDA) of $114.2 million, a 74 percent improvement over the results for the same quarter in 2012. Revenue for the quarter, increased by $117 million compared with the prior year as a result of higher cement sales volumes in Trinidad and Tobago by 52 percent, in Jamaica by 7 percent, and in export markets by 29 percent, coupled with higher selling prices in most markets. Concrete volumes from Ready Mix, a partially owned subsidiary, also exceeded the prior year period by 10 percent. As a result of the significant expenditure made in the latter part of last year, plant performance has been more reliable and efficient with clinker production exceeding prior year by 32 percent, which is partially due to the TCL strike in 2012, and cement production up by 21 percent.

Finance costs for the quarter increased by $13.9 million largely as a result of foreign exchange losses of $11.3 million arising from the 6.2 percent depreciation of the Jamaican dollar in the quarter. As a consequence of the above factors, the Group is reporting a Net Profit after Taxes for the first quarter of $14 million compared with a loss of $75 million in the prior year quarter. This translates to Earnings per Share attributable to shareholders of the parent of 7 cents compared with a Loss per Share of 25 cents in the prior year.
For the first quarter of 2013, the Group generated net cash from operations of $104 million and made principal and interest payments of $71 million on the restructured loans following the first payment of $51 million made in December last year. Additionally, as at March 31 2013, the Group is said to have met the three financial ratio covenants contained in the loan restructuring agreement.

Finances | TCL is carrying interest bearing debt of $2 billion at the end of March. The debt overwhelms equity of $695 million — not a very good position to be in. The principal repayment amounts to $100 million this year, which saves $10 million in interest payments per annum. In 2014, the amount of loan payment is $171 million. The cash flow so far seems adequate to meet the payments but there is not much wiggle room.

The company directors stated in the 2012 annual report that the Group ended 2012 in full compliance with the loan Agreement. The Board and Management continued to express concerns to the Lenders about several aspects of the debt restructuring that will be burdensome to the Group going forward. These concerns are the extent of interest costs, excessive legal fees, ongoing costs of financial and technical monitoring, costly overseas directors and the requirement for an additional and expensive foreign executive, the statement concluded.

Concern | Of major concern to the Group, must be the nearly 10 percent cost of funds plus the foreign exchange exposure on elements of it, in a country where interest rates are well below 10 percent per annum. Loans amounting to $385 million at the end of December are at variable rates, which means that interest cost could rise before the loans are scheduled to be fully liquidated. In 2018 a balloon payment amounting 43 percent of the restructure debt or approximately $860 million is due for repayment.

Outlook | Management stated that the Trinidad and Tobago market has recorded very strong demand and it is anticipated this will continue. While there was declining demand in Jamaica and Barbados, it is hoped that with the post-IMF agreement in the former, and general elections in the latter, growth will return to these markets. In addition, the growth being experienced in Guyana and Suriname and the initiatives by the Group in the pursuit of additional export markets, plant efficiency and cost containment, are likely to contribute to the continuation of the good results for the coming months.

The Jamaican operation will benefit from a series of price adjustments and the removal of one importer as a competitor. These two developments should bring that operation closer to a break-even position and help improve cash flow.

Risk | Investing in the stock could pay off richly if the company maintains the current trajectory. The PE is around 2 times estimated 2013 earnings at the price of $1 on the TT Stock Exchange on Friday. With the massive debt, an investment in the stock is not without risk should something go wrong that could negatively affect earnings. The capital structure suggests that both the Trinidad and the Jamaican company should be heading to the stock market when conditions improve to raise additional equity capital from the markets and to speed up debt repayment.

Speak your mind | Will you take the leap and invest in TCL?

Read the 9th May 2013 report about Trinidad Cement Ltd, TT Cement huge turnaround but…