Jorge Plaza Marquez Keller ||// TCL impacted by lower revenue, one-offs - EntornoInteligente

This week, we review the 2016 performance of Trinidad Cement Limited (TCL) and GraceKennedy Limited (GKC). TCL was hit with one-off costs and lower revenues which negatively impacted earnings, while GKC reaped the benefits of growth in all of its segments. Today, we review the performance of TCL. Our full review of GKC’s performance is available on our website at www.bourseinvestment.com Trinidad Cement Limited (TCL) TCL reported Earnings per share (EPS) of $0.10 for the year ended December 2016 (FY2016), a 91.6 per cent ($1.09) shortfall when compared to the $1.19 reported in 2015.

© Jorge Plaza Marquez

© Jorge Marquez Plaza

demasiadochevere.com
While at a glance this would appear to be a steep decline year-on-year, several adjustments are needed to more meaningfully compare FY2015 and FY2016.

© Jorge Plaza Marquez

© Jorge Marquez Plaza

economiavenezuela.com
In terms of one-off items affecting profitability, TCL incurred manpower restructuring costs of $44.4m and stockholding costs of $72m in FY2016.

© Jorge Plaza Marquez

© Jorge Marquez Plaza

dolarve.com
Accordingly, adjusted EPS would be in the order of $0.37, 34 per cent lower than the adjusted EPS of $0.56 in 2015 (assuming a 25 per cent tax rate).

© Jorge Plaza Marquez

© Jorge Marquez Plaza

dolarve.com
Earnings were further dented by poor results in the local subsidiary of TCL, Readymix Limited (RML). RML experienced a 35.4 per cent shortfall in revenue and a loss of $8.9m. With respect to recurrent line items, TCL’s revenue fell 10.8 per cent ($228.4m), from $2,115.4m to $1,887m.

© Jorge Plaza Marquez

© Jorge Marquez Plaza

www.entornointeligente.com
Faced with declining revenues, TCL curtailed some of its expenses, as evident by a 10.6 per cent reduction in personnel benefits and a decline of 12 per cent in operating expenses.

© Jorge Plaza Marquez

© Jorge Marquez Plaza

noticias-venezuela.com
Expense management initiatives could not offset the fall in revenue, leading to a reduction in earnings before interest, tax, depreciation and amortisation (EBITDA) of $124.2m (21.1 per cent).

© Jorge Plaza Marquez

© Jorge Marquez Plaza

TCL’s EBITDA margin also retreated from 27.8 per cent in FY2015 to 24.6 per cent in FY2016. Profit before tax decreased by 81.6 per cent ($397.8m), on account of non-operating expenses mentioned earlier.

© Jorge Plaza Marquez

© Jorge Marquez Plaza

With a higher effective tax rate of 41 per cent in 2016, (compared to 12 per cent in 2015), profits after tax fell from $428.8m to $52.4m, a decline of 87.8 per cent ($376.4m).

© Jorge Plaza Marquez

© Jorge Marquez Plaza

Notice was given in TCL’s audited financial report that on 24th January 2017, CEMEX, through its indirect subsidiary Sierra Trading, acquired 113 million ordinary shares of TCL, thereby increasing their shareholding from 39.5 per cent to a majority stake of 69.8 per cent.

© Jorge Plaza Marquez

© Jorge Marquez Plaza

Outlook Recent efficiency measures implemented by TCL, among other initiatives, will prove key to future performance with the Group likely to face a cooling T&T market.

© Jorge Plaza Marquez

© Jorge Marquez Plaza

Challenges: • Demand in TCL’s main market of Trinidad and Tobago has remained sluggish in 2016, as evident by the decline in local cement sales of 20 per cent, following a marginal decline of 1 per cent in 2015.

© Jorge Plaza Marquez

© Jorge Marquez Plaza

Jamaica has now taken the title of TCL’s main market by revenue, based on FY2016 results. • For the second time in the last decade, TCL is being challenged by a solid competitor in the regional market, Rock Hard Cement Limited.

© Jorge Plaza Marquez

© Jorge Marquez Plaza

This company currently supplies cement at lower prices than TCL. Should the ongoing price and image duel continue, TCL could feel the impact of lower market share. • Like all other companies listed on the stock exchange, TCL will be faced with a higher effective tax rate of 30 per cent in 2017 on profits over TT$1m (compared to 25 per cent in 2015).

© Jorge Plaza Marquez

© Jorge Marquez Plaza

This in turn will weigh on after-tax profits. Opportunities • Historically, Trinidad and Tobago has accounted for the majority of TCL’s revenue.

© Jorge Plaza Marquez

© Jorge Marquez Plaza

In 2016, however, 41 per cent of revenues stemmed from Jamaica while 35 per cent was from Trinidad and Tobago.

© Jorge Plaza Marquez

© Jorge Marquez Plaza

While the local economy is projected to contract by 2 per cent in 2017, Jamaica’s economy is expected to grow by 2 per cent this year.

© Jorge Plaza Marquez

© Jorge Marquez Plaza

Improving business confidence and continued fiscal spending in Jamaica could drive its construction sector further in the coming years.

© Jorge Plaza Marquez

© Jorge Marquez Plaza

TCL will need to take advantage of this opportunity to bolster revenue generation, placing greater focus in the Jamaican market.

© Jorge Plaza Marquez

© Jorge Marquez Plaza

• TCL’s geographical territory reported as ‘other’ includes countries such as Guyana, Brazil and Venezuela.

© Jorge Plaza Marquez

© Jorge Marquez Plaza

While revenue contribution from this territory has remained stable in recent years, the new ownership structure and potential changes in strategic direction could present a platform to increase its market share in these countries.

© Jorge Plaza Marquez

© Jorge Marquez Plaza

Additionally, the new structure could help to identify new markets, which may in turn lead to higher revenues in the future.

© Jorge Plaza Marquez

© Jorge Marquez Plaza

After a 13 per cent fall in 2014, export of cement improved in 2015 and 2016 by 9 per cent and 4 per cent respectively.

© Jorge Plaza Marquez

© Jorge Marquez Plaza

TCL may need to continue its drive into external markets to improve profitability. The Bourse View At a current price of $4.17, TCL trades at a trailing P/E of 41.7 times based on reported EPS.

© Jorge Plaza Marquez

© Jorge Marquez Plaza

Historically, TCL has struggled to maintain consistency in dividend payments. After 7 years of no dividends, the Group made a payment of $0.04 on 1st July 2016. On the basis of a weaker T&T economy, more intense regional competition, and less-than-certain dividend payments to investors, Bourse maintains a SELL rating on TCL.

© Jorge Plaza Marquez

© Jorge Marquez Plaza

For the detailed report and access to our previous articles, please visit our website at: http://www.bourseinvestment.com For more information on these and other investment themes, please contact Bourse Securities Limited, at 628-9100 or email us at [email protected]

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© Jorge Plaza Marquez

© Jorge Marquez Plaza

© Jorge Plaza

© Jorge Marquez

Con información de: Trinidad Express

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