CARIBBEAN Cement Company Limited (CCCL) will pay a maximum of four per cent of its revenues to Mexico-based parent company CEMEX for the use of licences for intellectual property and trademarks as well as regional corporate services.
The resolution to effect the payment won approval at yesterday at CCCL’s 72nd annual general meeting (AGM), held virtually.
CCCL, on November 22, introduced the resolution as an addendum to its notice of the AGM, which it had issued less than a week earlier. Among the services for which CEMEX requested payment were commercial practices, operational practices, energy management, financial practices, and procurement practices. According to the addendum, the parent company also made intellectual property claims for “a set of standardised technologies, procedures, systems, and processes that are uniformly applied across all of CEMEX’s global operations. These initiatives and best practices have been selected as CEMEX’s standard because their value has been demonstrated in certain of CEMEX’s global operations, including in CCCL since 2017, primarily in the form of increased efficiencies and other cost savings”, CEMEX further outlined.
However, the move by CEMEX has received criticisms from minority shareholders, most notably Mayberry Jamaica Equities Limited (MJE). At yesterday’s meeting CCCL’s general secretary read a circular from the investment firm indicating “its profound disapproval of the resolution … to be considered at CCCL’s annual general meeting to be held on December 7, 2021”. Among other things, the document pointed out that such a payment will be a substantial repatriation of funds to the parent company that could have a “severe negative impact on the profitability of the company”.
MJE noted, for example, that four per cent of revenues for financial year 2020, which amounted to $20.1 billion, could amount to over $800 million.
Despite MJE’s opposition, CCCL tabled the resolution moved by Gustavo Alejandro Luis and David Rose. However, the head table conceded to putting the resolution to a shareholder poll, which was thereafter passed with 91 per cent shareholder approval. CEMEX is a majority shareholder in CCCL with a 69.83 per cent per stake, which would have been enough to pass the resolution.
Following the poll, managing director of CCCL Yago Castro noted that both the parent and subsidiary will finalise agreements relating to payments for services and use of licences and trademarks in the next calendar year – “on arm’s length terms”.
According to Investopedia, an arm’s length transaction refers to a business deal in which buyers and sellers act independently without one party influencing the other. The website also notes that parties involved in an arm’s length sale usually have no pre-existing relationship with each other, neither should the companies have related shareholders.
“Carib Cement will finalise these agreements once they reflect the best interest of the company. But an avoidance of that, as it relates to maximum fees charged to CCCL, the reference to a four per cent fee is a maximum amount that could be charged,” Castro explained.
“The fee to be charged may be less than four per cent and in the upcoming weeks CCCL, based on its business plan for 2022, will finalise discussions with CEMEX to confirm the corporate services and intellectual property that CCCL has benefited from in 2022, which will ultimate be a factor in finalising the fee to be paid for 2022,” Castro added.
The managing director, throughout his various presentations during the AGM, also pointed out the parent’s investment of $7.8 billion in the last five years. Since CEMEX’s acquisition of majority shares in CCCL in 2017 the Jamaican cement manufacturer has seen its revenues and profits grow year-on-year. For 2020, CCCL’s earnings before tax and interest totalled $7.8 billion, reflecting a 34 per cent increase.
Castro also pointed out that CEMEX’s plans to invest US$30 million in the local cement company over the next five years will boost production in a bid to meet market demand as well as supply export demand in the region.
One shareholder questioned CCCL’s motives for ratifying payments to its parent but had deferred dividend payments until mid-2022. In response, Castro said, “I think the fact that we are now talking about potentially paying a dividend in the short future, which is something new, is something that hasn’t happened in the last 15 years.”
“I wouldn’t say defer,” he added. “We announced that this policy will come into action very shortly, as soon as the first quarter of 2022. So this is something somewhat new, so you cannot defer something that hasn’t happened as yet.”
Earlier, CCCL Chairman Parris Lyew-Ayee explained that a dividend committee was established to determine payment in the upcoming year.
Another shareholder asked the head table to address the concerns of majority shareholders that the four per cent royalty payment would “erode profitability and would be seen as unconscionable and in favour of the majority shareholder”.
In response, Castro reiterated CEMEX’s investment and allocation of human resources as well as plans to invest further in the company in the coming years.
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