Corporate News

Local cement maker Holcim expects volume sales growth to slow in 2011

Posted on April 25, 2011

HOLCIM PHILIPPINES, Inc. expects cement sales volume to grow at a slower pace this year amid projections of lower public sector spending, officials said last week.

HOLCIM Philippines, Inc. expects volume sales to grow by 3%-5% this year versus 10% in 2010 amid projections of lower government spending for construction projects.
This comes after the local arm of the Swiss manufacturing giant already recorded slower net income growth in 2010 after output was crippled by power outages in Mindanao.

“[Expected volume growth is] 3%-5% for the entire year,” Holcim Philippines Chief Operating Officer Roland van Wijnen said in a briefing.

This is slower than the volume growth of 10% for the company last year, which exceeded the average 7% increase enjoyed by the local industry.

Mr. van Wijnen reasoned that there will be no more election spending this year and less public rehabilitation work.

Furthermore, the effects of the government’s public-private partnership (PPP) program for infrastructure projects won’t be felt by the cement industry this year, he added.

“We believe PPP projects will not have tremendous impact in 2011 because they have first to be bid out and there are still ground works,” Mr. van Wijnen said.

“In an optimistic scenario, it would start in 2012,” Mr. van Wijnen added.

To cope, the cement maker hinted at raising prices.

“We want to recover the increases in fuel and freight costs,” said Eduardo A. Sahagun, senior vice-president of sales, marketing and distribution.

Coal prices have steadily risen this year due to weather-related supply disruptions experienced by major producers such as Australia, which suffered from floods in January. Oil prices have also surged this year due to unrest in the Middle East.

“You will try to pass that to consumers,” Mr. Sahagun said, noting that fuel costs account for roughly 40% the company’s variable expenses.
The company is also looking at grabbing market share away from its rivals to make up for the expected moderation in cement demand for 2011.

“We are now one-third of the market, around 33%. Our target is 33%-35%,” Mr. van Wijnen said.

The company has a total installed clinker production capacity of 6.94 million metric tons per year and cement production capacity of 9.8 million metric tons per year. To date, the company is selling around 5.5 million metric tons.

“The balance will be used to cater to more demand in the next three to four years,” Mr. van Wijnen said.

The firm is also looking at innovations to cut down on energy consumption amid threats of power shortage in Mindanao where it operates two plants.

The cement maker had to shutter one of its two lines in Misamis Oriental and cut down production at its Davao plant due to power outages. It then resorted to importing pricier cement clinker, according to earlier reports.

The company thus posted just a 23% increase in net income attributable to equity holders to P3.835 billion last year versus the 142% surge it enjoyed in 2009.

The margin of the firm’s earnings before interest, taxes, depreciation and amortization decreased by 1.2% as cost of sales and freight cost increased, Holcim Philippines also had said, pointing in particular to higher power prices.

To lower power costs, Mr. van Wijnen said Holcim Philippines is banking on better utilization of the plants whole generating energy from waste materials.

Holcim Philippines owns four production facilities, one cement grinding mill, three ports, and four storage and distribution terminals. It also operates 23 sales offices and works with more than 950 “channel partners” in the country. Shares in Holcim Philippines were unchanged at P13 each on Wednesday. -- Neil Jerome C. Morales