Holcim’s $550-M plant on hold

The country’s leading cement maker Holcim Philippines has put on hold a $550-million investment in a new cement plant in Norzagaray, Bulacan to review its supply chain management ahead of the integration of Southeast Asian economies in 2015.

The new plant in Bulacan was supposed to add 2.5 million metric tons to Holcim’s annual production capacity by 2016. Late last year, Holcim already came out with a shortlist of contractors to build the new plant.

In a recent briefing, Holcim Philippines chief executive officer Eduardo Sahagun said that the company is still bent on building the new cement plant.

“It’s not a question of, will still be built? It’s a question of when,” Sahagun said, adding that studies are now being conducted to determine the best course of action for Holcim.

The creation of the Association of Southeast Asian Nations (Asean) Economic Community by next year will allow Holcim to absorb excess capacity from units in other markets like Vietnam, Sahagun explained.

Being a global company, Holcim is now rethinking its strategy, drawing up plans for the entire region and not just for a single country, he said.

Holcim’s rosy outlook on the Philippines has not changed, Sahagun said, adding that the supply equation has now affected the company’s investment plans.

The size of the Philippine cement market comes to about 20 million metric tons (MT) a year, of which Holcim corners about a third. The market is more than double in Vietnam at 50 million MT, while that of Indonesia is three times bigger at 60 million MT. Singapore’s cement market is estimated at 10 million MT.

In terms of labor and power, as well as coal sources, Sahagun said neighboring markets like Vietnam offered lower costs. But Holcim Philippines may compensate for higher variable costs by boosting productivity, he explained.

Also, Philippine logistical issues—such as bad weather, port congestion and truck bans—may in turn boost the proposition of increasing domestic production capacity. Holcim is now studying how much of the excess capacity in its overseas units can be brought to the Philippines without creating bottlenecks in the supply chain, the company official said.

“The study still has to go to Zurich,” he said, referring to the parent company in Switzerland. He also stressed that Holcim’s long-term plan still includes the construction of the Bulacan cement plant.

Last year, Holcim’s net profit grew by 26 percent to P4.55 billion as revenue increased by 6 percent to P28.9 billion—the best turnover seen by the company.

“Our company benefited from the good business environment, which has allowed the construction boom to persist and cement demand to thrive,” Sahagun said.

The profit growth was also aided by the company’s initiatives to manage costs. The net profit of P4.55 billion last year translated to a return on equity of 21 percent, rising from 18 percent the previous year.

The government’s heavy investments in infrastructure and the private sector’s commercial, residential and industrial projects perked up the local cement industry by 6 percent last year.

Holcim’s volume was flat in 2013 due to maintenance and upgrade activities in the third quarter, and the slowdown seen in the fourth quarter in the aftermath of Supertyphoon “Yolanda.” In anticipation of the growth in demand this year, Holcim upgraded the capacity of its La Union and Misamis Oriental plants and reactivated its idle grinding facility in Batangas in 2013.

This year, the cement industry is expected to grow by 5 to 8 percent. Holcim hopes to grow in line with this projection and continue to dominate the market, Sahagun said.

“We expect 2014 to be again filled with opportunities for our business. We believe that the best way to capture those is by continuing our thrust to develop our people so they can deliver the services that will further raise our customer’s satisfaction and firm up our relationship with them,” he said.