Cement company reports decline in profit

MANILA, Philippines—Cement-maker Holcim Philippines reported a hefty decline in first semester profit compared to last year as cement weakened in the absence of election-related government spending that boosted sales in early 2010.

The company’s six-month net profit amounted to P1.44 billion, down by 48.6 percent from a year ago. For the second quarter alone, net profit was likewise down by 55 percent to P622.3 million, the company disclosed on Wednesday.

This developed as cement demand in the first six months declined by 9 percent, which Holcim attributed to weak government expenditure due to the absence of election-related spending and efforts to cut the national budget deficit. Construction activities in the private sector remained robust, however, as property developers sustained the rollout of commercial and residential projects.

Holcim Philippines’s sales volumes mirrored the industry’s performance, although still above 2009 levels.

Roland van Wijnen, Holcim Philippines chief operating officer, said that government traditionally accounted for roughly half of total cement demand, which was why the lower infrastructure spending had such an impact on the industry.

Earlier this month, the finance department reported that public spending only reached P698.87 billion in the first half compared to the P838.55 billion expenditure ceiling that was programmed. The government’s first-half spending was also lower than the P788.83 billion spent in the same period last year.

Commenting on the weak government expenditures, Van Wijnen said the company and business, in general, appreciate the government’s efforts to ensure transparency and credibility in construction projects and activities. “We look to the government, however, to set realistic timelines to guide our business and investment plans,” he said.

Even as the challenging market saw aggressive pricing schemes from competitors, Holcim Philippines was compelled to pass on higher input costs to its customers. With coal prices steadily climbing in the past months, Van Wijnen said the company could no longer hold off a price increase.

“We need to protect our margins in order to ensure a sustainable business that has sufficient returns to allow for reinvestment to grow our business and serve our customers better,” said Van Wijnen.

Van Wijnen said the company is optimistic that the demand slowdown is only temporary and that there are, in fact, already signs of invigorated spending. He is likewise hopeful the government will be able to bid out several of its Public-Private Partnership Projects towards the end of the year, which would boost cement demand.

“Our people on the ground have started to see some government projects being approved, and the Public Works department has committed to spend 90 percent of its budget before the year ends so we are hopeful we will be able to report better performance in the future,” he said.

As it looks to benefit from this growth, Holcim Philippines is focusing on areas within its control.

“We’ve further sharpened our mindset of better cost management among our employees across all our facilities,” said Van Wijnen. “We continue to run our plants efficiently and we are looking to increase the use of alternative raw materials to save on fuel.”