Strong private construction sustains Holcim volume growth

First half domestic sales volumes of leading cement manufacturer Holcim Philippines, Inc. rose by 16% year-on-year driven by construction projects led by the private sector. Total market growth was estimated at 14%, as the real estate sector continued to roll out various projects in anticipation of strong economic growth.

The company expects a positive full-year forecast, although it maintained that while the first half is a period of high demand, the second half is traditionally slower with the onset of the rainy season. Political and economic developments in the next few months will also be critical as this will influence the market’s ability to sustain performance.

Holcim’s net sales for the first six months reached P12.9 billion from P11.5 billion for the first half of 2009, showing a healthy growth of 12%. Consequently, net income grew to P2.8 billion.

The lack of electricity in Mindanao and consequent high increases of power costs combined with higher freight costs were the main challenges that confronted the company during the first half. The impact was offset by continuous operational improvements and effective cost management across Holcim facilities, along with volume growth coming mostly from election spending and private commercial projects such as office buildings, residential condominiums, condotels, and schools in the National Capital Region (NCR).

Roland van Wijnen, chief operating officer of Holcim Philippines, is heartened not just by the brisk sales but also by emerging market developments that show increasing product differentiation. Sales of Holcim 4X increased, showing a growing recognition of the benefits of bulk cement particularly for large users. Holcim 4x is supplied in bulk for ready-mix concrete applications such as high-rise structures and infrastructure that require high compressive strength and workability.

Another Holcim product that is enjoying increased sales is Holcim WallRight, which is especially suited for masonry applications. Ed Sahagun, senior vice president for commercial, notes that consumers are just starting to see the benefits that come with deliberately choosing the right Holcim product.

“Using the right product for the right application does not only guarantee quality performance,” he points out, “it can also reduce total spend as well as environmental impact.”

Overall, the company believes it will still be a good second half.

“The new government recognizes the urgency of putting in place much-needed infrastructure projects to sustain economic recovery, and is looking to partner with the private sector to achieve this,” says Van Wijnen. “Apart from this, we also need to address the significant housing gap. If we view these potentials against the continued growth of remittances and credit availability, we can expect that the construction sector will continue to be vibrant.”

In order to meet the anticipated strong demand, Holcim Philippines has initiated the restart of idle capacities. As a first step, its cement terminal in Calaca will resume operations by early 2011. While it does not have cement production facilities, the Calaca terminal will be capable of handling an additional 1.5 million tons and will thus greatly help in facilitating product deliveries to markets in Luzon. The company is now also back to running two lines in its Lugait plant, after it was forced to shut down one line last March due to power curtailment in the region.

Van Wijnen points out that even as the cement industry benefits from a robust construction sector, it is also confronted by continuing challenges. A primary challenge is high power cost. It has been reported that power rates in the Philippines are the second-highest in Asia, next only to highly-industrialized Japan.

In April this year, Holcim’s power cost in Mindanao soared by over 40% compared to the end of 2009, as the El Nino-induced dry spell required more expensive energy sources. Even as power sources are now stabilizing in Mindanao, rates are expected to remain high for the rest of the year. The National Grid Corporation of the Philippines recently signed a one-year deal with an ancillary service provider to ease power curtailment in the region.

The company is also looking closely at rising global coal index prices, especially as winter approaches, making the global coal market vulnerable to heightened demand and transport problems. As of June, the Newcastle index prices of coal showed a more than 20% increase since end of 2009.

These developments will continue to be critical given that power and fuel account for more than half of Holcim’s variable costs.

About Holcim

Holcim is one of the world’s leading suppliers of cement and aggregates (crushed stone, gravel and sand) as well as downstream activities such as ready-mix concrete and asphalt. The Group holds majority and minority interests in more than 70 countries on all continents. Holcim Philippines, Inc. (HPHI) is a Philippines-based cement manufacturer and a member of Holcim Group. Holcim Philippines is involved in the manufacture, sale and distribution of cement to the domestic and export markets. The Company produces four cement products: Holcim Excel, Holcim WallRight, Holcim Premium Bulk and Holcim Duracem. Its products are sold in bags, jumbo bags and in bulk. Holcim Philippines operates four cement plants in La Union, Bulacan, Misamis Oriental, and Davao. It currently has 1,500 employees in the Philippines

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