Leading cement manufacturer Holcim Philippines, inc. posted lower sales volume in the first quarter, consistent with the slowdown in industry demand, coming off the extraordinary volumes from an election year.
Roland van Wijnen, Holcim Philippines chief operating officer, explained that the reduction was due to weak government spending for infrastructure, as demand from the private sector remained strong.
“Despite slower demand, we remain optimistic on our full year performance especially as we’ve been seeing a steady rise in volumes month by month, starting from the last quarter of 2010," said van Wijnen. "We expect demand to pick up in the second quarter especially as government has stated to start to roll out its infrastructure projects to take advantage of the summer months. We are also confident that the private sector will sustain the pace in its commercial and residential projects.”
As volumes declined, the Company's’ revenues dropped by 12%. Net income was also reduced as production costs increased with higher coal and fuel prices. Van Wijnen reiterated that rising costs of coal and fuel are the main challenges for Holcim Philippines, as these account for roughly 40% of the company’s variable costs.
Coal prices soared by almost 50% in the first quarter as bad weather hampered supply from top producing countries. The price of Dubai crude oil, which the Philippines uses as a benchmark, has similarly surged to over $100 per barrel in March compared to $77 in the same period last year due to the turmoil in the Middle East.
The Holcim executive said the company is working to mitigate the effects of higher input costs by ensuring efficient operations and applying good cost management. However, to sustain its existing business and to create a viable case for future investments price increases to keep profitability levels are required as well.