Strong domestic market and increased operating efficiencies result in record performance for Holcim Philippines

04.25.2011
 

With consumer confidence at a historical high in 2010, the pace of construction activities accelerated and brought cement demand to its highest level in 13 years.  Holcim Philippines succeeded in capturing opportunities from this strong demand and achieved a record performance, as a result of prudent investments in manufacturing equipment and personnel training over the last three years.

Cement demand had been set back by the Asian financial crisis and it was only in 2010 that the industry finally exceeded its 1997 levels. The industry grew by 7% as election-related spending and private residential and commercial projects fueled construction activities.

Holcim Philippines reported that its domestic volumes grew by 10%, slightly higher than the growth of the market. Revenues grew by 8% as the company significantly reduced its export sales to serve the domestic market. Net income grew by 23% as increases in operating costs were by large compensated by increased prices and significantly reduced borrowing costs. This was achieved despite heightened competition and challenges arising from a power crisis in Mindanao, where the Company operates two plants.

The Company’s chief operating officer, Roland van Wijnen, said: “In a period of high demand, the primary challenge for us was to keep our domestic markets supplied. We met this challenge better than anyone in the industry because we were able to respond in a timely and effective manner to significant market developments, including power curtailments which forced the shutdown of one manufacturing line in our Lugait plant.”

Continued Van Wijnen: “We made an early decision on clinker imports while implementing internal measures to further improve our operating efficiencies and optimize power consumption. We therewith kept our focus on the needs of our long term customers, which has always guided us in making our decisions to provide the market with the right products.”

Operational improvements combined with strong volumes and the ability to increase prices allowed the Company to maintain operational profitability despite the ever rising input costs

While Holcim’s volumes are driven primarily by its cement business, Van Wijnen said the Company’s ready-mix concrete business is also rapidly growing its customer base, which include the country’s most respected contractors and real-estate developers. Key to the Company’s growing success is its ability to leverage technical know-how to provide customized concrete solutions.

Looking forward, Holcim Philippines Commercial Director Ed Sahagun pointed to increasing coal and fuel prices as one of the main challenges facing the company this year, as these account for roughly 40% the company’s variable costs.  

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.

While the Company has experienced a slower first quarter this year, along with the entire cement industry, it is confident that the momentum in the private sector will be sustained while the effects of government spending will start to show in the market demand from the second quarter onwards. Real estate developers continue to plug the gaping housing backlog, and build more office spaces for the outsourcing industry whilst the government has recognized the continuous need to enhance the infrastructure. The Company also believes that the growing interest of private companies to partner with the government for infrastructure projects, apart from those listed as key Public-Private Partnership projects, will benefit not just the industry but the entire economy.

As such, the Company is looking at investments to further enhance its production and distribution capability. Already, it reactivated its cement terminal in Calaca, Batangas, last January, giving it greater flexibility to move products from Mindanao to Luzon. The Company also took over the operation of a previously sub-contracted cement paper bag manufacturing plant in Calumpit, Bulacan, to ensure supply reliability and consistent quality.