Holcim Philippines reported a fall in net profit of PHP1.4bn (US$33m), down 48.6 per cent YoY as cement weakened in the absence of election-related government spending that boosted sales in early 2010. For the second quarter alone, net profit was down by 55 per cent to PHP622.3m, the company said.
Cement demand declined by nine per cent in the first six months of 2011, 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 PHP698.87bn in the first half compared to the PHP838.55bn expenditure ceiling that was programmed. The government’s first-half spending was also lower than the PHP788.83bn 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 per cent of its budget before the year ends so we are hopeful we will be able to report better performance in the future,” he said.