Republic Cement Corp, part of the worldwide Lafarge empire, expects a tough year in 2005 as it grapples with rising production costs, continued tight government spending on infrastructure, and a possible decline in sales volume. "The (cement) market will at best be flat," Republic Cement President Juan Miguel Montinola told Dow Jones Newswires Thursday. "Cement prices are stable, but cost remains a challenge due to the rising cost of power."
Energy regulators last month raised the power rates of state utility National Power Corp. (NAP.YY). Electricity rates are expect to rise by around five per cent later this year when the government starts collecting value-added tax from power producers. Montinola said with electricity selling at more than $90 a megawatt-hour, the Philippines probably has one of the highest power rates in Asia.
He said that to countervail the weakness in the domestic market, Republic Cement plans to export approximately 500,000t of cement this year around the region. Republic Cement sold a total of around 4Mt of cement last year. "We’ve done exploratory exports and we hope that this will be a feature for us in 2005," said Montinola. Although sales volume will likely be flat this year, the company could still realize some growth in earnings due to the higher selling price of cement. The company will report its first quarter result later this month.
John Reinier Dizon, director and treasurer of Republic Cement, said cement prices so far this year have remained above last year’s average selling price of PHP109 per bag. Montinola said that while the private sector continues to construct buildings and other facilities, government spending on infrastructure projects has been slow due to its huge deficit. He noted that only seven per cent of the budget has been set aside for infrastructure spending, an amount that he sees as "too low" for the country to sustain growth and attract investments.
After a slew of acquisitions in the past five years that has made Republic Cement the largest cement group in the country, Montinola said he doesn’t see any further acquisitions in 2005. Republic Cement, whose largest shareholders include Lafarge and locally-listed Southeast Asia Cement Holdings Inc, has acquired six cement manufacturers, including Fortune Cement Corp. in 2000, FR Cement Corp. and Lloyds Richfield Industrial Corp. in 2003, and Continental Operating Corp. in December.
The acquisitions helped Republic Cement post a net profit of PHP573.2 million in 2004 on revenue of PHP11.33 billion. In 2003, when it turned around from years of losses, the company booked a net profit of PHP262.4 million on sales of PHP7.24 billion. Montinola said it would take a few years before the company could resume paying dividends to shareholders since it has yet to recover from the years of losses. He said the company had a capital deficit of PHP6.16 billion at the end of 2004.