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March 2, 2011, 8:03 a.m. EST

Holcim Will Raise Prices as Profit Slips

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By John Revill

ZURICH—Building-materials company Holcim /zigman2/quotes/200284171/delayed CH:HOLN +0.27% Ltd. said Wednesday it will raise prices in 2011 to counter rising fuel and raw-material costs as it reported a 19.6% drop in annual net profit.

In 2010, net profit to shareholders fell to 1.18 billion Swiss francs ($1.27 billion) from 1.47 billion francs in 2009. Full year sales rose 2.5% to 21.65 billion francs from 21.13 billion francs in 2009.

"The group will do its utmost to counter the rise in production and distribution costs by vigorously pursuing price increases," the Swiss company said.

Its comments echo similar remarks from rivals HeidelbergCement /zigman2/quotes/202418791/delayed DE:HEI +0.19% AG and Lafarge SA. The German company last month said it would mitigate higher input costs with price increases, but a spokesman Wednesday couldn't say how much they would be or when they would take effect. France's Lafarge last month said that prices would rise, varying from market to market.

Holcim Chief Executive Markus Akermann said the company had announced price increases in several countries in response to rising oil and coal prices and more were in the pipeline.

Prices in Spain had been increased by around €8 ($11) a ton, while those in Germany will rise by about €9 a ton from April. Prices in the U.S. will rise by about $5 a ton of cement, with other price increases on the way, Mr. Akermann said. "We clearly need prices adjustments in view of the rising energy costs."

Holcim expects the energy costs of cement to rise by around 1.5 Swiss francs a ton of cement in 2011. Roughly 20% of Holcim's production costs relate to energy, with thermal energy used to fire and heat the kilns used to make cement, and electrical energy used to turn the mills. In addition to rising production costs, Holcim also was facing rising distribution and raw material costs, Mr. Akermann said.

"We see a continuous increase in costs but this has to be shifted to the market," he said. "This industry needs price adjustments in order to maintain adequate profitability."

The issue wasn't restricted to oil, with only a minority of plants burning oil, but also coal and petcoke prices, which followed the price of oil, Mr. Akermann said.

The sharpest revenue decline came in Europe, which makes up 30% of Holcim's sales, as a harsh winter and difficult economic environment in southern and eastern Europe triggered an 11% drop in sales and 15% fall in operating profit.

As government stimuli dried up and the recovery in the construction sector leveled out in the second half of the year, surplus capacity in the industry resulted in tighter competition and falling prices, Holcim said.

But the global economy improved in the fourth quarter, with net profit rising 13% to 307 million francs, from sales which dropped 5.1% to 5.09 billion francs.

The Zurich-based company said that although uncertainty remained in some parts of the world, it expected a recovery in mature markets as well as continuing growth in emerging markets. "Holcim, therefore, anticipates an increase in sales across all segments," it said.

In Asia, growth can be expected to continue with additional construction activity in Oceania in the second half. Volumes are expected to increase slightly in Europe and North America, and Latin America should also see growth in demand for building materials, Holcim said. The development will be more subdued in its Africa and Middle East regions, it added.

Holcim was confident "that the group will be successful in securing its share of future growth in the emerging markets and that its lean cost structures will enable it to benefit above average from a continuing economic recovery in Europe and North America," the company said.

Lafarge in February reported a 12% increase in 2010 fiscal net profit to €827 million on sales up 2% to €16.17 billion, while HeidelbergCement reported that it had increased its 2010 sales 5.8% to €11.76 billion and operating income 8.6% to €1.43 billion.

-By John Revill, Dow Jones Newswires; +41 43 443 8042 ; john.revill@dowjones.com

CH : Switzerland: SWX
CHF 45.04
+0.12 +0.27%
Volume: 955,459
Oct. 22, 2021 5:31p
P/E Ratio
Dividend Yield
Market Cap
CHF27.55 billion
Rev. per Employee
DE : Germany: Frankfurt
+0.12 +0.19%
Volume: 2,682
Oct. 22, 2021 8:59p
P/E Ratio
Dividend Yield
Market Cap
Rev. per Employee

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