Holcim hit by strong franc and cost rises

CEMENT maker Holcim yesterday said the record strength of the Swiss franc combined with soaring raw material and energy costs to hit its second-quarter profits.

Holcim’s operating earnings fell more than a fifth in the three months to the end of June, to 1.1bn francs (£843m) and net income dropped 14.9 per cent to 464m francs, despite steadily growing demand for cement.

The world’s second-biggest cement producer said it was struggling to offset higher coal, diesel and oil prices, which had added to its production and transportation costs.

It said an “appreciable number” of its subsidiaries such as Mexico and Ecuador had improved their results in local currency terms – “but these successes were cancelled out…by the strength of the Swiss franc”.

It also became the latest large corporate to take a cash flow hit from the strong franc – its cash from operating activities almost halved in the quarter to 609m francs.

Its shares closed seven per cent lower on the news.

But it said cost cuts and further price rises should put it on track to make about the same like-for-like operating earnings before interest, tax, depreciation and amortisation as last year.

Holcim raised prices by 3.6 per cent in the second quarter, and its chief financial officer Thomas Aebischer said further increases were planned.

“We’re going to have to keep raising prices to balance out cost inflation,” he told a conference call.

But analysts said its Latin America and Asia operations were actually a drag on profitability due to the cost inflation and currency effects.

“Higher...costs could not be compensated for sufficiently through price increases,” ZKB analyst Martin Huesler said.