Holcim braces for austerity pinch after H1 miss

Holcim braces for austerity pinch after H1 miss

Zurich: Holcim, the world’s second-biggest cement maker, warned government austerity programmes would limit infrastructure spending in the months ahead and posted disappointing first-half earnings.

Cuts to government spending in Europe and North America — which together accounted for 42% of net sales in the first half — are hitting demand there, chief executive Markus Akermann said on Thursday.

Pricing pressure in countries such as Spain and Italy coupled with government austerity schemes prompted concern that gains from emerging markets would be offset even as Asia, Latin America, Africa, and the Middle East do well.

Its shares fell 4.5% to 64.65 francs by 1004 GMT, lagging an 0.3% dip in the sector index.

“It’s the outlook, which is very, very cautious and also the message that pricing pressure is increasing," analyst Maud Penillard at Bank of America Merril Lynch said.

“One cannot speak of a global economic recovery. Elements of uncertainty still exist and make forecasting difficult. These include high levels of government debt, which are limiting further stimulus programs, particularly in Europe," the Swiss company said in a statement.

Holcim said it would focus on containing costs to insulate its bottom line, but the market was sceptical.

“If a company wants its save its way to success, that shows that margin problems could result," one trader in Zurich said.

“No sign of global recovery," another trader said, adding he had sold Holcim shares on the dour outlook.

TIghter belts

Holcim’s first-half net profit fell 37% to 331 million Swiss francs ($317.7 million) following a 186 million franc charge for restructuring operations in North America to save on local taxes.

The result, which follows a loss last quarter, was below analyst expectations for 469 million.

Infrastructure companies have benefited from government stimulus packages but state budget belt-tightening is set to weigh on earnings in the sector.

No. 1 cement maker Lafarge last month reported falling first-half sales and profits and cut its 2010 estimate for cement demand given the uncertain pace of economic recovery.

The Asia-Pacific region generated around 37% of Holcim’s first-half sales, and the Zurich-listed group which also competes with Mexico’s Cemex and Germany’s HeidelbergCement expected demand there to grow.

The group, which will supply cement for the 2012 London Olympics, announced Theophil Schlatter, chief financial officer since 1997, would retire in March. Thomas Aebischer, the finance chief for US operations, will replace him.

“They have a comfortable level of debt and I don’t see a big worry on the balance sheet," said Penillard of Bank of America Merril Lynch. “It’s not a non-event but I think it has neutral impact."

Earnings from Austrian brick maker Wienerberger and Portuguese cement maker Cimpor beat forecasts this week, with Cimpor saying business was boosted by growth in Brazil.