EAGLE CEMENT SOARS

On Monday, May 29, Eagle Cement Corp. lists its shares for sale to the public for the first time.  With the government spending P8.4 trillion during the Golden Age of Infrastructure over the next six years, plus savvy management by Ramon Ang and his family, integrated operations and unrivalled plant capacity, dominant presence in main markets, and smart product pricing, Eagle’s stock is expected to receive a warm, if not spectacular reception from investors.

“I heard the Eagle IPO (initial public offering) has been oversubscribed 2x to 3x,” reports Conrado Bate, president-CEO of COL Financial, the country’s biggest online stock brokerage firm.

Bate explains why Eagle has been such a popular issue. “Eagle has been doing well vs. the industry.  They continue to grow their revenues while the others are experiencing declines.  They also have better margins given that they don’t have to pay royalties and their plants are located closer to the market they want to serve,” he said in a text message.

Deadpans Ramon Ang: “Eagle has been very well received.” In eight years, from 2010 when he started production, Eagle became the No. 1 single cement plant in the Philippines.

Eagle has offered its shares to the public, at P15 per share involving 500 million new common shares plus 75 million optional shares, if necessary.

The sale of 500 million shares will raise P7.5 billion; P6.921 billion net, less expenses. Most of that money will be used by Eagle to finance a P12.5-billion new Cebu two- million-ton capacity cement plant which will be operational by end of the year. Eagle hopes to become the most modern, most integrated and largest cement company in the Philippines, and one of the largest in Southeast Asia. Currently, as a single plant in Bulacan, Eagle is the largest cement producer.

With 5 billion shares outstanding, the public offering values Eagle Cement at P75 billion or $1.5 billion, enabling the family of Ramon S. Ang, its principal owner, to be richer by that much.

Ang, since 1999 has been the vice chairman, and since 2002 the president and chief operating officer of San Miguel Corp., the country’s largest company in sales and profits.  Ang owns about 20.12% of SMC, valued at P52 billion or $1.04 billion.  The $1.5 billion market value of Eagle plus his SMC holdings make him worth $2.54 billion.

Ang’s nearly 100% ownership of Eagle is only one of the reasons why Eagle is expected to fly in the stock market in the coming months and years, if not immediately.

Key strengths

The company considers the following as its competitive strengths:

  • Strong brand equity for both retail and institutional customers;
  • Single largest fully-integrated manufacturing facility with state-of-the art production lines;

The Philippine cement industry has grown over the years to support the economic advancement and infrastructure development of the country. The current industry comprises several domestic and multinational players, which have manufacturing facilities scattered throughout the archipelago.

  • Strategic location of plants and access to vast limestone reserves;
  • Extensive distribution network coupled with a lean and efficient sales and marketing framework;
  • Seasoned and competent management, operating and marketing teams with proven track record in the cement industry; and
  • Strategically positioned to take advantage of the growth opportunities in view of the favorable growth outlook in the construction industry of the country.

At San Miguel, Ang has chalked a nearly incredible record in growing the once sluggish beer and food giant into the most diversified, largest, and most profitable enterprise in the Philippines.  In 2007, SMC had revenues of just P148 billion and profits of P6.93 billion.  In 2016, SMC had sales of P685.3 billion and net income of P52.24 billion.  That shows an average growth in sales of 40.3% per year for nine years and an even more spectacular 72.66% growth in profits per year, also for nine years, from end-2007 to end-2016.

If Ramon could run a company where is a minority owner (although the second largest individual stockholder) so breathtakingly well, would he not run as well, if not better, a company he owns 100%.  The answer, of course, is obvious.

Eagle has been hugely profitable.  As a listed company, the company vows to declare up to half of annual profits as dividends. On April 6, 2016 declared a whopping P375 million in cash dividends, its largest ever.

In 2016, Eagle reported revenues of P13.275 billion, up 20% from P11.08 billion from 2015, thanks to higher prices (up 5.12%) and higher volume sales (up 14.15%) with the completion of a second production line at the Bulacan cement manufacturing complex.  Net income increased 12% to P4.112 billion in 2016, from P3.676 billion in 2015.

A better measure of performance is EBITDA—earnings before interest, taxes, and depreciation.  EBITDA was P6.363 billion last year, a big 43.4% jump in 2015’s P4.434 billion which itself was an increase of 13% over 2014’s P3.92 billion.

RSA’s son, Ateneo-educated John Paul Ang, 37, is the president and CEO of Eagle Cement. Paul’s sister Monica, 28, is CFO/Treasurer.

According to the Inquirer, when Paul was only 23, he left Manila to take over a distressed Malaysian cement company, Sarawak Clinker. RSA bankrolled this acquisition, risking a few million US dollars so that his eldest child could learn all about running a business, particularly cement-making.

Paul stayed in Malaysia from 2003 to 2008, taking pride in experiencing the life of an overseas Filipino worker. He turned Sarawak Clinker around. Sarawak was sold for $60 million.

“Cement is like water. It’s always needed,” Paul says of the booming business.

According to its IPO prospectus, the competitive strength of the company is founded on its end-to-end production strategy, which seamlessly integrates critical raw material sourcing with modern manufacturing technology resulting to one of the most efficient cement manufacturing operations in the country.

The company has the largest integrated single plant production capacity in terms of cement output in the Philippines through its primary cement production facility located in Barangay Akle, San Ildefonso, Bulacan.

The plant consists of two production lines with an annual combined cement production capacity of approximately 5.1 million   MT or 130 million bags per annum.

Eagle is strategically located near demand-centric areas and in direct proximity to rich limestone and shale reserves covered by the exclusive mineral rights of the company. In addition, the company also maintains a grinding and packaging facility in Limay, Bataan which can process 12 million   bags of cement per annum.

Eagle Cement is constructing a third production line in its Bulacan Cement Plant (Line 3), due to be completed in 2018 which will increase its cement production capacity by two million   MT or about 50 million   bags per annum. This will bring total production capacity to about 7.1 million   MT or about 180 million   bags per annum, enabling the eompany to consolidate its position as one of the leaders in the cement industry.

Eagle Cement distributes its products in the Luzon region which constitute about 65% of total cement demand in the Philippines, particularly in the following areas: National Capital Region (NCR or Metro Manila), Region I (Ilocos Norte, Ilocos Sur, La Union, Pangasinan), Region II (Batanes, Cagayan, Isabela, Nueva Vizcaya, and Quirino), Region III (Nueva Vizcaya, Nueva Ecija, Bulacan, Pampanga, Tarlac, Bataan, Zambales), and Region IVA (Cavite, Laguna and Batangas, Rizal, and Quezon).

NCR still serves as the center of construction and infrastructure activity in the country. Eagle Cement is considered one of the leading players in areas with the highest economic activity in the Philippines with an estimated market share of 30% in NCR, Region III, and Region IVA, based on internal Company data.

Business strategies

To further build on its competitive strengths and allow further expansion of its business, the company intends to undertake the following business strategies:

  • Increase production capacity and expand distribution channels in key growth regions in the country;
  • Ensure sustainability and proximity of raw material sources;
  • Further enhance customer and product value proposition; and
  • Maintain price competitiveness.

Philippine cement industry overview

The Philippine cement industry has grown over the years to support the economic advancement and infrastructure development of the country. The current industry comprises several domestic and multinational players, which have manufacturing facilities scattered throughout the archipelago.

Cement plants vary significantly in terms of age and efficiency. Local cement demand has shown tremendous growth over the last 15 years from about 12 million tons in 2000 to about 24.4 million tons in 2015, representing a CAGR of 4.80%.

Philippine GDP grew 5.10% per year during the past 15 years.

Cement demand reflects economic growth. Cement demand accelerated during 2008 thru 2015 reflecting a CAGR of 9.12%, outpacing the growth of Philippine GDP which 5.50% averaged in the same period.

This can be attributed to the growth construction activity over the last 10 years, growing by 7.90%.

The contribution of the construction industry a percentage of GDP has also been growing steadily from 2005 to 2015.

Greater construction activity over the last two years was mainly driven by increased infrastructure spending by the government.

Prior to 2015, construction was mainly supported by private investment directed to housing and commercial / industrial projects.

In 2015, infrastructure spending almost doubled as a percentage of GDP. It continued to increase in 2016.

Cement consumption still low

Still, the Philippines has one of the lowest per capita cement consumption in comparison with its regional counterparts.

In 2014, cement demand was 21.3 million tons or approximately 212 kilograms per capita, below almost all its ASEAN neighbors and less than half the quantity per capita of Vietnam, Thailand and Malaysia.

The Philippines, together with Indonesia and Myanmar, are well below global per capita consumption.

In developing countries such as the Philippines, the expected GDP per capita growth would usually result in an increase in cement consumption due to the significant need for infrastructure activity to support economic growth. In developed countries where GDP per capita approaches $20,000.00, growth in GDP has a more muted effect on cement demand.

In the future, cement demand shall be driven primarily by the growth in the construction sector.

With the continued thrust of both public and private sectors towards infrastructure building to support the growing economy, a significant cement demand growth may be expected.

Philippine regions

Of the three main island groups: Luzon, Visayas and Mindanao, Luzon region has been the primary market for cement, accounting for more than 65% of total demand in 2015.

National Capital Region (NCR) serves as the center of construction and infrastructure activity in the country. It is in Luzon. Luzon market has the highest per capita cement consumption among the three regions.

On the other hand, the Mindanao region constitutes about 20% of the total population but only accounts for about 15% of total cement demand.

Geo-political circumstances and security issues in Mindanao have led to the under development of infrastructure resulting to the low per capita figures in the region.

Product types

There are three main types of cement sold in the Philippine market.

Ordinary portland cement (OPC) OPC (Type 1) is produced using gypsum and portland clinker and known for its quick hardening ability, making it ideal for time-sensitive projects.

OPC is also characterized by its high compressive strength and contains approximately 95% clinker.

Given its resistance to abrasion, OPC is mostly utilized in building foundations as well as infrastructure projects such as roads and bridges, which have extended exposure to vehicles and weather. OPC accounts for about 20% to 30% of total industry sales.

Portland pozzolanic cement (PPC)

PPC (Type 1P) is manufactured using 70% portland clinker and 30% additives/extenders such as gypsum, pozzolans, volcanic tuff, blast furnace slag and fly ash, that are intended to provide additional strengthening properties not present in OPC.

Although OPC has a short setting time, PPC can also achieve setting times equal to OPC’s with addition of certain admixtures during the manufacturing process.

PPC is used for general construction activities where long-term strength is preferred over short-setting time. This type of cement accounts for about 70% to 80% of total industry sales.

Masonry cement (MC)

MC (Type M) is created using gypsum, portland clinker, plasticizers, and an air entraining agent.

This has the ability to absorb water, which increases its workability. MC is used plastering, core filling, tile adhesive and grout, and other semi-structural masonry works, such as driveways, sidewalks and fencing. In cements accounts for about 5% of total industry sales.

Cement is sold through either of the two mediums- in cement bags or in bulk.

The Philippine cement market is mainly a bagged market wherein cement bags constitute about 80% of the total industry sales. Cement bags (i.e. cement packaged in 40 kilogram bags) are usually sold to dealers and distributors for usage of retail customers.

The remaining 20% is sold in bulk which are usually transported in trucks or 1-tonner bags. Cement sold in bulk is directed to ready-mix concrete (RMC) facilities and other concrete products producers. Most of the RMC and concrete products end users are major infrastructure projects.

Currently, the usage of bagged cement varies among the three island regions. Luzon has a higher bulk cement sales component whereas Mindanao is nearly 100% bagged cement.

This can be attributable to the fact that infrastructure projects and high rise buildings projects which require bulk cement is concentrated in Luzon. It remains to be seen whether bulk cement sales in the Visayas and Mindanao region would increase given the current directive of the national government to hasten infrastructure development in the said areas.

Current domestic supply

As of December 2016, the Philippine cement industry had an estimated annual clinker and cement capacity of 20.6 and 28.63 million tons, respectively.

Of these capacities, the top four industry players (LafargeHolcim, CEMEX, CRH-Aboitiz, and Eagle Cement) account for about 80% and 82% of total clinker and cement domestic production, respectively.

In Luzon, the top four industry players account for about 90% share of the market. Eagle Cement only has 15% share of the Luzon market. Its market share is 30% in key areas such as NCR and Region. Because of this, Eagle Cement is considered one of the leading players in the areas of highest economic activity in the country.

In the Visayas region, CEMEX dominates, with 40% share, supplying cement through its plants in Cebu.

LafargeHolcim has the largest share of the Mindanao market, at 55%, supplying cement through the two plants in the area.

Imports

As a result of the robust growth in cement consumption, the Philippine cement market has seen significant growth in imports of both clinker and cement. These imports are brought into the country either by existing industry players or independent importers. Entry of independent importers is viewed as opportunistic in nature their long-term commitment to the market is questionable since they have yet to invest in importation assets in the country such as terminals, depots, etc.

Forecasts

With the expected increase in construction and infrastructure spending, the Philippine cement market will require significant additional capacity to support future growth.

The Philippine cement industry would need an additional 11.55 million tons of cement capacity, to meet cement consumption requirements until 2025.

To address this demand gap, existing players may either build capacity expansions or import clinker and/or cement from abroad. The latter is especially true for multinational cement companies, which have operations in nearby countries.

But given the limitation on port capacity to receive imported cement, it seems that there is a significant need for the construction of additional capacity going forward to support not only the widening cement supply gap but also the continuity of economic growth in the country.

Business

Eagle Cement Corp. is a fully integrated 100% Filipino-owned company primarily engaged in the business of manufacturing, marketing, sale and distribution of cement.

Eagle has the newest, state-of-the-art, and single largest cement manufacturing plant in the Philippines. Eagle is the fourth largest player in the Philippine cement industry based on sales volume, with the fastest-growing market share among all competitors in the industry since it started commercial operations in 2010.

Registered with the Securities and Exchange Commission (SEC) on June 21, 1995, Eagle draws its strength on its end-to-end production strategy which seamlessly integrates critical raw material sourcing with modern manufacturing technology resulting to one of the most efficient cement manufacturing operations in the country.

Eagle offers portland (Type 1P) and bulk (Type 1) cement to both distributors and to top Philippine real estate developers using the Eagle Cement brand that has become synonymous with strength, durability, reliability, and world-class quality.

As testament to the quality of Eagle products, Eagle Cement Strongcem is being used in concrete design of up to a high of 12,000 PSI. The company supports the distribution of its high quality products through its strong mass media marketing efforts and grass-roots below-the-line activation partnership-building programs with dealers, distributors, and retailers.

Through its holistic brand building activities, the company continues to enhance its value proposition, which develop strong client relationships. Sound credit management framework employed by the company ensures a substantially liquid financial position that provides options in short term financial planning and in long term capital development strategy.

As of 2016, NCR still is the center of construction and infrastructure activity in the country.

With an expected increase in both private and public construction activities, supported by the commitment of the national government towards infrastructure development, outlook is strongly positive on the Philippine economy.

This translates into sustained and impressive growth prospects for the cement industry in the country.

To capitalize on this, Eagle Cement will expand its production capacity and market coverage in the Philippines with the completion of Line 3 and the construction of the Cebu Cement Plant in the next five years.

The company is uniquely well positioned to capitalize on these market conditions to maintain its robust financial performance through modern production technology, strategic raw material sources, strong brand equity and established customer and dealer relationships.

Competition

The four largest Philippine cement manufacturers account for 88% of the market by sales volume.

Eagle Cement is the fourth largest cement company Eagle has a 30% market share in NCR, Region III, and Region IVA making it one of the leading players in the hub of economic activity in the country.

Its primary competitors include: LafargeHolcim, Republic (CRH-Aboitiz), Cemex, Northern Cement Corp., and Goodfound Cement Corp..

Competition is mainly on the basis of product quality, market coverage, distribution infrastructure, product offerings, marketing strategy, brand equity and pricing.

Given its key strengths and its track record, Eagle Cement believes it can continue to compete strongly on these factors with other players in the industry.

The company believes there are innate barriers to entry into the domestic cement market such as: (i) sources of raw materials; (ii) high capital outlay specifically for greenfield projects; (iii) development of brand equity; (iv) establishment of a distribution network; (v) limitation on domestic port capacity and high transportation costs; (vi) the variety of product offerings available in the market; and (vii) the period of time spent on the construction and rehabilitation of new and existing plans, respectively.

Imports partially address supply deficits. The influx of imported clinker and cement has resulted in tighter pricing of cement products in the market.

Key strengths

Eagle is the single largest fully-integrated manufacturing facility with state-of-the art production lines.

Eagle has the largest integrated single plant production capacity in terms of cement output in the Philippines. The Bulacan Cement Plant consists of two production lines with an annual cement production capacity of approximately [5.1 million MT or 130 million bags].

The plant covers the end-to-end production of cement from raw material sourcing and processing, clinker production, grinding and mixing, to packaging and cargo loading, providing the company with significant process, cost, and quality control and more efficient operations.

The production lines utilize state-of-the-art technology in the production of Eagle Cement Advance, Eagle Cement Exceed and Eagle Cement Strongcem. The facility is regularly upgraded with the latest machinery to consistently achieve improved operating efficiencies and to maintain a superior cost structure compared to its competitors.

In 2015, the company acquired a vertical mill, the largest single cement mill in the country for its Line 2 facility which has lower power consumption compared to conventional mills. The company also employs a waste heat recovery system which supplies a portion of the total power requirements of the plant. Constant improvement of the facilities and manufacturing process ensure a high quality of cement produced in the most efficient manner.

The plant also has a significant post-production facility where cement is stored in silos until such time that these are sold and delivered to distributors and/or consumers in 40 kilogram bags or in bulk. The plant maintains 14 loading bays that can accommodate about 400 trucks per day. The integration of raw material sourcing, processing, and packaging in a seamless manufacturing process allows the company to produce and distribute about 393,000 bags of cement per day with the two current lines.

The company has a distribution infrastructure which includes two distribution centers located in strategic areas complemented by a fleet of approximately 300 cargo trucks, 300 trailers, and 200 bulk carriers operated by third-party service providers comprising a logistics network geared to distribute to the highest value and fastest growing markets in NCR and the nearby provinces.

The end-to-end business model of the company has enabled it to manage cost and margins in every stage of the cement production and distribution process, allowing for higher efficiency, profitability, and operating synergy.

Strategic location of plants and access to vast limestone reserves.

As of 2015, it is estimated that the Luzon market accounts for about 65% of the total cement demand in the Philippines with the NCR having by far the largest domestic market demand. The Bulacan Cement Plant is strategically located in the Province of Bulacan that allows the company to readily serve key markets in Luzon including NCR, Cagayan Valley, Isabela, Nueva Vizcaya, Nueva Ecija, Bulacan, Pampanga, Tarlac, Bataan, Zambales, Cavite, Laguna, and Batangas. The location of the plant in Central Luzon coupled with its reliable and established distribution network provide a significant competitive advantage in the distribution of cement in the key markets in Luzon.

With about 30% market share in NCR, Region III and Region IVA, Eagle has became one of the leading players in Luzon.

The Luzon market is expected to continue to be a major cement market in the future periods.

Eagle expects to maintain its status as one of the leading players in the said area given the vast limestone reserves that the company controls in the proximity of its Bulacan Cement Plant.

The company holds the rights to a total of [251.97] hectares of land in Bulacan, with an estimated limestone deposit of approximately 300 million MT, for sourcing raw materials for the Bulacan Cement Plant. From 2010 up to December 2016, the company utilized 7 million MT of limestone for cement manufacturing. The extensive limestone deposits are more than sufficient to support in the long term both the current operations and expansion plans.

Strong brand equity for both retail and institutional customers.

Since operations in 2010, Eagle has quickly established strong brand equity for Eagle Cement. This was done through, among others, the High sa Tibay campaign channeled through traditional mass media. Because of such efforts, the Eagle Cement brand is now widely recognized and has become synonymous with strength, durability, reliability, and world-class quality cement products. Furthermore, Eagle Cement promotes through extensive below-the-line activations and loyalty programs which further enhance value proposition of its products and foster strong partnerships with dealers and distributors.

Eagle is one of the leading partners of the top Philippine developers for major infrastructure and real estate projects on the account of the world-class quality and price competitiveness of its cement. As a testament to product quality, Eagle Cement Strongcem is being used in concrete designs of up to a high of 12,000 PSI.

Extensive distribution network coupled with a lean and efficient sales and marketing framework.

Eagle Cement has two distribution centers in Paranaque and Cavite that service the Luzon market, particularly the major population centers such as NCR and Region IVA.

This is complemented by a fleet network of approximately 300 cargo trucks, 300 trailers, and 200 bulk carriers operated by over 40 third-party service providers. This network supports the selling and marketing activities of the 18 sales and marketing agents of the company for the entire Luzon market.

The distribution network of the company supplies cement products to about 133 dealers all over NCR and Region IVA. Furthermore, the company also established a key accounts group which handle the requirements of its institutional customers which account for about 22.94% of total sales for the period ended Dec. 31, 2016.

Eagle requires 80%-90% of the customers to provide upfront payments prior to the delivery of the products. Market leaders in the construction industry and other long-term institutional clients with good credit standing, comprising 10%-20% of its client base, are given credit payment terms by the company subject to prudent credit evaluation, a majority of which are fully secured (i.e. bank guarantee). This framework ensures that the company maintains a substantially liquid financial position that gives the Company options in short term financial planning and in long term capital development strategy.

Seasoned and competent management, operating and marketing teams with proven track record in the cement industry.

Eagle is helmed by a highly effective and professional management team with extensive experience in the Philippine cement industry. It maintains a lean organizational structure that is flexible, responsive and easily adaptable to market changes. The management team of the company has a combined cement industry experience of more than 100 years and with a strong track record of growth and delivery since commencement of operations in 2010.

Deep knowledge by the management team on the Philippine operating environment has enabled the company to establish long-standing relationships with customers, suppliers, distributors and partner institutions, allowing the

Company to become one of the leading cement manufacturers in the country in less than a decade of operations. The company employs a complement of highly competent technical and marketing personnel with industry experience and professional excellence.

Strategically positioned to take advantage of the growth opportunities in view of the favorable growth outlook in the construction industry of the country.

Since the commencement of operations of its Line 1, Eagle has consistently outperformed the cement industry in terms of growth rate, while also increasing its market share of sales volume. Philippine cement consumption has been relatively low compared to other neighboring Southeast Asian countries. For instance, using 2014 data, Vietnam (89 million population @ 524kg/capita), with a comparable population size, has a cement demand which is more than twice that of the Philippines (100 million population @ 212kg/capita).

With cement demand highly correlated with economic growth, the domestic cement industry has a positive outlook since the Philippines continues to be one of the fastest growing countries in the ASEAN region.

This is supported by a renewed focus towards public and private construction activities. Furthermore, the increase in construction activity can be attributed to an increased infrastructure spending by the national government.

The commitment of the Duterte administration to roll-out 64 big-ticket projects in the next six years is expected to usher in a “Golden Age of infrastructure” in the Philippines.

The administration intends to invest at least ₱8.4 trillion over the next six years. The government will focus on railway projects, improvements of ports of entry such as seaports and airports, mega bridges and toll roads which are expected to promote mobility and interconnectivity in the long run. This presents a major opportunity for growth in the cement industry.

Given these developments, cement demand is expected to outpace installation of additional cement production capacity. Despite the recent entry of cement imports, a significant portion of future cement demand may only be addressed by additional cement production capacity installation. This indicates a significant need for construction of domestic expansion facilities. However, expansion will require access to sufficient strategically located and permitted raw material reserves which are not currently available to all manufacturers. Furthermore, only a few players in the industry have signified interest to invest in additional manufacturing capacity. The strategic focus of the company on growing its cement production capacity through the construction of Line 3 and the planned Cebu Cement Plant will allow the company to take advantage of this opportunity.

Business strategies

Increase production capacity and expand distribution channels in key growth regions in the country.

The company intends to expand operations outside of its existing market coverage in the Philippines by increasing its existing production capacity in line with its expansion plan. With the completion of the construction of Line 3, the company will be able to increase its market coverage in Luzon to include Bicol, Mindoro, Marinduque, Romblon, Palawan, as well as reach Western Visayas.

To further extend its market coverage and increase operating efficiencies, the company shall establish the Cebu Cement Plant to anchor its expansion in the Visayas and Mindanao markets such as Negros, Cebu, Bohol, Masbate, Misamis Oriental, Davao, Zamboanga, and South Cotabato.

To support its expansion plans, the company will also establish as part of its Cebu Cement Plant, various marine terminals in the Visayas-Mindanao region. This would strategically position the company in the region and ensure reliability of supply.

The company shall continuously evaluate business prospects, potential capacity expansion and acquisitions, subject to the prevailing competitive landscape and cement supply demand balance. In line with this, Eagle Cement may also venture into other related products and/or market segments such as ready-mix concrete, masonry or mortar cement and others.

Ensure sustainability and proximity of raw material sources

The Bulacan Cement Plant of the company has access to conservatively estimated 300 million MT of limestone reserves, the largest among Philippine cement industry players, which support its current and long-term production requirements of its existing lines.

Consistent with its expansion strategy, the company shall continuously explore prospective limestone and other secondary raw materials in the Luzon, Visayas and Mindanao regions. Sustainability of raw material sources for the new plants shall ensure viability of the expansion plan.

Similar to the synergies created by the co-location of the Bulacan Cement Plant and its existing raw material source, the company will optimize the proximity between the expansion plants and raw material supply to ensure the success of the expansion plan.

Further enhance customer and product value proposition

Eagle intends to further enhance the value proposition of its products through various brand-building activities backed by traditional mass media and extensive below-the-line activations and loyalty programs, by, among others, the “High Sa Tibay” campaign which aided the company in achieving strong brand equity in the Luzon region.

The company plans to capitalize on strategic partnerships with dealers and distributors through various below-the-line activations and participation in industry-specific events which are aligned with the positioning of the products of the Company.

To maintain its strong relationships with dealers and distributors, the Company has established (i) the key accounts group which handle the requirements of the large-scale distributors/dealers and institutional clients; and (ii) loyalty programs that provide incentives to dealers and distributors which achieve a certain order volume within a specific period of time.

Maintain price competitiveness

One of the key business strategies of the company since the commencement of its operations is to maintain the price competitiveness of its products.

With a lean and adaptable organization, the accessibility of vast raw material sources close to its production plants, a fully integrated cement production process and regular upgrades to its production facilities, the Company is in a strong position to optimize its cost base leading to the realization of higher profit margins while at the same time maintaining a sustainable and reliable supply of products to customers.

These enable the Company to compete with other industry players at a distinct competitive advantage in key areas, allowing the Company to capture about 30% market share in NCR, Region III, and Region IVA in 2016.

With the success of its initial venture, the company intends to continue adopting this strategy of price competitiveness anchored on efficient supply chain management, investment in state-of-the-art manufacturing technology and strategic development of raw material sourcing in its expansion plans aiming to further increase its manufacturing output and logistics reach to deliver the highest standard cement products to a market expected to grow leaps and bounds in the following years.

Notwithstanding the existing production framework of the Company, it shall continue to explore, invest, and implement activities, which will result in improved operational efficiencies and cost reduction targets. This shall ensure that the Company remains among the lowest cost industry players in the country.

Brands

Cement bags (cement packed in 40 kilogram bags) are currently sold under either the Eagle Cement Advance or Eagle Cement Exceed brands. This Type 1P blended cement is used for general construction applications such as floorings, plastering, as well as the production of concrete products like hollow blocks, culverts and concrete pipes.

Distribution is generally done through direct plant pick-up or delivery to cement retailers, dealers and distributors which in turn is sold to various customers like retailers, contractors, and home builders.

Bulk cement

Type 1 bulk cement is sold under the Eagle Cement Strongcem brand. Bulk cement is usually used for cement and concrete applications that require higher compressive and early strength development such as concrete slabs, foundations and matting in high rise buildings and infrastructures like roads and bridges.

Distribution of said product is done through direct plant pick-up or truck delivery to institutional customers such as ready mix concrete suppliers, real estate and infrastructure developers and contractors.

Sales of cement bags to retail customers comprise the main revenue source of Eagle accounting for about 77.06%, 81.72%, and 87.74% of the consolidated net sales for years ended Dec. 31, 2016, 2015, and 2014, respectively.

However, demand of bulk cement has seen growth of 67.57% over the past three years, attributable to the continuous marketing and distribution efforts of the company towards institutional customers and upstart in both public and private infrastructure and construction sectors. This signifies the improved presence of the Eagle Cement brand in this particularly important market segment.

The company has a diverse customer base and is not dependent on any single customer. No single customer accounts for 20% or more of the total revenues of Eagle Cement.

Raw material sources

The primary raw materials used in the cement manufacturing process of Eagle are limestone and shale. Raw materials costs represent approximately 23.53%, 26.89% and 19.03% of the costs of sales during 2016, 2015, and 2014, respectively.

Limestone and shale are sourced by Eagle from its own reserves pursuant to its mineral rights. The reserves are co-located or within proximity of the Bulacan Cement Plant to minimize transportation/hauling costs.

Distribution network

The company has two distribution centers located in the NCR in Paranaque and the Region IVA center in Cavite.

These are complemented by a fleet of about 300 cargo trucks, 300 trailers, and 200 bulk carriers operated by third party service providers comprising a network that can efficiently reach the most important markets in NCR and its developing suburban areas as well as nearby fast-growing provincial markets.

The distribution network of the company supplies cement products to about 133 dealers all over NCR and Region IVA. n

 

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