Annual Report of the BoD

Titan Group turnover in 2012 reached €1.131 million, posting a 3.6% increase compared to 2011. Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) declined by 19.8% reaching €196 million. The Group posted a net loss, after minority interests and the provision for taxes, of €24.5 million compared to a net profit of €11 million in 2011.

It should be noted that 2011 EBITDA included an additional €25 million relating to the refund of the clay tax fee in Egypt booked in the second quarter of 2011.

The deterioration in Group results is due to the collapse of building activity in Greece, the slow pace of recovery of the U.S. market from the very low levels of recent years as well as the slowdown witnessed in Southeastern European markets which suffered the spillover effects of the Eurozone crisis. The contribution of markets in the Eastern Mediterranean was significant, for yet another year, in particular that of Egypt where despite the backdrop of challenging circumstances, construction activity remains robust. 

The weakening of the Euro against the national currencies of the countries in which the Group operates had a positive impact on operating results in 2012. Positive foreign exchange translations boosted Group EBITDA by €4 million. At constant exchange rates, turnover would have declined by -0.1% versus the previous year while EBITDA would have posted a 21% decline.

The Group continued to generate positive cash free flow from operating activities in 2012 which reached €140 million. Always aiming at strengthening its fundamental financial metrics, the Group further decreased its net debt by €112 million in 2012, closing the year at €596 million. In the course of the last four years (2008-2012), and amidst a severe recession in the building and construction sectors in its most important markets, the Group achieved almost the halving of its net debt which translates into a reduction above €550 million since the end of 2008.

As a result of the above, in April 2012, credit rating agency Standard & Poor’s (S&P), upgraded their outlook for the Group to stable from negative with a ΒΒ- credit rating, as this had been assigned since May 2011. In November 2012, S&P re-confirmed the Group’s credit rating at BB- and stable outlook.

In June 2012, as part of its strategy of forging strategic alliances, Titan broadened its cοoperation with the International Finance Corporation (IFC) in the Balkans. Specifically, the IFC invested €50 million the Group’s subsidiaries in the F.Y.R.O.M., Serbia and Kosovo acquiring an 11.5% minority stake in Titan’s activities in the aforementioned countries.

In 2012 the Group continued with the implementation of its two-year restructuring plan which commenced in 2011 and which aims to improve operational efficiency and generate €26 million annual savings. The restructuring plan should be completed in 2013. The Group has already achieved €25 million in savings since the launch of the programme and until the end of 2012, thereby surpassing the initial target of €23 million set for this period.

The Company’s share price as at 31.12.2012 closed at €13.96, posting a 20.4% increase compared to the closing price at year-end 2011 and the General Index of the Athens Stock Exchange increased by 33.4%, over the same period. Compared to the end of 2008, the Company’s share price has remained unchanged (€13.90 as at 31.12.2008) while the General Index of the Athens Stock Exchange had recorded a 49.2% over the corresponding one year period.

In Greece, demand for building materials is estimated to have declined by around 35% in 2012 compared to 2011. The severe recession of the Greek economy has directly affected the building industry which after a continuous five-year decline has practically collapsed while it is estimated that cement demand has currently shrunk to a quarter of the levels recorded in 2006. The squeeze on household disposable income in tandem with a negative outlook held on future prospects, the uncertainty regarding the regime of real estate taxation and the drastic curtailment of liquidity on the part of banks to finance the mortgage market, have considerably weakened demand for housing. At the same time, the existing stock of unsold houses, consecutive cuts in public investment and the State’s lengthy delays in settling its arrears have brought construction activity to a standstill.

The lingering of domestic demand at what are now extremely low levels has created a structural problem for the Greek cement industry: it is estimated that installed production capacity is approximately six times greater than domestic demand. The sustainability of its operation therefore is dependent on achieving positive-margin exports. Despite the adverse conditions prevalent in international markets, Titan managed to more than double exports in 2012 and is actively fighting to win that battle.

Group turnover in region Greece, which includes exports and the Group’s terminals in Western Europe, stood at €240 million posting an 11% decline compared to 2011. EBITDA stood at €32 million, posting a 9% decline compared to the previous year.  

In the USA, despite the slow pace of economic recovery in the country, activity in the construction sector increased and cement consumption posted a continuous increase compared to 2011, albeit not enough yet so as to result in a material improvement of the plants’ capacity utilization rates. In the Southeastern states where the Group is primarily active, cement consumption increased by 9.7%1 in 2012 compared to 2011while the corresponding increase in Florida was 14.3%.

Group company Separation Technologies LLC (ST), which is engaged in the installation and operation of fly-ash processing units, continued on its growth trajectory, posting yet another increase in turnover. Moreover, ST, utilizing its pioneering technology, made its first strides into new markets where its technology can be applied in the broader realm of industrial minerals, thereby extending the application of its separation technology into new and promising markets.

Group turnover in the USA in 2012 stood at €369 million, posting a 22% increase while EBITDA improved to a positive €6 million versus a €6 million operating loss in 2011.

In region Southeastern Europe, demand for building materials posted a gradual decline, as the state of local economies deteriorated affected by developments in the Eurozone. As a result, Group turnover declined by 7% to €255 million and EBITDA declined by 26% reaching €64 million.

In Egypt, despite the prevalent political uncertainty, cement consumption in 2012 reached new highs, thereby facilitating the absorption of the new capacity introduced in the market with the entry into operation of new cement plants in the course of the last eighteen months. Group turnover therefore posted only a marginal decline compared to the previous year despite the greater total supply of cement in the market. Operating margins however were adversely affected by the considerable increase in the cost of natural gas and electrical power.

In Turkey, domestic demand remained at high levels while our plant’s exports also recorded an increase.

Total turnover for the Eastern Mediterranean region in 2012 increased by 7% versus 2011 reaching €296 million while EBITDA declined by 26% to €94 million, a decline, which for comparative purposes, should be partly attributed to the additional amount of €25 million included in 2011 EBITDA from the refund of the clay tax fee in Egypt.

In the context of continuous efforts at cost containment, administrative, operating and selling expenses declined by 7.4% in 2012, compared to the previous year and stood at €113 million. Compared to 2008, administrative, operating and selling expenses have declined by a cumulative 22%.

In 2012 the Group recorded gains from realized and unrealized foreign exchange differences of €1 million, compared to €12 million losses recorded the previous year.

Despite the reduction in Group net debt in the course of 2012, financial expenses, excluding foreign exchange differences, increased by 23% compared to 2011, reaching €67 million. The increase is to a large extent due to the increase in Group borrowings denominated in Egyptian Pounds which is more expensive.

During 2012, the Group’s company in Egypt, Alexandria Portland Cement Co. S.A.E contracted an EGP 250 million (€30 million) revolving credit facility with a five-year maturity, whilst the Group’ sother Egyptian company, Beni Suef Company S.A.E. secured, backed by the Parent Company guarantee, the refinancing of EGP 670 million (€80 million) out of its EGP 700 million syndicated revolving credit facility, which was maturing in June 2013, also for a five year maturity in 2018.

In June 2012, the Parent Company and the company Interbeton Construction Materials S.A. each contracted a two and a half year bond loan of €14 million and €20 million, respectively. These facilities are to be utilized for the refinancing of existing credit facilities and for general corporate purposes of the Group and the latter is backed by the Parent Company guarantee.

In December 2012, Group subsidiary Titan Global Finance PLC announced the completion of the issue of a new bond, of €200 million, guaranteed by the Parent Company, with a coupon of 8.75% and maturity in January 2017, which is to be utilized for the refinancing of the €200 million July 2013 bond. The issue involved an exchange of €102.34 million of existing July 2013 notes and the issuance of an additional €97.65 million worth of new notes.

In December 2012, the Group’s subsidiary in Bulgaria, Zlatna Panega Cement, refinanced existing short term working capital credit lines of €6.5m backed by the Parent Company Guarantee, into committed, with a two year maturity, also backed with the Parent Company guarantee.