Annual Report of the Board of Directors

2011 was a challenging year for the Group, in the course of which the main economies and markets in which the Group is active continued to be in recession or witnessed considerable decline. The debt crisis on the Eurozone’s periphery and the large fiscal deficit in the U.S.A. negatively affected the broader economies of developed countries with growth rates in both the Eurozone and the U.S.A. posting declines (in the Eurozone, growth slowed from 1.9%¹ in 2010 to 1.6%¹in 2011 and to 1.8%¹ from 3.0%¹ in 2010 in the U.S.A.) while Greece continued to be in recession for the fourth consecutive year (with GDP declining by 5.5% in 2011). Moreover, cement consumption in Egypt was directly affected by the social and political unrest in the country which together with the upheaval in the broader region resulted in the skyrocketing price of oil which squeezed the cement industry’s profitability margins and contributed to the slowdown of the global economy.

Titan Group turnover in 2011 stood at €1,091m, posting a 19.2% decrease compared to 2010. Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) declined by 23.0% to €243m. Group net profit after minority interests and the provision for taxes, reached €11m, an 89.3% decrease compared to 2010.

The deterioration in the Group’s financial results is due to the collapse of the construction sector in Greece, the stagnation in building activity in the U.S.A. at very low levels, as well as the effect of the difficult current situation in the Egyptian market. Counterbalancing forces were the stable contribution of the developing markets of Southeastern Europe and the positive contribution of Turkey.

In addition to market dynamics, higher fuel costs also had a considerable impact on production costs, while there was a positive contribution from the increased disposal of carbon emission certificates.

The strengthening of the Euro against foreign currencies during the year also had a negative impact on results, leading to negative foreign exchange differences which reduced EBITDA by €13m. At constant exchange rates, turnover would have declined by 15.7% and EBITDA would have declined by 18.9%.

It should be noted that fourth quarter results include a €19m asset impairment charge and €12m restructuring charges arising from the implementation of the Group’s two-year restructuring plan.

In Greece, the construction sector has collapsed. The continued recession of the Greek economy and the ominous forecasts regarding its future course have negatively affected consumer sentiment. Moreover, the fiscal measures which have significantly reduced households’ disposable income, coupled with the lack of liquidity on the part of banks and the attendant decrease in the provision of housing loans, have all weakened housing demand. The sharp decline in housing demand together with the large already existing inventory of unsold housing have resulted in the significant shrinking of building activity. Moreover, the repeated cutbacks in the public investment programme and the state’s inability to cover its arrears, have brought public works to a standstill. According to the data released by the Hellenic Statistical Authority, the volume of building activity as per building permits issued in the period January-October 2011 declined by 37.6% compared to the same period in 2010 and is more than 70% below the volume for the same period in 2006. In addition to the sharp decline of the domestic market, the social upheaval in the countries of North Africa prevented cement exports to the region.

Group turnover in Greece and Western Europe declined by 38.5% in 2011 compared to 2010 and stood at €269m. EBITDA declined to €35 m., posting a 59.6% decline compared to 2010, despite the disposal of part of the surplus carbon emission rights due to the reduced operation of the cement production plants.

In 2011, the construction sector in the U.S.A. remained in recession for the sixth consecutive year.  The growth in public debt and the uncertainty over the rationalisation of public finances in tandem with limited job creation, lack of consumer confidence and the decline in property values hindered the recovery of the construction sector for yet another year. According to the most recent estimates of the Portland Cement Association, cement consumption in Florida, which accounts for a large share of the Group’s U.S.A. market, annual cement consumption in 2011 increased by 1.7%² compared to 2010.

Despite the state of the construction industry in the U.S.A., the Group’s subsidiary, Separation Technologies LLC (ST) which is engaged in the installation and operation of fly ash processing units, continued on its growth trajectory reporting an increase in sales. The globally innovative ‘green’ technology employed by ST converts fly ash – an industrial waste product resulting from the incineration of coal used to generate energy – into useful re-usable building products. Outside the U.S.A., ST continued the successful operation of fly ash processing units in Canada, the United Kingdom and Poland, mostly via franchisees.

Group turnover in the U.S.A. declined by 4.2% in 2011 compared to 2010, reaching €304m, while EBITDA recorded a loss of €6m.

In Southeastern Europe, the recovery in the region’s economies began to have a positive impact on construction activity and cement sales volumes posted a slight increase compared to the previous year, particularly in F.Y.R. of Macedonia and Albania. Nevertheless, the growth in competitive pressure and the increase in fuel prices squeezed profit margins in the region. In Bulgaria, the new unit for the pre-processing and recycling of municipal waste which is located in the plant’s perimeter began operations and will contribute significantly to the Group’s stated goal of reducing its carbon footprint.

Group turnover in the region of Southeastern Europe in 2011 increased by 2.0% compared to 2010, reaching €241m, while EBITDA declined by 1.3%, reaching €86m.

In Egypt, social upheaval gradually affected the country’s economy also pulling down the construction sector. In addition to the decline in domestic demand, the inauguration of new cement production units raised supply levels significantly above those of current demand.  In contrast, the growth of the Turkish economy has led to higher demand in the construction sector as well.

In total, Group turnover in the Eastern Mediterranean region declined by 22.8% in 2011 compared to 2010 and stood at €278m, while EBITDA declined by 7.4% to €128m. It should be noted that the region’s EBITDA include an amount of €25m relating to the refund of the clay tax fee in Egypt, recorded as a tax receivable.

Aiming at further curtailing fixed costs, the Group adopted a two-year restructuring plan in the course of 2011 which, it is estimated, will accrue €26m in cost savings annually.  The cost of implementing this plan affected EBITDA for the year by €12m.

In keeping with the Group’s continuous efforts at cost containment, administrative, operating and selling expenses declined by 6.1% in 2011 compared to the previous year and stood at €122m.

Losses from realized and unrealized foreign exchange differences reached €12m, in 2011 increased by 45.6% compared to 2010, mainly reflecting the translation into Euro and US$ of debt obligations of Group subsidiaries operating in Egypt, Turkey and Albania.

Financial expenses increased by 6.3% compared to the previous year, reaching €66m. The aforementioned increase resulted from the increase in interest rates and expenses incurred in obtaining new credit facilities to be utilized for the refinancing of the existing debt facilities. It should be noted that financial expenses for 2010 include an amount of €7.4m in pre-tax early repayment fees incurred by the Group’s early repayment of the private placement undertaken with private bond holders in the U.S.A. 

Titan’s strict focus on the prioritization of investments and the containment of working capital led in 2011 to the generation of €206m of free cash flow from operating activities. As a result, Group net debt was further reduced by €69m in 2011 and stood at €708m at the end of the year, posting therefore a total reduction of €406m since December 2008.

In January 2011, Titan Global Finance Plc., a subsidiary of Titan Cement Company S.A., executed a new €585m syndicated revolving credit facility with a four-year maturity, guaranteed by Titan Cement Company S.A. In the same period, Titan Cement Company S.A. also executed a four year syndicated bond loan of €135m. Both facilities were utilized for the refinancing of existing syndicated credit facilities and for general corporate purposes.

In April 2011, credit rating agency Standard & Poor’s (S&P), downgraded the Group’s credit rating one notch from BB+ to BB while placing it on negative credit watch. Subsequently, following their downgrading of Greece, S&P further downgraded the Group in May 2011, to BB- with a negative outlook. In December, S&P affirmed the Group’s BB- rating with a negative outlook, despite their having further downgraded Greece to CCC in June and to CC in July 2011.

Following the Board of Directors’ decision of 19.12.2011, the Company’s Share Capital increased by €74,752, through the issuance of 18,688 new common shares at a book value of €4.00 per share following the exercise of stock option rights granted to the Group’s senior management as part of the Group’s stock option plan approved by the Shareholders Annual General Meeting of 29.5.2007.   

On 10.11.2011 the Board of Directors decided that depending on the financial circumstances, within the period 14.11.2011 to 14.5.2012, the Company would proceed with the sale through the Athens Exchange, of up to 2,031,781 treasury common shares and up to 5,919 treasury preference shares without voting rights, representing in total 2.4% of the Company’s paid up share capital, at a minimum sale price equal to the nominal price of each share, namely €4.00 per share.  In accordance with the aforementioned decision, the Company sold through the Athens Exchange in the course of 2011, a total of 20,000 treasury common shares, representing 0.0236% of the Company’s paid up share capital, at an average price of €12.41 per share.

The total number of own shares that the Company held as at 31.12.2011 was 3,117,616, of which 3,111,697 are common shares and 5,919 are preference shares without voting rights, at an aggregate nominal value of €89,446 representing 3.68% of the Company’s paid up Share Capital.

The Company’s share price as at 31.12.2011 closed at €11.59, posting a 29.4% decline compared to the closing price at year-end 2010. Over the same period, the General Index of the Athens Stock Exchange declined by 51.9%.