The long-term ratings on Greece-based cement producer Titan Cement have been lifted by ratings agency Standard & Poor's (S&P) to 'BB' from 'BB-'. At the same time, it affirmed the 'B' short-term rating on Titan Cement.
S&P has removed all the abovementioned ratings from CreditWatch, where Titan was placed with positive implications on 26 November, 2013. The outlook is stable.
Titan Cement's stand-alone credit profile is 'bb', based upon S&P’s assessment of the group's business risk profile as "fair", its financial risk profile as "aggressive", and its management and governance as "strong."
“Our assessment of Titan Cement's business risk profile incorporates our view of the building materials industry's "intermediate" risk and "moderately high" country risk. We assess Titan Cement's competitive position as "fair," partly owing to the group's smaller size when compared with several of its higher-rated, heavy material peers. This translates into a higher exposure to local construction cycles and country risk,” the rating’s agency said.
It noted that Titan remains vulnerable to construction end markets that are highly cyclical and seasonal, as well as highly capital and energy intensive. That said, Titan Cement has good regional positions, S&P notes. "In Greece, the group holds a strong market share of about 40-45 per cent. However, Titan Cement's locally installed capacity for cement production in Greece is much greater than local consumption, making the group somewhat dependent on exports to international markets to manage capacity and cover fixed costs," it states.
Titan Cement's "aggressive" financial risk profile reflects S&P’s view of credit metrics that have deteriorated due to falling cement volumes and cash flows. These weaknesses have resulted from the prolonged downturn in Titan Cement's construction end markets and political and economic disruption in its key markets. “That said, the group has managed to consistently reduce net debt throughout the industry downturn – a trend that we believe will continue, despite no forecast recovery in Titan Cement's markets, outside of the US.
S&P believes that Titan Cement's credit metrics could stabilise in 2014, but are unlikely to materially improve in the short term. It stated: "We expect management will continue to preserve cash, making no material increases in its investments and cancelling shareholder dividends. These cash-saving measures should contribute to the group's continued generation of robust discretionary cash flow and the reduction in net debt."
