Financial results for Titan Group in the first quarter of 2017 recorded an improvement, primarily due to the continued recovery of the US market. All geographic regions where the group operates recorded higher sales volumes with the exception of Greece, where demand remains stagnant at low levels.
Consolidated turnover was EUR361.8m posting a 7.1 per cent increase compared to the 1Q16. EBITDA increased by 18 per cent reaching EUR51.1m. The net result after minority interests and the provision for taxes for the first, seasonally weak quarter of the year, was a loss of EUR3.9m versus losses of EUR18.6m in the respective quarter of 2016.
Review of operations
Titan noted that the US market continues to constitute the main regional growth driver for the group. The increase in demand for building materials, in tandem with the investments undertaken by Titan, have resulted in a considerable improvement in performance and profitability as the group’s cement plants and vertically integrated activities operate at higher capacity levels. Turnover in the US posted a 26.9 per cent increase YoY and stood at EUR221.2m. EBITDA almost doubled to EUR34.1m from EUR17.9m in the respective period of 2016.
In Greece residential building activity remained at very low levels, affected by the domestic economic crisis and increased uncertainty. Certain major public road projects were concluded early in 2017, leading to lower cement consumption. Export volumes were lower than the previous year, under competitive global conditions. The subdued market coupled with increased energy costs led to a decline in profitability. In total, group turnover for Greece and western Europe in 1Q17 declined by 7.7 per cent reaching EUR57.6m while EBITDA, suffering from higher energy costs, reached EUR4.4m versus EUR8.3m in the 1Q16.
Turnover in the markets of Southeastern Europe increased in the quarter. Continuing competitive pressures and higher energy costs, both negatively impacted profitability. Total turnover increased by 5.8 per cent to EUR37.9m while EBITDA declined to EUR3.8m versus EUR6.3m in the 1Q16.
In Egypt the group’s plants have been in full operation utilising locally-ground solid fuels which allowed for an increase in production and sales volumes in the 1Q17 compared to the previous year’s weak first quarter. The economy has not yet adjusted to the large devaluation of the Egyptian pound in 2016 and a climate of uncertainty and volatility is affecting building activity and market prices. Turnover in the first quarter was EUR45.2m recording a significant increase in local currency but a 30.8 per cent decline in euro terms, while EBITDA reached EUR8.9m, a 17.4 per cent decline in euros.
In Turkey demand was affected by the heavy winter, while the slide in the Turkish lira resulted in negative foreign exchange differences which further impacted Adocim results. The net result attributable to Titan was a EUR0.5m loss versus a profit of EUR0.4m in the first quarter of 2016.
In Brazil despite the improvement in key macroeconomic indicators, the market remained in decline compared to the same period of 2016. Signs of improvement in the construction confidence index have yet to translate into an increase in demand for building materials.
Net debt and capex
Group net debt at the end of the first quarter stood at EUR716m, EUR55m higher compared to the end of 2016, mainly due to investments and seasonal working capital needs. Capital expenditure in the first quarter of 2017 reached EUR32.9m versus EUR27.1m in 1Q16 and largely regarded activities in the US.
Prospects remain positive
Going forward, Titan said prospects for the group in 2017 remain positive, mainly due to improving results in the US. The recovery of the construction industry in the US, and in particular on the east coast where the group is active, should continue, fuelled by all three main market segments, ie, residential construction, commercial real estate and public infrastructure. The growth in demand, in conjunction with the benefits accrued from the recently-completed capital investments strengthen the group’s position in the market, and allow for an optimistic outlook on performance.
In Greece demand is expected to post a moderate decline compared to 2016. New infrastructure projects do not seem sufficient to sustain demand in 2017, following the completion of the major highway projects while private residential activity remains at markedly low levels. Cement production out of Greece, will continue to be channeled mostly towards export destinations.
The volatile political backdrop observed in the countries of southeastern Europe where the group is present does not seem to be affecting construction activity which should remain at levels similar to those of 2016.
In Egypt the adoption of an extensive adjustment and structural reforms programme, combined with the large devaluation of the Egyptian pound create short-term imbalances and challenges in the market, while laying the foundations for sustainable longer-term growth. Having completed the investments for the utilisation of solid fuels at its plants, the group has strengthened its competitive position, ensured fuel sufficiency and improved its cost structure and plant performance.
In Turkey demand is expected to remain at high levels, supported by the continuation of major public works. The slide in the national currency however, coupled with the increase in what is already surplus installed capacity, should negatively impact results.
In Brazil the political and economic crisis is not yet over, but the economy is showing significant signs of improvement. Having declined by more than 10 per cent in 2016, cement demand should begin to stabilise in 2017.
