2013 ANNUAL REPORT OF THE BOARD OF DIRECTORS AND FINANCIAL RESULTS These financial statements have been translated from the original version in Greek. In the event that differences exist between this translation and the original Greek language financial statements, the Greek language financial statements will prevail over this document. 2013 ANNUAL REPORT OF THE BOARD OF DIRECTORS AND FINANCIAL RESULTS Contents Annual Report of the Board of Directors Board of Directors Report..........................................................4 Financial and CSR Review Risks and Uncertainties Corporate Governance Statement .................................... 11 Corporate Governance Code, Composition and modus operandi of the B.O.D. and Committees Stock Option Plans Internal Audit and Risk Management Systems General Meeting and Shareholder Rights Reference to derogations from the Corporate Governance Code Explanatory Report of the Board of Directors ...........30 Annual Financial Report Statement of Members of the Board ...............................34 Independent Auditor’s Report .............................................35 Financial Statements .................................................................36 Notes to the Financial Statements ....................................42 Summary Financial Results ....................................................96 Appendix I: Report Regarding Company transactions with affiliated companies in accordance to article 2, par.4 of Codified Law 3016/2002 .....................................................................................100 Appendix II: Information according to article 10 of Law 3401/2005 ..........................................103 4 ANNUAL REPORT OF THE Index of the Athens Stock Exchange (ASE), which posted a 28% increase. In the five year period 31.12.2008-31.12.2013, Titan BOARD OF DIRECTORS shares again rose 42%, while the ASE General Index dropped 35%. Following the reclassification of the ASE as an ‘emerging FOR THE FISCAL YEAR market’ by Morgan Stanley Capital International (MSCI), the 01.01.2013 - 31.12.2013 stock was included in the MSCI Emerging Markets Index. In Greece, domestic cement demand continued to decline for the seventh consecutive year, albeit at a gradually slower pace. ECONOMIC ENVIRONMENT High real estate taxes and low disposable income, in conjunc- 2013 saw signs that the global economy is turning a corner. US tion with an illiquid mortgage market and a large unsold hous- growth started picking up speed and fears over another flare- ing stock have brought private construction activity to a vir- up of the Eurozone debt crisis receded. Although emerging tual standstill. Public infrastructure spending remained weak in economies lost some steam, they kept growing at fast rates. But 2013, while the resumption of the four major road works was the lingering effects of the financial crisis continued to impact postponed into 2014. markets, suggesting that the recovery is likely to be turbulent. Cement demand in the country has now shrunk to a fifth of the Persistent unemployment and deflationary fears in the Euro- levels recorded in 2006 and only one sixth of Titan’s produc- zone, fiscal tightening in the US, political turmoil in the Middle tion capacity in Greece was absorbed domestically in 2013. As East, and a possible hard landing in China could further delay a consequence, the continued operation of Titan’s plants in the return of the world economy to a dynamic and sustainable Greece depends on exports, amidst intense international com- growth trajectory. petition, particularly from countries not subject to the costs of EU legislation on carbon dioxide emissions. In pursuing the im- FINANCIAL REVIEW provement of its competitiveness, Titan continued to invest in the use of alternative fuels, aiming to reduce both its energy FINANCIAL RESULTS AT PARENT AND CONSOLIDATED cost and its environmental footprint. GROUP LEVEL – DEVELOPMENT OF ACTIVITIES- SIGNIFICANT EVENTS As a whole, region Greece and Western Europe posted a 4.0% rise in turnover, which reached €250 million. EBITDA dropped In this challenging environment, Titan Group operating results 57% to €14 million. improved for the first time in seven years. The recovery of the US housing market, the resilience of demand in Egypt and the Operating profitability of Titan’s North American operations perseverance on exports enabled the Group to increase sales, improved markedly, primarily due to the strong recovery of the generate positive free cash flow, and further reduce net debt, residential market in the USA. With unemployment at a five- against a backdrop of prolonged weakness in its home market year low and residential construction on the upturn, demand and subdued construction activity in Southeastern Europe. for building materials is now on a fast recovery track. Consolidated turnover in 2013 increased by 4.0% to €1,176 mil- According to the Portland Cement Association (PCA), cement lion. Earnings before interest, taxes, depreciation and amorti- consumption in the South Atlantic States, where Titan’s US zation (EBITDA) stood broadly unchanged at €196 million and plants are located, rose 8.5% in 2013. This figure compares fa- improved on a comparable basis. Adverse foreign exchange vorably to a national average increase of 4.5%. In Florida de- fluctuations resulted in a €12 million negative translation im- mand surged 18.4%, on the back of rising home prices and pact on consolidated EBITDA. At stable exchange rates, turn- declining inventory. At the same time, non-residential con- over and EBITDA would have increased by 8.3% and 6.4% re- struction trends were also positive. spectively. Titan America subsidiary, Separation Technologies LLC (ST), Operating profit after depreciation and amortization (EBIT) which is engaged in the production and operation of fly-ash grew 22% to €79 million. However, net losses after minority in- beneficiation facilities, continued on its profitable growth tra- terests and the provision for taxes widened by 47% to €36 mil- jectory. In addition, ST invested in further Research and Devel- lion, mainly as a result of a €23 million increase in net realized opment with a view to optimizing its technology for a broader and unrealized foreign exchange losses. The bottom line was range of minerals applications. also impacted by the temporary non-recognition of deferred Titan reported sales growth across all product lines in North tax assets resulting from carry-forward losses in the US and the America. The region now accounts for over a third of Group retroactive taxation of previous year’s reserves in Greece. turnover and a rapidly increasing share of EBITDA. Driven by Prioritizing investments, curtailing working capital needs, and both higher volumes and improved prices, total revenue in the lowering costs, the Group generated €142 million in operating region grew 11% to €411 million, while EBITDA rose to €32 mil- free cash flow, and thus contributed to a €57 million reduction lion, up from €5.8 million in 2012. in net debt, which at year end stood at €539 million, less than Despite modest gains in prices in the second half of the year, half its 2008, pre-crisis level. Operating free cash flow genera- margins in Titan’s Southeastern Europe business units contin- tion in 2012 was €140 million. In December 2013, Standard & ued to lag well behind pre-crisis levels. The growth rates of Poor’s upgraded Titan’s long-term credit rating to ‘BB’ with sta- most Balkan economies improved slightly in 2013, yet foreign ble outlook. direct investment flows to the region were hampered by the The stock price of the Company closed at €19.80 a share on weakness in neighboring Eurozone countries, such as Italy and 31.12.2013, gaining 42% in 2013 and outperforming the General Greece. 5 As a result, construction activity remained relatively stable while EBITDA decreased 71% to €11 million. The Company’s net at low levels in 2013. However, the use of alternative fuels in- loss stood at €43 million in 2013, compared to a net loss of €16 creased, allowing the Group to improve its energy efficiency million in 2012. and maintain its organic profitability. Based on the improvement in Group operating profitability, in Turnover in the region declined 4.3% to €215 million, while conjunction with a more optimistic outlook for 2014, the Board EBITDA posted a marginal decline of 1.9% to €63 million. of Directors of Titan Cement S.A. has decided to propose to the Annual General Meeting of Shareholders, scheduled for In Egypt, sales were resilient in the face of severe political tur- 20.06.2014, the distribution of €8,463,252.80 from the Contin- moil and economic strains. Financial assistance from the Gulf gency Reserve. This amount corresponds to €0.10 per share. countries has eased immediate financing concerns, yet fiscal problems, inflationary pressures and currency depreciation The final amount to be distributed per share will be increased continue to pose a threat to economic growth. Nevertheless, as by the amount which corresponds to the Company’s own reflected by the stock market, the exercise of responsible eco- shares (treasury shares) and will be subject to 10% tax, which nomic policy has raised hopes for a gradual return to economic will be withheld on behalf of the shareholder, unless otherwise stability. provided by the law. Consumption of building materials in the country dropped slightly in 2013, yet it is unclear whether this contraction re- flects a potential softening in demand or the