Industrial Decay Greece's Fading Blue Chips

As Greece's euro crisis comes to a head, the nation's industrial decline, decades in the making, appears to be accelerating. Across the country, abandoned factories that were rendered obsolete and uncompetitive by the country's domestic turmoil dot the landscape.
A Greek flag is draped over the gate of a deserted cooking oil factory in the town of Elefsina northwest of Athens on April 28, 2015.

On the fourth day of financial gridlock, Greece and its creditors suspended talks to focus on Sunday's upcoming national referendum, when Greeks will decide whether to yield to lender demands or perhaps leave the euro zone.

Unease, occasional panic but largely an unreal sense of calm seemed to grip Athens on Thursday as Greeks adjusted to the restrictions of a daily cash allowance of €60, the maximum they can withdraw from bank machines.

Bank branches remained shuttered by national decree, as did the stock market, and elderly pensioners lined up again at branches of the Greek National Bank to withdraw a maximum €120 against their monthly pensions.

The European Central Bank on Wednesday kept Greece's financial lifeline, its series of emergency overnight loans, intact ahead of the vote, a decision welcomed by the prime minister, Alexis Tsipras, who thanked lenders for their leniency.

A poll taken on Tuesday, as captial controls began to bite, seemed to show the "yes" vote inch ahead of the "no," which had been ahead in an earlier poll.

But relations between Greece and its creditors remained at a standstill, with Mr. Tsipras again making a national televised broadcast Wednesday afternoon urging voters to reject lenders' latest offer at their Sunday plebiscite.

In an interview with Bloomberg TV on Thursday morning, the Greek finance minister, Yanis Varoufakis, said he would resign if voters on Sunday defied the government and voted in favor of the lenders' current plan. Without an agreement to restructure and forgive part of the country's debt, Mr. Varoufakis said the Syriza government would not come to terms with creditors.

The issue of debt restructuring and forgiveness remained the sticking point in the dispute, Mr. Varoufakis said in the interview.

"We have been in Chapter 11 since 2010,'' Mr. Varoufakis said in the Bloomberg interview. "The problem was that no one wanted to admit it. Greece has lost one quarter of GDP since then. It's about time to end it.''

A "yes" vote by Greek voters on Sunday would "condemn this economy to further stagnation,'' Mr. Varoufakis said. "Would you invest in an economy that is not sustainable?''

He referred to attempts by U.S. President Barack Obama to persuade European lenders to recognize the gravity of Greece's situation, and realize that it is not possible to consign the nation to years, if not further decades, of economic stagnation and decay.

Holger Schmieding, the London-based chief economist at Berenberg Bank in Hamburg, said the gambit by Mr. Varoufakis and Mr. Tsipras on Sunday, if successful, will produce more economic misery, not more leverage, for Greece.


Greece's Largest Publicly Listed Companies-01


"A 'no' to the euro probably means no euros,'' Mr. Schmieding wrote in a note to clients on Thursday. "Greece is running out of euros. After five months of Tsipras, it no longer has enough euros to open its banks and to feed its cash machines. It needs more euros. Only the European Central Bank can create more euros, only the European institutions can lend Greece more euros.

"Europe has offered to supply a lot more euros, with conditions attached to make sure the money is spent properly,'' Mr. Schmieding wrote. "If Greeks vote 'yes' to the proposals of Europe, more euros could come. If not, they probably won't. Instead, the Greek government, the banks and ordinary Greeks would all run out of euros soon.''

A poll taken on Tuesday, as capital controls began to bite, seemed to show the "yes" vote inch ahead of the "no," which had been ahead in an earlier poll.  The survey, carried out by GPO, found that 47 percent of people are leaning toward a “yes” vote, while 43 percent said they would vote "no." However, with a margin of error of around 3 percent, it could still be too close to call.

Ahead of the vote, the Syriza government said it had secured medicine and food to prevent shortages.

The German chancellor, Angela Merkel, the president of the International Monteary Fund, Christine Lagarde, and the Eurogroup of finance ministers, who held a conference call on Wednesday evening, all said they would suspend talks ahead of Sunday's vote.


Greek voters and their parties, along with lenders, began to lobby Thursday ahead of the Sunday referendum. Here, the spray-painted Greek word for "no'' at Athens University urges voters to reject the latest offer from lenders.


Although Greek voters will be faced with a "yes" or "no" option on lenders' latest offer, the referendum is unlikely to produce a clean outcome to the months-long dispute between Greece's leftist Syriza-led government and its creditors, the IMF, the European Commission and the ECB.

In the interim, the toll of capital controls is beginning to mount on Greece's struggling businesses and manufacturers, who have already suffered greatly in the aftermath of the 2008 financial crisis.

Many Greek companies are deeply in the red and are reporting low sales figures and poor returns. Almost all of these Greek businesses were making more money 10 years ago before the crisis and its aftermath hit.

The alarming status report on Greek industry is part of a review of financial statements conducted by Handelsblatt, which examined profits, sales and returns on sales in the last 10 fiscal years for the 60 largest Greek companies on the Athens Stock Exchange, or ATHEX.

Although the situation is dire, the majority of companies are not reporting losses. On the contrary, 33 of 60 companies reported a net profit, albeit generally modest, in the single or double-digit millions in the last fiscal year.


A metal factory with a collapsed roof in the Sindos industrial zone of Thessalonika, Greece, on April 23, 2015.


And OPAP, the Greek Organization of Football Prognostics, has even emerged as a winner despite, or perhaps even because of the economic crisis. The company, founded in 1958, operates betting games throughout Greece, like Flipper, Joker, Super 3 and Lotto – all of which are popular ways to pass the time for many Greeks hoping to at least temporarily forget about the crisis.

In the last fiscal year, OPAP earned €1 billion ($1.1 billion) in revenues and achieved a net profit of €195 million, for an impressive net return of 19.5 percent. Not even the German king of profits listed on the benchmark DAX index, SAP, was as profitable. The software maker based in Walldorf, near Heidelberg, achieved a net return of "only" 18.7 percent.

OPAP is not a small, marginal company, but is, in fact, Greece's 14th largest company by sales – and ranks fifth by market value. In 2013, OPAP had the distinction of being the first large, successful privatization after the crisis had erupted. At the time, the Greek government sold its one-third share for more than €700 million to Czech entrepreneur Jiri Smejc and Greek shipping magnate Giorgos Melissanidis.

Aside from a betting game operator, two successful ports, Hellenic Telecom and a local Coca-Cola Bottling plant, successful businesses are a rarity in Greece.

It was a bad deal for the cash-strapped state and taxpayers, as the annual balance sheets show. For years, OPAP has been one of Greece's few reliable profit-making machines, with profits in the triple-digit millions. The government's assurance that it would grant OPAP a monopoly on sports betting until at least 2020 and on the lottery until 2030 has paid off for the two buyers.

The ports of Thessaloniki and Piraeus have also operated in the black for years. Particularly Thessaloniki, the smaller of the two, has been highly profitable over the past few years. The port earned a net income of 37.8 cents per euro in revenue in the last fiscal year, and 35.3 cents in the previous year. Not a single DAX-listed company has been as profitable.

"Every economy wants large and highly profitable carmakers or machine builders," said David Kohl, the chief economist for Germany at Bank Julius Bär. Although it lacks such companies, "with its ports, Greece is home to a successful industry with natural competitive advantages." Piraeus, which services more than 17 million passengers annually, is one of Europe's largest passenger ports.

But aside from the betting game operator, two successful ports and Hellenic Telecom (OTE), 40-percent owned by Deutsche Telekom, and Coca-Cola Bottling, a bottling plant owned by the American beverage giant, successful businesses are a rarity in Greece.


Tanks at an Hellenic Petroleum Oil refining facility in the Iona industrial section of Thessalonika, Greece.


Most companies have seen a sharp decline in profits in the last few years, initially triggered by the global financial crisis, which then continued following the collapse of the Greek economy as a result of excessive government debt. The country's 60 largest publicly traded companies reported only €57 billion in sales last year – roughly the equivalent of a quarter's worth of sales at German automaker Volkswagen.

After a net income of €3 billion in fiscal 2013, the 60 ATHEX companies reported a total loss of €3.2 billion last year. The overall results were brought down by the financial sector – banks, insurance and real estate companies – with total losses of close to €4 billion. Piraeus Bank and Eurobank Ergasia alone reported a combined net loss of €3.2 billion. Without these losses, the industry would have achieved a small profit of about €700 million, which was more than three-quarters less than a decade ago.

As a result, Greece's 60 largest companies are now nothing but lightweights on the stock exchange. Their combined market value of €44 billion is about equal to that of a single German company, car parts supplier Continental. Put differently, Leverkusen-based drug maker Bayer is worth more than twice as much as all companies listed on the Greek stock market combined.


Video: Alexis Tsipras adressing the Greek people about the meaning of the upcoming referendum.


Ulf Sommer is a Handelsblatt editor who covers companies and markets and finance. Kevin O'Brien is editor in chief of Handelsblatt Global Edition in Berlin. To reach the authors: [email protected] and [email protected].