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Friday, June 20, 2014

A New Greek Company --- "Greek Private Sector SE"

If all Greek companies with annual sales over 10 MEUR were under one central top management (call it the "Greek Private Sector SE") and if that top management were the best private sector top management around, then that part of the Greek corporate economy which represents 85% of all revenues in Greece's corporate economy and 67% of all assets (in short: the bulk of the Greek corporate economy) would be in top shape within only a few years. The road map how to accomplish that is shown in PwC's study titled "Stars and Zombies". Needless to say: that best private sector top management around would have one of the best and most fun jobs in the entire world!

Stars and Zombies (English)
Stars and Zombies (Greek)

* at issue are 2.726 companies which had, in 2012, revenues of 141 BEUR, capital employed of 120 BEUR, debt of 61 BEUR and about 470.000 employees (overall: roughly 25% of GDP)
* PwC segregates the companies into "Stars and Almost Stars" (29% of the total), "Grey" (17% of the total) and "Almost Zombies and Zombies" (54% of the total).

It is the Zombie group (54% of all companies) which represents the challenge because it is large: 43% of total revenues; 55% of capital employed; 72% of net debt; 213.000 employees. There the fine line needs to be tread between those which have the potential to be developed into the Star group and the others which should be quickly but orderly liquidated.

One major reason why the Zombie group must be urgently resolved is because it (particularly the 650 'true Zombies') has a negative effect on the cash flows of all other companies: total debt of 61 BEUR is concentrated mostly in the Zombie group and 41 BEUR of that cannot be repaid normally. 97% of the socalled 'trapped debt' is in the Zombie group. Detailed suggestions as to how to restructure that debt are in the PwC study.

The PwC study concludes that the Greek corporate economy is led by 180 "Stars" and another 630 "Almost Stars". The "Stars", of course, are stars but particularly the "Almost Stars" are the backbone of economic activity in the country and represent 52% of EBITDA, 32% of revenues, 18% of fixed assets and 24% of the employees in the overall sample. Clearly, these roughly 800 companies drive the Greek corporate economy!

However, the real challange are those companies which are not in the above Star group but which are not clear zombies, either. There are 1.490 of them and they account for: 56% of revenues; 65 of fixed assets; 55% of employees and 71% of EBITDA. These companies show significant diversity in performance but suffer from excessive debt. Clearly, if this group is restructured with great care separating the wheat from the chaff, great economic value could be preserved and expanded. At the same time, great damage could be done if these companies are not handled with great care and prudence. Mistakes which are made here could not be corrected afterwards.

The remaining roughly 400 companies seem to be beyond repair and require orderly liquidation. PwC concludes the following:

The strategy for the recovery of the corporate economy should have three dimensions: funding and promoting the two leading groups, restructuring of debt and refinancing the third group and the fast liquidation of the last group.

7 comments:

  1. Can't see "Stars and Zombies"

    MS

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    Replies
    1. I fixed the hyperlinks. On my laptop they work. If they don't work for you, please let me know.

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  2. I saw it now. its ok.

    Look at this:

    http://bankingnews.gr/images/content2/solicitada.jpg

    http://www.businessinsider.com/argentina-newspaper-ad-on-vultures-2014-6

    Do they hear us? lol lol

    MS

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    Replies
    1. My compassion for the Argentines (not the people; their leaders) has limits. In a way, they are now paying for their sins of 13 years ago. I have always argued in the case of Greece that when a country runs into external payment, there are certain rules of the game as to how to deal with financial markets, and one is well advised to observe those rules. To speak with the Godfather: one never forces anyone into anything; instead, one makes them offers which they cannot refuse.

      Argentina, if I recall correctly, totally ignored those rules of the game back in 2001. Instead, they cockily told their foreign creditors to simply go fly a kite. They repudiated all their debt (or at least much of it). That's the equivalent of Alexis Tsipras' tearing up the memorandum on the day of his election. Whoever acts like that makes himself extremely vulnerable going forward. For a while, it looked like Argentina was going to get away with it: most of their creditors did agree to take a substantial haircut. But Elliot caught them at their game and it seems that it is a game which Elliot is better at.

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    2. You are all right about 2001, their apporoach was not rational. They acted only sentimentally and without seeking reliable consultation, or having clear mind which in such cases of vital importance.
      Elliot has win in any case, only he would lose many of his profits without an agreement.
      Today, i have the sense that in case of Greece most people have a better- a more clear view.

      MS

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  3. Stars and Zombies was a thorough and interesting stydy, PwC must have used quite some resources to make it, personally I would have been less scientific and more radical about it. Something like "zombies are companies that mainly generate their income from Greek public procurement".Don't worry too much about the zombies, they have made a lot of politicians, bankers, owners and subcontractors very wealthy.

    We now have McKinsey's recommendations for rehabilitating the Greek nation, PwC's recommendations for rehabilitating corporate Greece, Task force for Greece's recommendations (and offer of free expert asssistance) for rehabilitating the Greek administration. What we don't have is the Greek governments plans for same.
    Lennard

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  4. Another report on saving Greece has been released by Endeavor Greece, Creating Jobs for Youth in Greece. It could be argued that there are words enough, what we need is action, true, however, the report is worth reading. The report uses as its foundations the realities as they are, not as most Greeks would wish them to be. It therefore paints a bleak, albeit realistic, picture of the time frame for a Greek recovery.
    It concludes that only young Greeks have the motivation to make the necessary changes to the Greek nation. That most jobs lost will not reappear and any new jobs will be in other sectors. That the new jobs will not be in the sectors preferred by the population (medicine, law, economy, IT etc.). That the Greek education is not only poor, but also unsuitable for the jobs that can be created. That in view of the above 640.000 will have to change sector and be retrained, and 500.000 will have to move away from Athens and Thessaloniki.
    The plan has merits, will it be pursued? I doubt it, it require Greeks to accept realities. If it is pursued then it will be halfheartedly, and with EU means distributed through Greek politics, which just brings us back to square one. Greek politicians do not want direct investments; if investments (grants) are not channeled through them they lose their influence (not to talk about their money).
    Lennard

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