10 Years of Crisis
Total Page:16
File Type:pdf, Size:1020Kb
10 years of crisis A smaller but unreformed corporate economy 1 The impact of the crisis The longest and the deepest crisis in recent history in the western world left its marks on Greece Greek vs U.S. GDP evolution during crisis years (normalised) 105 102 100 100 96 90 89 91 82 82 Start of Crisis 86 2008 for Greece 76 1929 for U.S. 75 74 74 74 74 74 75 1933: New 2013: Inflexion year of Greece United States Deal the Greek economy 0 1 2 3 4 5 6 7 8 9 Crisis years Source: Ameco, U.S. Bureau of Economic Analysis Although it did not lead to tectonic changes it induced significant drags and shifts in the economy and forced companies to adjust PwC 3 The ASE market capitalisation shrunk 70% by 2016 but the non banking part recovered thereafter ASE market capitalization Top 10 listed All companies 2008* € 133.7bn companies -69% Only two of the four banks in 2016* € 41.2bn 2008 remained in the Top 10 of +4% 2019** € 42.8bn market capitalization at the Athens Stock Exchange in 2018 ASE market capitalization Excluding financial institutions*** Seven out of ten non financial 2008* € 71.8bn corporates retained their -58% position in the Top10 of market 2016* € 30.1bn capitalization in the Athens +23% Stock Exchange 2019** € 37.1bn *December 31st **Latest data (7/1/2019) ***The companies excluded are banks, insurance companies, real estate investment companies, investment groups and Hellenic Exchanges – Athens Stock Exchange SA 10 years of crisis - A smaller but unreformed corporate economy Source: Reuters PwC 4 The Top 10 in terms of revenue non financial sector companies remained almost the same during the crisis Top 10 companies by revenue 2009 2016 Rank Company name Revenues Company name Revenues Rank in (in € bn) (in € bn) 2009 1 HELPE 6,76 HELPE 6,61 1 Marinopoulos dropped out of the top 10 and was replaced 2 CCHBC Group 6,54 Motor Oil Group 6,36 6 by Titan 3 PPC Group 6,03 CCHBC Group 6,22 2 Motor Oil Group had the largest rise in the list coming 4 OTE Group 5,96 PPC Group 5,17 3 in 2nd place in 2016, a 4 spot 5 OPAP Group 5,44 OPAP Group 4,23 5 rise 6 Motor Oil Group 3,94 OTE Group 3,91 4 Very few changes, mainly in 7 Viohalco Group 2,30 Viohalco Group 3,11 7 tourism and construction, in Alfa-Beta 8 Ellaktor Group 2,27 2,18 10 the Top 3 companies by Vassilopoulos S.A. revenue per sector 9 Marinopoulos S.A. 1,93 Ellaktor Group 1,94 8 Alfa-Beta 10 1,39 Titan Group 1,51 11 Vassilopoulos S.A. 10 years of crisis - A smaller but unreformed corporate economy PwC 5 There was a huge value loss in the corporate economy although values recovered by 2016 Value loss (in € bn) 80 70 60 Equity Equity value* 50 40 € 41bn Market capitalisation of ASE 30 (excluding financial institutions) 20 10 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 *Equity value=EBITDA* sectoral multiple – Net Debt Source: Reuters 6 A “high cost of capital” environment was created as a result of the crisis and it is persisting The cost of capital severely outweighs capital returns Definitions 40% • Cost of Equity=Risk-Free Rate + Beta * Market Premium • Risk-Free Rate= Annual Average Yield-to-Maturity of the Greek 10Y bond • Cost of Debt=Annual Average of the “riskiest” (highest yield-to-maturity) 35% corporate bond • WACC*=[50%* Cost of Equity] + [50% * Cost of Debt * (1-corporate tax rate)] 30% 25% 20% 15% 10% 5% 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 -5% -10% Cost of Equity (%) Cost of Debt (%) Risk-Free Rate (%) RoE (%) RoCE (%) WACC (%) page 7 Source: Thomson Reuters, Damodaran Database (NYU), OECD, PwC Analysis * Weighted Average Cost of Capital PwC 77 2 The response of the firms Observing around 2,900 companies over the period 2008- 2016 to identify the changes in the structure and dynamics of the Greek corporate economy •The sample comprises of companies with revenue exceeding € 10mn in any year during the period 2008-2016 Sample relative to Greek economy The sample time profile 3000 Direct Value Added/ GDP (%) 37.2% 2500 2000 Corporate revenue (%) 57.8% 1500 1000 500 Sources: European Commission (Ameco), Eurostat, OECD, PwC Analysis 0 FY2008 FY2013 FY2016 Companies entering Remaining companies Companies exiting The 2008 sample lost 18% of its population and gained 15% graduating from lower revenues in •Companies remaining (2008-2016) 2,441 the course of the years to 2016 •Companies exiting from 2009 to 2016: 444 •Companies entering since 2009: 364 10 years of crisis - A smaller but unreformed corporate economy PwC 9 The drop in demand was sizeable and quickly led companies to compress costs and reduce investment Operating costs (in € bn) Revenue (in € bn) Investment (in € bn) -11% -7% -1% -2% 135.6 135.8 5.3 -81% 148.6 144.8 144.5 133.2 130.8 5.1 139.7 135.8 124.3 126.1 132.9 128.8 130.5 117.9 117.8 3.6 +25% 2.4 2.0 1.9 1.0 0.4 2009 2010 2011 2012 2013 2014 2015 2016 2009 2010 2011 2012 2013 2014 2015 2016 2009 2010 2011 2012 2013 2014 2015 2016 Profitability initially collapsed, but rebounded as a result of cost cutting EBITDA and EBT margin ROCE and ROE (%) (%) 10.4% 9.7% 9.7% 8.5% EBITDA Margin 6.8% 7.1% ROE 6.3% 6.4% 6.5% 6.1% 6.8% 4.8% ROCE 3.6% 6.1% 4.1% 2.4% 1.8% 4.3% 1.9% 3.1% 1.5% 0.6% 0.8% EBT Margin 2.0% -0.6% -1.5% 2009 2010 2011 2012 2013 2014 2015 2016 -0.6% -0.3% 2009 2010 2011 2012 2013 2014 2015 2016 -2.3% -1.0% -1.9% -4.5% 10 years of crisis - A smaller but unreformed corporate economy PwC 10 The average size of the firm in general decreased Average revenue (€ mn) Average capital employed (€ mn) 51 23 Commerce 41 Commerce 20 42 19 48 46 Industry 58 Industry 43 53 47 605 979 Infrastructure 409 Infrastructure 745 431 689 41 28 Services 33 Services 27 35 28 18 23 Construction 9 Construction 23 12 22 10 31 Tourism 12 Tourism 28 13 29 19 119 Investment Investment Companies 12 76 companies 18 140 2009 2013 2016 Average capital employed in Industry and Investment Average firm size in Industry and Tourism went up companies increased 10 years of crisis - A smaller but unreformed corporate economy PwC 11 13 Groups strengthened Groups were responsible for the their relative position in the reduction in revenue, for 44% of corporate economy, the increase in profitability and providing stability and for 35% of the increase in cash, accumulating cash in the period 2013-2016 Revenue in € bn Δ Group vs Δ Total (2013-2016) 149 133 131 in € bn 43 48 42 Revenue 105 85 88 Groups € -5.5bn Total 2009 2013 2016 EBITDA € -2.4bn in € bn 15.4 12.7 7.6 EBITDA 8.6 6.0 4.2 € 1.8bn 7.8 4.4 6.7 2009 2013 2016 € 4.1bn Cash in € bn 16.3 Cash 13.6 13.5 6.3 4.5 5.6 € 0.7bn 9.1 7.9 10.1 € 2.8bn 2009 2013 2016 Groups Individual companies PwC 12 10 years of crisis - A smaller but unreformed corporate economy Systematic deleveraging and the elimination of working capital led gradually to the accumulation of cash Gross Debt -14% • Debt repayments (€ bn) -2% 65 • Debt write-offs 56 54 2009 2013 2016 Trapped Debt Refinanceable Debt • Persisting Zombies -22% (€ bn) +66% (€ bn) -19% • Refinancing 12.4 12.5 +4% 10.6 • Improvements in 9.7 10.2 Grey firms 7.5 2009 2013 2016 2009 2013 2016 Working capital Cash • Payables did not (€ bn) (€ bn) follow costs -78% +21% 13.4 -1% 16.3 13.6 13.5 -220% 2.9 -3.5 PwC 2009 2013 2016 13 2009 2013 2016 Investment funding switched from the use of equity and debt to the use of own funds, as a result of deleveraging Δ 2008-2009 Δ 2015-2016 Overall deleveraging € bn 5,091 80 Investment 60 in € mn 967 40 20 Funded by: 0 1,846 1,717 2009 2010 2011 2012 2013 2014 2015 2016 -20 Δ Equity Gross Debt Working capital in € mn 690 Funding capacity Δ Debt € bn in € mn 50 40 -318 30 Δ WC 20 in € mn -336 10 -992 0 639 2009 2010 2011 2012 2013 2014 2015 2016 -10 Δ Cash in € mn Borrowing capacity = 5*EBITDA – Net Debt Cash -623 Internally generated funding capacity = Cash + Borrowing capacity PwC 14 Receivables and payables reflected difficult trading conditions, as well as the resilience of Zombies Receivables (in € bn) DPO, DSO, DIO Receivables declined Days of revenue 2009 11.0 30.2 41.1 by 36% compared to a 12% revenue Healthy companies -€ 15bn 92 2013 8.9 20.2 29.1 reduction, 76 79 demonstrating a 84 Payables 2016 4.9 21.3 26.2 tougher credit 67 Receivables environment 66 Zombies & Almost Zombies Healthy companies Stock 56 57 Inventories (in € bn) 48 2009 5.8 13.5 19.3 Inventories went down DPO DIO DSO in line with revenue, not 2013 6.0 9.7 15.7 -€ 3bn revealing intense 2009 2013 2016 destocking 2016 2.8 13.6 16.4 Zombies & Almost Zombies 155 Payables 136 Zombies & Almost Zombies Healthy companies 118 112 Receivables Payables (in € bn) 95 80 89 Stock 2009 11.0 36.0 46.9 Payables did not 85 practically move, and 69 2013 15.7 26.2 41.9 -€ 1bn include ca.