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. € 10bn past obligation that cannot DPO DIO DSO be converted to cash 2016 10.3 35.8 46.1 2009 2013 2016

Zombies & Almost Zombies Healthy companies

10 years of crisis - A smaller but unreformed corporate economy PwC 15 Capacity utilisation and productivity both went down reflecting a production slack

Capacity utilization (Revenue/ Gross Fixed Assets) -23%

1.42 -10% 1.33 1.28 1.21 1.17 1.13 1.11 Investment collapsed as there was 1.09 no need for extra capacity, nor was there a push towards opening up new markets with new products and services

2009 2010 2011 2012 2013 2014 2015 2016

Productivity -9% (Revenues/ Headcount in € ‘000) 293 283 288 272 266

The decline in output after 2012 was faster than labour cost reduction, taking its toll on productivity

No data available prior to 2012

10 years of crisis - A smaller but unreformed corporate economy 2009 2010 2011 2012 2013 2014 2015 2016 PwC 16 There has been a clear revenue shift away from commerce, services, construction and infrastructure to industry

Sectoral relative Revenues In € bn performance -12% 148.6 reflects mainly the Δ% 132.9 130.5 2009-2016 speed at which Commerce -21% 64.2 43% Industry +7% 50.6 38% 50.7 39% corporates in a Infrastructure -16% Services -20% sector adjusted to Construction -35% Tourism +42% 41.2 28% 37% 34% Investment a low demand 48.7 43.9 -18% companies habitat, rather 20.6 14% % of 16.3 12% 17.3 13% total 17.5 12% than any deeper 13.3 10% 14.0 11% 2.7 1.8 0.9 0.5 1.4 0.7 1.6 2% 1% 2.0 1% 0.4% 2.2 1% 1% 1% 2% competitive 2% 2009 2013 2016 process

10 years of crisis - A smaller but unreformed corporate economy PwC 17 Revenues dropped by 12%, but value added recorded a decline of 21%, as the result of the shift away from services and lower investment

Revenues and value added Value Added Ratio In € bn In %

85% 148.6 78% 73% 132.9 130.5 90% 126.1 88% Decrease in 87% Δ(%) Δ(%) Δ(%) 64.2 74% revenues and value ‘09-‘16 ‘09-‘16 60% ‘09-‘16 50.6 101.3 53% 50.7 96.9 57.8 88% added in all sectors -21% -23% 78% 85% -2pps except industry and 7% -14% -14pps 44.4 44.0 86% 83% 84% tourism -16% -19% -3pps 41.2 48.7 43.9 -20% -22% -2pps Value added ratio 30.6 82% 79% 76% -35% 26.3 -39% -6pps 25.8 90% decreased by 7pps 20.6 42% 39% 86% 89% -1pps 17.3 18.1 16.3 14.7 overall -18% 12.7 -19% -1pps 17.5 13.3 14.0 15.1 11.8 99% 97% 98% 0.9 0.5 0.7 0.9 11.1 0.5 0.7 1.62.7 2.01.4 2.21.8 1.42.2 1.71.1 2.01.3 2009 2013 2016 2009 2013 2016 2009 2013 2016 RevenuesRevenuesRevenues Value Value Value VAR VAR VAR Added Added Added*

Commerce Infrastructure Construction Investment Companies Industry Services Tourism Value Added Ratio (Value Added/ Revenue)

Source: OECD, PwC Analysis *2015 added value coefficients used

10 years of crisis - A smaller but unreformed corporate economy PwC 18 Exports increased by about € 12bn, but the value added component declined

Exports and value added In € bn

70% 64% 56.0 54.1 81%

44.0 17.0 18.3 Increase in exports of goods by 39.0 € 4bn and travel receipts by 14.2 35.5 34.6 7.9 11.1 60% 74% 9.0 10.6 9.1 53% €3bn 2.8 2.3 29% 1.1 40% 1.9 21% 15.9 16.6 Services showed no change 16.7 14.0 84% 14.4 86% 13.2 83%

13.2 Drop in value added ratio by 10.4 9.4 90% 12.2 10.5 86% 11.7 89% 11pps 2009 2009 2013 2013 2016 2016 Exports Value Exports Value Exports Value added added added*

Goods Services Value Added Ratio Fuels Travel receipts (Value Added/ Exports) Source: Bank of Greece, OECD, PwC Analysis *2015 added value coefficients used

Export volume rose during the crisis, trying to balance the loss of domestic demand, but value added declined as a proportion of exports reflecting the degrading of the production base

10 years of crisis - A smaller but unreformed corporate economy PwC 19 Competitiveness improved slightly across all sectors, except construction, but overall the economy remained within the same competitiveness band

Change in number of companies by sector Change in competitiveness by sector (Δ 2009-2016) (Δ 2009-2016) Scale: 1-27

Stars and Zombies and Almost Stars Almost Zombies Average 10.4 competitiveness 2016 Commerce 142 -92 1.7 8.7 Average Industry 119 -63 2.3 competitiveness 2009 Tourism 58 -28 4.8

Services 22 14 0.6

Infrastructure 10 -8 2.7 Investment 3 0.8 companies -6 Construction -14 23 -2.0

Total 340 -160 1.7 1 2 3 4 6 8 9 12 18 27 Competitiveness scale

Average competitiveness improved as firms were exiting the crisis, but not as much to raise competitiveness to the next level

10 years of crisis - A smaller but unreformed corporate economy PwC April 2019 20 3 Critical economic processes were damaged The corporate economy during the crisis was driven by…

1 2 3 4 a loss of demand which tighter trading conditions higher cost of capital Zombies survived suppressed revenue • Receivable days 25.5% • Sovereign risk from 0% to • There are still 745 Zombies • There was a 12% down 4% (26% of total) operating, of decrease in revenue • Stocks days roughly the • Corporate cost of debt rose which 312 were Zombies same by 16pps during the period in 2009 • Payables went up by 6.0% 2010-2012 • Zombies account for • Cost of equity rose by €8.7bn of trapped debt and 17pps €10bn payables

…which led to 1 2 3 4 swift cost adjustment lack of investment a marked change in less complexity and funding value added • Costs were reduced by • Non replacement of assets 11.6% and average • No new technologies • Debt decreased by • Complexity and value EBIDTA margin returned to • No R&D €10bn added diminished by 9.7% • Productivity continued to • Equity decreased by 7pps go down about €4bn • Exports rose during the • The diminishing funding crisis, but their relative needs were satisfied by value added dropped creditors’ financing • Overall funding became shorter term

PwC 22 22 The investment loop has been dislodged

Investment loop Funding capacity by far in € bn exceeds investment, 45 revealing a damaged Cash Corporate R&D expenditure 40 Investment Total funding capacity** investment process Borrowing capacity* 35

30 R&D remained dramatically 25 weak throughout the crisis and there have been no 20 15 sizeable manifested Investment developments in new 10 lost products or services 5

0 2009 2010 2011 2012 2013 2014 2015 2016 The strained investment -5 process is a contributing -10 Source: Eurostat, PwC analysis factor to the diminishing *Borrowing capacity=5*EBITDA – Net Debt level of value added **Total funding capacity=Cash + Borrowing capacity

10 years of crisis - A smaller but unreformed corporate economy PwC 23 Zombie firms remain operating, undermining the rest by competing on an unfunded basis and increasing the cost of capital for all

Number of companies Revenues (in € bn) ROCE 23 pp 1,300 80 20% 20% 1,200 22 pp 70 15% 17 pp 15% 1,100 60 1,000 10% 10% 900 50 800 5% 5% 40 700 0% 0% 30 600 2009 2010 2011 2012 2013 2014 2015 2016 -5% -5% 500 20 400 312 10 -10% -10% 300 200 0 -15% -15% 2009 2010 2011 2012 2013 2014 2015 2016 2009 2010 2011 2012 2013 2014 2015 2016

Payables (in € bn) Gross Debt (in € bn) Debt/ Capital employed 22 35 100% 100%

20 54 pp 30 18 80% 80% 16 25 30 pp 40 pp 14 60% 60% 12 20

10 15 40% 40% 8 6 10 4 20% 20% 5 2 0 0 0% 0% 2009 2010 2011 2012 2013 2014 2015 2016 2009 2010 2011 2012 2013 2014 2015 2016 2009 2010 2011 2012 2013 2014 2015 2016

The same 312 companies were Zombies or Almost Zombies in 2009 and in 2016

Stars and Almost Stars Almost Zombies and Zombies PwC 24 Greys Persisting Zombies Despite the value added erosion, the funding distortion and unfair competition, there are still ca. 2,100 investible companies, with total annual revenues of € 115bn

2009 % Revenue 2016 % EBITDA 2016 2016 % Total Debt 2016 % Payables 2016

8% 9% 12%14% 296 388 Stars 1% 11% +92 companies 2% 10%

24% 31% Investible 37% 45% 560 Almost +248 companies 808 14% 20% Stars 59% 72% 22% 30% 39% 40% Greys 1,181 -305 companies 876 57% 46% 48% 38% 15% 6% 7% 2% 414 606 15% 11% Almost 30% 16% -192 companies 4% N/A Zombies 8% Ν/Α 331 299 17% 8% +32 companies 13% 11% Zombies

The natural response of firms was to contain costs and improve competitiveness in an environment of low demand, very limited funding and unfair competition

10 years of crisis - A smaller but unreformed corporate economy PwC 2525 4 Value creation strategies out of the crisis Revenue growth and operating profitability improvement determine, to a very large extent, increases in equity value

Equity value increase following 1% increase in… R2 Statistical Fit (%) Revenue EBITDA Margin Net Debt/EBITDA Fuel Retail 0.97% 13.49% 0.00% 63.1 Pharmaceuticals 1.13% 13.34% -0.03% 54.9 Transport 1.12% 8.88% -0.09% 68.9 Logistics 0.90% 7.08% -0.08% 78.6 Health 0.82% 6.14% -0.03% 77.2 Entertainment 1.03% 5.97% -0.23% 94.5 Light Industry 0.92% 5.02% 0.00% 57.6 Tourism 0.81% 5.01% 0.00% 68.9 Energy, Telecoms, Utilities 1.03% 3.98% -0.07% 87.8 Other Retail 0.88% 1.79% 0.00% 56.4 Professional Services 0.67% 1.03% 0.00% 38.4 Heavy Industry 0.99% 0.52% -0.23% 67.7 Constructions 0.85% 0.37% 0.00% 51.6 Investment Companies 0.89% 0.04% -0.07% 59.1 Food & Beverage 1.03% 0.04% -0.01% 34.8

• Revenue growth drives equity value consistently, across • An increase of 1% in revenue leads to 0.7-1.1% increase in sectors equity value • The effect of operating profitability on equity values changed • Long term operating profit margin increases of 1% generate during the crisis in a non homogeneous manner with some between 0% and 13.5% more equity value sectors being highly driven by profitability, while a few others • A reduction in Net Debt/EBITDA ratio of 1%, adds no equity remaining indifferent value when the company can service debt but it can provide an • The capacity to service debt has a small positive impact on extra 0.1-0.2% if stretched equity value

10 years of crisis - A smaller but unreformed corporate economy PwC 27 Debt sustainability alters the way revenue and operational profitability impact equity values

Revenue Elasticity Profitability Elasticity Net Debt/EBITDA > 5 Net Debt/EBITDA < 5 Net Debt/EBITDA > 5 Net Debt/EBITDA < 5

Fuel Retail 0.90% 1.01% 13.05% 11.41% Pharmaceuticals 0.93% 1.09% 14.21% 13.07% Health 0.54% 0.80% 5.50% 6.13% Entertainment 1.88% 1.04% 2.17% 5.93% Light Industry 0.88% 0.99% 10.03% 3.96% Tourism 1.10% 0.84% 5.94% 5.04% Energy, Telecoms, Utilities 0.85% 1.05% 1.83% 4.07% Other Retail 0.79% 0.87% 10.07% 1.74% Professional Services 0.51% 0.66% 7.83% 1.03% Heavy Industry 1.07% 0.97% 3.44% 0.48% Constructions 0.75% 0.88% 2.30% 0.34% Investment Companies 2.44% 0.88% 4.17% 0.04% Food & Beverage 0.72% 1.09% 13.47% 0.04% Transport N/A* 1.05% N/A* 6.86% Transportation & Logistics N/A* 0.92% N/A* 6.56% Average 1.03% 0.94% 7.23% 4.45%

Equity Value increase for Net Debt/EBITDA > 5 Equity Value increase for Net Debt/EBITDA < 5

• The effect of a deteriorating balance sheet, significantly changes the way equity value responds to revenue growth and profitability increases • Financially stressed corporates tend to become more sensitive to growth, but almost twice as sensitive to profitability improvements • Sectoral behaviour varies, with Light Industry, Other Retail, Food & Beverage and Professional Services being more sensitive to profitability increases, rather than revenue growth, when firms are in financial distress • Listed companies’ equity value is more sensitive to profitability than of the non listed

* The sample consisted of 5 observations or less 10 years of crisis - A smaller but unreformed corporate economy PwC 28 There are sectors where firms are likely to pursue growth strategies, but the bulk of the corporate economy will delay its acceleration

Average 4.74 1.25% New Markets/Products Re-configuration • About 21% of the firms, the smaller ones €47.8bn / 533 / €90mn/ € 27.2bn € 13.1bn / 222 / € 59mn/ €5.3bn 1.20% (Tourism, Logistics, Health, Light Industry), could keep tightening costs, 1.15% Transport improving processes and re-optimising Pharmaceuticals operations making very little investment 1.10% Revenue ElasticityRevenue • Another 26% of the firms, the largest in Energy size, may focus on expanding market 1.05% Food & Beverage Utilities Entertainment share in existing market or turning into Telecoms new ones (Energy, Utilities, Telecoms, 1.00% Food & Beverage, Heavy Industry) with a Heavy Industry Fuel Retail 0.95% 0.94 Average sizeable investment potential Investment Companies Light Industry • About 13% of the firms, large ones, could 0.90% Logistics expand by acquiring less strong Other Retail competitors and by reconfiguring 0.85% themselves, depending on external Construction Health funding (Pharmaceuticals, Transport, Fuel 0.80% Tourism Retail, Entertainment), but this amounts to little investment 0.75% • Around 39% of the firms, typically of 0.70% Professional Services medium size (Other Retail, Construction, Investment Companies, Professional 0.65% €30.1bn / 739 / €41mn/ €13.8bn €16.9bn / 423 / €40mn/ €11.1bn Services), are slow to respond, particularly Low Responsiveness Cost Cutting if they have no access to funding, with no 0.60% significant investment in sight 0% 2% 4% 6% 8% 10% 12% 14%

Total Revenue / No. of Profitability Elasticity Borrowing Capacity Stars & Greys / Average (Stars & Greys) Firm Size/ Funding Capacity

10 years of crisis - A smaller but unreformed corporate economy PwC 29 5 The next day The corporate landscape in Greece will not change unless the cost of capital returns to investment inducing levels and the impact of Zombies annuled

• The onslaught of the crisis in 2008 increased sovereign and consequently corporate risk to levels inhibiting investment and trading. The production base of the economy shifted away from services towards industry and towards lower value added • Despite the strengthening of the funding capacity of the firms, the institutional funding of the corporate economy weakened and was partly substituted by trade funding • The investment process has been dislodged creating a huge gap between corporate investment needs, in order to maintain and enhance market position and competitiveness, and the ability and willingness to fund them • A disproportionate number of Zombies continue to trade undermining market equilibrium. The targeted elimination of all Zombies would result in a 13% increase in the revenue of all other companies • Nonetheless there are about 2,100 investible companies, with annual revenues each of € 10mn or more, which have their own business strategies • To set in motion and fund growth, corporates need to identify projects with returns in excess of the long term cost of equity • Corporate value creation strategies depend primarily on the sensitivity of equity value to growth and profitability improvements and the availability of funding. The cost of debt and equity is critical • As we will be entering a financially more relaxed period, with corporates having accumulated cash and having strengthened their balance sheets, there will be a shift from good housekeeping to new business

PwC 31 Without a policy shock, the dynamics of the economy will not change

Unaided individual strategies are unlikely to set in motion high and sustainable growth across the economy Three broad policies must be implemented simultaneously aiming at reinstituting conditions which are conducive to longer term planning and investment and to the mobilization of resources across economy  First, the corporate landscape must be cleared of Zombies at a fast pace. Comprehensive liquidation processes are instrumental to transferring demand to Star and Grey companies, to releasing assets back to the productive economy, whilst improving trading liquidity. At the same time, the banking system must be cleared from NPLs, which absorb regulatory capital, so as to resume lending to the economy  Second, a well orchestrated trust building effort with a clear and convincing plan for the future has to be initiated. This will help reduce sovereign risk and will bring in international strategic investors to consider Greek corporates, which not only survived the worst crisis, but also improved their own competitiveness  Third, as a result of investment, the economy will be rebalanced to higher value added services and products and expand into new markets. Coherent sectoral public policies promoting size, concessionary funding towards last stage R&D, demand and supply aggregation and clustering are necessary in facilitating this shift The legacy of the crisis is heavy, but well hidden, and gradually is forming Greece into a more primitive physical production base with less services output, fed with little investment and starved of innovation

10 years of crisis - A smaller but unreformed corporate economy PwC 32 The crisis is over, but the corporate economy is neither prepared nor willing to grow

pwc.com

© 2019 PricewaterhouseCoopers Business Solutions SA. All rights reserved. PwC refers to the Greece member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details

At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 158 countries with more than 250,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com