December 18, 2012 3:02 pm

Greek industry looks beyond the crisis

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Greece economy©Bloomberg

Survival is the name of the game for Mytilineos as Greece heads into a sixth successive year of recession.

Exports are keeping afloat the family-controlled aluminium producer, engineering contractor and energy supplier, according to Evangelos Mytilineos, chairman and chief executive.

Mytilineos chart

Mytilineos chart

Yet fresh challenges loom, with bank credit set to shrink further, new taxes imposed by Greece’s international creditors, and pressure from institutional investors to move some activities abroad.

“All Greek industrial groups are in this mode of trying to survive,” Mr Mytilineos says. “If anyone tells you something different, it’s not true.”

The group is still profitable, with turnover expected to reach €1.5bn this year, he says. But plans for expansion were dropped as bank financing dried up after Greece lost access to international debt markets.

“If it hadn’t been for this crisis we would have seen multibillion [euro] growth through big investments in energy. We would have participated in Turkish privatisations [of power plants] and built a base there,” Mr Mytilineos says.

Instead the focus is on cost-cutting, tight cash management and efficiency improvements at the group’s plants in Greece: a vertically integrated aluminium smelter and three gas-fired power stations.

A prolonged squeeze on lending by Greek banks has forced Mytilineos to fund itself through internal cash flow, pre-financing by established customers and limited amounts of credit from European banks with which it has longstanding relations.

Mytilineos acquired Aluminium of Greece, the only local producer, and Metka – an EPC (engineering, procurement and construction) company specialised in building power plants – through privatisation sales after Greece joined the euro and local banks were flush with liquidity.

A €1bn investment programme to build the power plants and upgrade the aluminium smelter was close to completion when the crisis hit and bank credit was slashed.

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“We finished the investment programme using internal cash flow, and we paid down debt out of increased earnings,” says Mr Mytilineos. “I feel cool about debt – it’s been pushed down from the holding company to the operational entities which have strong ebitda [earnings before interest, tax, depreciation and amortisation].”

Greece’s tense relations with its creditors, the EU and the International Monetary Fund have exacerbated the problems Greek companies face. A €34bn aid payment to recapitalise the country’s banks and ease the liquidity squeeze has been delayed since April by two general elections and was only agreed last week.

Several cliffhanger votes in parliament over fiscal reforms left one foreign customer of Aluminium so worried that it caused a €50m pre-financing deal to be frozen, “quite rightly under the circumstances”, says Mr Mytilineos.

Metka has been hard hit by the crisis, despite being the group’s star performer with a €1.6bn backlog of orders for projects in Turkey and the Middle East. It has resorted to hoarding cash to use as collateral for participating in international tenders, because of problems obtaining bank guarantees as a company based in Greece.

Mr Mytilineos has so far opposed suggestions that Metka’s headquarters, if not the whole group’s, should be transferred abroad. “I don’t feel OK with shareholders telling us it should move, although 95 per cent of its activities are outside Greece,” he says. “You shouldn’t have to leave in order to survive.”

Yet the group’s resilience is being tested. Consolidated nine-month turnover was flat at €1.1bn with net profits plunging from €46.1m to €11.6m for the same period last year. Metka reported a 45 per cent decline in turnover to €409m, while net profits fell to €50.9m from €79.7m.

New taxes targeting the energy sector will cost the group €50m in 2013, Mr Mytilineos says. The “troika” – EU, IMF and European Central Bank officials supervising Greek reforms – pushed for special levies on natural gas and electricity consumption, cogeneration and carbon emissions to give a quick boost to revenues and balance the budget next year.

Despite these challenges, Mr Mytilineos is looking to the future. He sees natural gas trading as a promising business for Mytilineos after the group teamed up with Motor Oil, a Greek shipping and oil refining group, to open the local gas market to competition. The partnership buys natural gas from international suppliers at competitive prices to reduce dependence on DEPA, a state-owned importer of Russian gas, which controls 80 per cent of the market.

Mytilineos and Motor Oil, which has the deep pockets of a family-owned Greek shipping business, are among the shortlisted bidders competing with Russia’s Gazprom and Socar, the Azerbaijan state gas producer, to acquire DEPA in a privatisation sale that could raise €1bn to write down public debt.

“Survival is our primary goal but our second goal is the future,” Mr Mytilineos says. “There’ll be an end to this crisis sooner or later and our group has to be well placed for the day after.”

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