Thursday, September 25, 2014

More Stars of the Greek Economy

In my previous article, I had definied Pharmathen as a corporate 'star' of Greece and asked whether there were other 'stars' like that. A reader provided my with the links to 6 other companies and I will make quick summaries on each of then.

Their website is not as smooth sailing as Pharmathen's. Certainly, there is much less financial information about the company. They have a link to the 2013 financial statements but there is no content to be found. Thus, I opened the 2012 financial statements. And then, all there was were a condensed P+L statement and balance sheet. Everything quite a few steps behind Pharmathen in terms of impact.

In the headline, Elpen describes itself as "The Leading Greek Pharmaceutical Company". Well, maybe the leading one but certainly not the largest one. Pharmathen, for one, is larger with its sales of 178 MEUR when Elpen (in 2012) had sales of 115 MEUR. Elpen posted a profit before tax of 4 MEUR, a 4% return on sales, or much lower than the 12% of Pharmathen. Most importantly, Elpen includes in revenues an extraordinary item of 7 MEUR as 'income from prior years' provisions'. Impossible to say what this might be but without it, for sure, Elpen would have posted a loss. The year before, they had paid out virtually all their profits as dividends. In 2012, it looks like they retained all earnings. Perhaps someone told them that they shouldn't drain the company. Of total assets of 138 MEUR, 12 MEUR are 'other formation expenses' and 5 MEUR are 'interests in affiliated undertakings'. There is no way of telling how much those assets are really worth. What stands out, though, is that they are sitting on 40 MEUR of cash plus, get this, 11 MEUR of Greek sovereign bonds. That was not a good investment for them because they already had to write-off 5 MEUR of that. Elpen's net worth of 40 MEUR is very satisfactory but one has to remember that they have 17 MEUR of assets whose value cannot be determined. They are stretching suppliers' credit to the limit with 61 MEUR of trade accounts payable. That would smack of payment terms of 180 days. Why does a company which has so much cash pay its suppliers so slowly? Holding money back from suppliers to invest it in the money market is not really elegant.

So what is the bottom line on Elpen? Not a bright star, perhaps not even a star but an okay company. I would have to get a feel for management (interestingly, there is nothing in the website about management) and the overall management culture. There are quite a few questions to ask about their financial statements, particularly the question whether there is a hang for creative accounting and/or financial maneuvers.

To begin with, their website is available in 6 languages which makes for an impressive start. The company's founder and CEO sees the company 'at the top' which is not as bragging as Elpin. Moreover, they understand that 'to reach the top you need to try' and that 'you need vision, dedication an faith'. After all of this, I am already in good spirits about the company. They have been around for 90 years which is Pharmathen and Elpin combined. And it seems family through and through. That's a plus, too! So much family through and through that they don't even reveal any financial information about themselves. If the company's financials are as impressive as the information which it provides about its activities, then the financials must be extraordinary. My guess is that the financials are probably extraordinary.

One cannot blame the company for going overboard with telling beautiful stories about themselves. Their website is rather ordinary, if not to say boring. However, this doesn't strike me as a weakness but rather as intended understatement. Again, family-owned and so private that there is no information whatsoever about management or about financial statements. If I had to guess, I would guess that this is a very conservative company with very conservative financial statements.

This is a comparatively young company (1986) and with sales of 30 MEUR and 70 employees, a relatively small company. There is nothing eye-catching in their website and certainly no financial information. Normally, I tend to quickly develop a 'feel' for a company. Here I have no 'feel' at all. Normally, I become a little confused when I cannot develop a 'feel' for a company.

They are just over 20 years old so they cannot be too large. My 'feel' is that, here, a group of like-minded, dynamic people got together and said 'let's start someting'. One gets a sense of dynamism. More I cannot say about this company.

I cannot tell why my reader sent me only health/pharma companies. Perhaps he works in the health/pharma industry himself or perhaps the health/pharma industry is the best of all industries in Greece. Either way, one gets the impression that there is something happening in the Greek pharma industry. Which makes me wonder whether pharma could not become a core industry of the country.

Pharmathen is the clear star hovering about the others. Elpen should worry a bit less about pretending to be as good as Pharmathen and focus more on providing solid information about themselves. Perhaps there is an issue with management culture. The others seems to be smaller companies but they cannot be zombies because if they were zombies in the pharma industry, they wouldn't have survived 5 years of recession as a pharma company (they would have been taken over by others or disappeared).


  1. "Why does a company which has so much cash pay its suppliers so slowly? "

    Because, ELPEN, being heavily involved in the domestic market, has to deal with the very high delays of the chain of payments that deal with the state. For the same reason, the pharmacists have made various strikes, because they were asked to sell "on credit" basically. The state delays payments on pharmacists, the pharmacist delays the payment to the pharmaceutical, the pharmaceutical will delay payment to suppliers. And in a situation like the greek one, where today it was pubblished that 80% of bank deposits (non company) have less than 10.000 euros inside, nobody wants to give cash in time, when he isn't paid in time (drachma ante portas, always a danger). Just like the pharmacists at a certain point made strikes, saying "we can't give drugs to the patients for free, waiting 6 months for the state to pay us, while we have to pay the pharmaceutical out of our own pocket for new deliveries".

    1. I disagree with you.

      Elpen has trade accounts payable. When you owe money and don't pay it when due, the questions are: inability or unwillingness to pay? There are many companies whose liquidity runs dry because the state doesn't pay them so they, in turn, can't pay their suppliers on time. That is the inability to pay. Elpen is not one of them.

      Elpen sat on 40 MEUR of cash at Y/E 2012 when they had trade accounts payable of 61 MEUR, about 180 days of sales. They clearly could have paid but were not willing to pay their trade creditors on time. No wonder! Interest rates were pretty high in 2012, so it's much more profitable to leave your money at the bank instead of giving it to your suppliers. And you can always tell your suppliers that you can't pay because the state doesn't pay you. That's why I said that I would have to meet management before passing judgment on this company because I would like to know what kind of characters they are.

      Too bad that we don't have 2013 financials about this company!

    2. Addendum: I would bet money that Vianex is not doing what Elpen is doing!

  2. To give you an idea of the "history", behind the balance sheets. Teva is a famous israeli pharmaceutical, very big in the sector, sells worldwide. I am positive you will find its balance sheets very satisfactory. But, has repeated such incidents:

    You know what "subpotent" means? Generic drugs are allows +-20% potency compared to the original. Subpotent, means it's more than -20% the potency of the originally patent drug. In practice, this may mean suboptimal treatment or non drastic treatment at all (meaning, you are getting a placebo medicine):

    Good balance sheets, but who knows how many people paid with their health...

  3. A Non Pharma company that is doing quite well, is Sarantis. Consistant growth, high profit, low debt, exports and investment in manufacturing.

    Being in product development i am aware of many projects of many greek companies. (Pharma, Consumer Goods, Foods and Materials Manufacturers). There are many great things in the near future that is to come from the greek companies. And it is these project's prospects that create even stronger future of companies, aside from the good or rising star balance sheets.

    The crisis was unfortunate of the whole of Greece. I am a believer everyone was hurt one way or another. Some more, some less. But the crisis has indeed changed us. It has brought us to our selves, to who we are, meanwhile found ways within the hell of an economy to survive, meanwhile create prospects which will begin to pay off. I am hopeful for the prospects the private industry is creating and this outside of the toursim industry. I am also a strong believer that argriculture is still "untapped" or at least to the degree we should take advanatge of.

    (BTW, the above may sound politically from ND party, but i am and always was, unaligned to political party. I will refrain from describing what i think of 99% of modern politicians.).

    Fortunately, the greek citezen has found ways to survive deal and create without political structure. This alone is a prototype which once again greeks will be the first to achieve.

    I am proud and working hard along with my colleagues, in this dark period, to help achieve and create this prosper, in my economically bombarded nation.

    I follow your blog and i enjoy your objective articles and critique.