How To Spend 3 Hours at a Greek Tax Office

An elderly man died in Thessaloniki on Tuesday after collapsing at a bank while waiting in line to pay the ENFIA property tax, reports the Ekathimerini. Which reminds me of the story which my neighbor Yiannis told me yesterday.

Yiannis had to go to the tax office to get a certificate that all his taxes were paid up. There were a total of 5 stops, he said. First, he had to go to employee 1 who handled the hard facts. She checked that all the information Yiannis provided was correct and then she wrote her ok in handwriting. With that provisional piece of paper, Yiannis had to go to the Director on the first floor. The Director checked the handwriting of employee 1 and the information and gave his stamp of approval. That, however, was not the end of it because there was not yet a final document. Instead, it only authorized Yiannis to go back downstairs to employee 2 who would check the signature and stamp of the Director in order to issue the final document. However, the final document now required the signature of the Director, so Yiannis went back to the first floor. And after he got the signature of the Director, he had to take the final document back to employee 2 who would then add a second stamp. And that was it.

All told, it took him 3 hours, Yiannis said.

Germany's Economic Mirage

"Germany has stagnant wages, busted banks, inadequate investment, weak productivity gains, dismal demographics, and anemic output growth. Its “beggar-thy-neighbor” economic model – suppressing wages to subsidize exports – should not serve as an example for the rest of the eurozone to follow".

Germany's Economic Mirage

Greece's Media Landscape - A Chronicle

The author of these articles calls them 'a series of articles which chronicle the long history of corruption, lawlessness and censorship in Greece's media and journalism landscapes". To an uninformed outsider like myself, they are interesting reading which is why I publish them without comment from my part. This is part II. 

19 Sep 14: Corruption, Clientelism and Censorship in Greece's Media Landscape

27 Sep 14: Savage Deregulation: Further Censorship and Crackdowns in Greek Media

Two Austrians and Tsipras - and Pope Francis

Sarcastic stories are floating through the interenet about Alexis Tsipras' recent 'audience' with Pope Francis. Was it an audience in the first place? Or was Tsipras in a group of people who saw the Pope? Why were there no pictures taken? Did the Pope say what Tsipras said he had said. The most sarcastic, albeit quite humorous, item was a picture showing the Pope waiving to thousands of people on St. Peter's Square suggesting that Tsipras was among the crowd and called that 'meeting the Pope'.

The fact of the matter is that there were 3 people who were received by Pope Francis and not Tsipras alone. Since the other two were Austrians, I quote what the Austrian public broadcaster reported on its website.

ORF reported that the meeting was arranged by the Austrian Franz Kornreif who is head of the Austrian branch of Fokolar Movement. That movement, according to its website, operates under the auspices of the Roman Catholic Church and its mission is to foster unity. Unity in the family, in the social-cultural, political and economic spheres; unity between the rich and the poor and between nations. Kronreif on his part is very good friends with Walter Baier, an Austrian who headed the Austrian Communist Party in the past and who is now a leading figure in transform!europe, a network of 27 European organizations from 19 countries, active in the field of political education and critical scientific analysis, and is the recognized corresponding political foundation of the European Left Party.

ORF quotes Tsipras as saying after the meeting that "even though we start from different ideological points, we believe that we have common positions in the principles of solidarity, in the principles of justice, peace and cohesion" and a Vatican spokesman as saying "the meeting with the leader of the Greek SYRIZA party Alexis Tsipras and Austrian Walter Baier was private rather than political".

Walter Baier held a press conference after the meeting in which he said that "the Pope said it is scandalous that saving banks is regarded as more important than saving people".

"The meeting with leader of the Greek SYRIZA party Alexis Tsipras and Austrian Walter Bayer was private rather than political. - See more at: http://www.grreporter.info/en/tsipras%E2%80%99_meeting_pope_was_big_gaffe/11753/#sthash.izhH1AQU.dp

He is one of the leaders of the Focolare Movement which is an organization that operates under the auspices of the Vatican and aims to establish contact between the Catholic Church and people with non-Christian views and mostly atheists.   - See more at: http://www.grreporter.info/en/tsipras%E2%80%99_meeting_pope_was_big_gaffe/11753/#sthash.izhH1AQU.dpuf

He is one of the leaders of the Focolare Movement which is an organization that operates under the auspices of the Vatican and aims to establish contact between the Catholic Church and people with non-Christian views and mostly atheists.   - See more at: http://www.grreporter.info/en/tsipras%E2%80%99_meeting_pope_was_big_gaffe/11753/#sthash.izhH1AQU.dpuf

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.

ELPEN
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.

VIANEX
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.

GALENICA
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.

PHARMAZAC
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.

PHARMANEL
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.


SUMMARY
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).

Looking for Non-Zombies in Greece? Here Is One!

A friend of mine told me that her sister, a young chemical PhD, started a job with a company by the name of Pharmathen recently. So I looked up Pharmathen's website. What a surprise!

Founded in 1969, Pharmathen 'is focused on the development and marketing of pharmaceuticals, with a strong position in generics. With 3 state of the art research laboratories and 2 manufacturing units, Pharmathen is a completely vertically integrated company and its activities extend from the development of pharmaceutical products up to their distribution. The company’s human resources include more than 800 people who work in the sectors of Research & Development (R&D), production and distribution of drugs to more than 85 countries worldwide'.

The website has a separate section on Corporate Social Responsibility (CSR): 'It is important that our employees know about our commitment to social corporate responsibility, understand their responsibilities and keep up to date with our progress. Therefore we instantly inform our personnel regarding CSR practices at Pharmathen via emails, intranet services and our monthly newsletter. Through all these means they participate in CSR practices as they recognize that CSR is not only an enterprising issue but a personal issue'.

It soon got even better! Pharmathen also has a Vision and a Mission! The vision is 'to elevate the quality of people’s lives globally by providing novel and affordable pharmaceutical products. We aspire to be one of the best healthcare companies in the world, sustaining our impressive growth rates, securing customer preference and providing leading pharmaceutical innovations and solutions'. And the mission is 'to aim to be one of Europe’s leading Research & Development companies. Already one of the fastest growing generic companies in Europe, we aim to provide innovative, distinctive products and services that improve the lives of patients worldwide and satisfy customer needs. We will achieve this by employing the most advanced technologies available, by constantly enhancing our product portfolio and expanding our international presence'.

At this point, I became a bit suspicious. Websites, vision and mission statements fall into the category of softs facts; of 'stories', as investment bankers call it. It's easy to put together beautiful stories. It was about time that I looked at the hard facts, Pharmathen's financial statements for 2013.

Group sales were 178 MEUR, 10% higher than in 2012. Wait! Wasn't the Greek economy in recession during 2013? Well, 131 MEUR of total sales came from international operations (Pharmathen has a presence in over 80 countries!) but sales in Greece also increased by 6% (in a declining market!). A total of 22 MEUR was spent on R&D, which is about 12% of sales! Now, pharmaceutical companies have no choice but to spend a lot on R&D and 12% may be normal in the industry but one could compare the 12% to the 3% which the EU sets itself as a goal for R&D spending, which goal it always misses.

After paying for all of its expenses, Pharmathen posted a profit before taxes of 21 MEUR, or 12% of sales. That is a very high profitability! And since Pharmathen intends to be a good corporate citizen, they paid income taxes of 4 MEUR.

Pharmathen posted a net worth of 100 MEUR. With total assets of 204 MEUR, Pharmathen was financing almost half of its assets with net worth, an extremely high ratio. This, however, should be qualified a bit since Pharmathen posted goodwill of 41 MEUR among its assets. Such goodwill represents the excess which was paid over book value when acquiring companies. Where such companies are very profitable, such goodwill is justified. Still, even without goodwill, Pharmathen was still financing 36% of its assets with net worth! Pharmathen follows a policy of retaining a large portion of its profits in the company instead of paying it out as dividends. Thus, retained earnings of 42 MEUR account for almost half of net worth.

Finally, the most important 'Greek subject' --- debt. Pharmathen owed 68 MEUR to banks. Is that high? Well, that depends on how much debt a company can service. Pharmathen posted a free cash flow of 27 MEUR and interest expense was 7 MEUR. Put differently, free cash flow covered the interest expense by close to 4:1. Short-term debt was 38 MEUR of the total debt. When considering that Pharmathen had 54 MEUR of short-term trade receivables, one knows what short-term debt was financing. Not to mention the fact that the company also had a cash position of 18 MEUR. Current assets of 122 MEUR covered current liabilities of 74 MEUR 1,7 times. There is no worry to be had about Pharmathen's short-term debt service capacity. And the long-term debt of 29 MEUR contributed to the financing of property, plant and equipment of 38 MEUR. In short, there is no worry to be had about Pharmathen's indebtedness.

Pharmathen employed 867 people (up from 800 two years earlier), 577 of which have university degrees, and research scientists exceed 150. 49% of the employees are women and women account for 26% of management positions.

Below are some of the rankings which Pharmathen claims:

* among the top 50 most profitable companies in Greece
* among the top 100 largest Greek companies
* among the top 50 largest pharma R&D companies in the EU
* among the largest exporting companies in Greece
* among the "True Leaders" in Greece based on credibility

It took me a while to digest the above information. When I saw such a company during my active years in banking, I would hurry to the phone to make an appointment for a business development call. Before seeing the rankings, I would have expected Pharmathen to rank as No. 1 in Greece in all categories. But Pharmathen says it is 'among the top 50' or 'among the top 100'. Well, this can only mean that there are a lot of other non-zombies in the Greek economy. In fact, I would call them stars.

Who are the other stars? Why does one hear so little about them?

Getting Bored With Politics? Let's Have a Bank Run!

Back in 2002, the then CEO of Deutsche Bank, Rolf Breuer, was asked in an interview about the fledgling German media giant Kirch. His subtle answer was: "Everything one can hear and read about this is that the financial sector is no longer prepared to make debt or equity capital available". Kirch collapsed soon thereafter. This has been described as the most expensive sentence in financial history: 12 years later, Deutsche agreed to pay the Kirch heirs about 1 BEUR for damages. Deutsche has announced that they will attempt to recover part of that from Mr. Breuer personally.

PM Samaras is obviously not a banker. Verbal subtleties are not his strength. Instead, he tells the public straightforwardly that if SYRIZA came to power, all Greek banks would be left without money. And to make sure that the message got across, his parliamentary spokesman, Adonis Georgiadis, repeated it the next day.

Wow! Greeks are always good for surprises but the fact that the head of government of a country would publicly announce a bank run must be unique in the world. One wonders who will pay for damages incurred and whether Mr. Samaras will be held personally liable! Sorry, the answer to that question is obvious: the Greek people will pay and Mr. Samaras will claim that he would have saved Greece if only SYRIZA had not come to power. The only thing which is certain is that Mr. Samaras' sentence will replace Mr. Beuer's sentence as the most expensive one in financial history if a bank run does occur. It will cost more than just one billion.

So where do we go from here? Do we expect Mr. Samaras to correct himself and say something like "Sorry, I didn't mean it that way. Of course there won't be a bank run if SYRIZA comes to power. Feel free to vote for SYRIZA!"? Doesn't sound like a good strategy for political survival. Or would it be better if Mr. Tsipras came out to say "Have no fears! There won't be a bank run if we come to power!" That would be like the CEO of Lehman's announcing a few days before bankruptcy that Lehman was solid as a rock. People would wonder why he needs to say that.

Until recently, Greece and its politics had appeared so stable that it got a bit boring. I remember making a statement not too long ago that I thought Mr. Tsipras' heyday was behind him. Since the EU elections, the tables have turned. We are back to the old situation where everybody knows for sure that "the next 3 or 6 months will determine the future of Greece".

Mr. Tsipras goes a step further. Not only the future of Greece will be determined when SYRIZA comes to power but the future of the EU altogether. SYRIZA will show the EU the new path towards prosperity. Well, he doesn't face the risk of being sued for damages for saying that.

Was all of that really necessary? This is the question which Mr. Samaras should ask himself all the time and hopefully he will learn from the answer he gives himself.