11th issue - April 2008
(4.5*)
Greek Economy & Markets
08
Real estate under the microscope Bank profits on target Neighborly ties help lift growth Clean energy sources on display
Facts & figures
The profile of the Greek economy
Latest Statistical Data Period
Value
Consumer Price Index (CPI)1
March 08/March 07
4.4
Harmonized Index of Consumer Prices (HICP)1
March 08/March 07
4.4
Producer Price Index in Industry1
February 08/February 07
9.8
Industrial Production Index (excluding construction)3
February 08/February 07
-4.2
January 08/January 07
5.9
Gross Domestic Product (provisional data)1
Q4 2007
3.6
Unemployment Rate2
Q4 2007
8.1
2001
10,964.020
January 08/January 07
-4.7
Turnover Index in Retail Trade1
Population (2001 Census)4 Building Activity)3 1
Annual rate of Change, 2Rate, 3Periodical rate of change, 4Value
Greek headline consumer inflation was steady at an annual 4.4 percent pace in March, as high energy costs weighed. The government recently revised its average inflation forecast for this year higher to 3.5 percent from 2.8 percent, to reflect stronger-than-expected upward price pressures. Meanwhile, industrial output shrank 4.2 percent year-onyear in February after a 1.5 percent rise in January, due to lower natural gas and manufacturing production.
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11th issue - April 2008
Contents Cover Story Retail, office property markets seen stable
(pages 14-15)
Is there a real estate bubble?
(pages 16-19)
Themes Greek DT hammer out management deal Greece and Deutsche Telekom are looking for a solution to OTE’s management structure. Sources say the two sides are likely to make an announcement in the coming weeks. (pages 5) Lenders upbeat despite economic slowdown As the slowdown in the global economy makes its way to Greece, the country’s top three lenders are optimistic that first-quarter earnings figures will be in line with targets. (page 7) Expo showcases clean energy Exhibition raises awareness on power saving techniques for buildings and transportation means, renewable energy sources as well as alternative production and management forms of environmentally friendly energy. (pages 22-23)
Markets Greek Economy & Markets 08 A publication of the “Agora Ideon” forum.
Project manager: BusinessOnMedia 118 Kremou str, Kallithea, 17675 Athens, Greece tel: +30-210.953.3095 fax: +30-210.953.3096
Greek Economy & Markets 08 is also distributed along with the International Herald Tribune (IHT) and Kathimerini English Edition newspapers in Greece, Cyprus and Albania. The content of the magazine does not involve the reporting or the editorial departments of the IHT.
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Companies’ annual results for 2007 (pages 26-29) Mastiha shops take off Apart from the development of the retail mastihashop network, Mediterra is planning to develop approximately 200 new products for the lines Mastihashop, Mastihashoptherapy and Cultura Mediterra which will be the result of broadening its production activity. (pages 30)
Themes Greece and Deutsche Telekom are looking for a solution to OTE’s management structure. Sources say the two sides are likely to make an announcement in the coming weeks.
Greece, DT hammer out management deal he Greek government and Deutsche Telekom (DT), which recently bought a 20 percent stake in OTE telecom, are in the process of hammering out a deal over management control in the country's largest telecom operator. Last month, DT agreed to buy a 20 percent stake in OTE from Marfin Investment Group SA, a buyout fund, for 2.5 billion euros. The deal is conditional on Greek government approval for Deutsche Telekom to raise the stake and get management control. Greece owns 28 percent of OTE and is the company's biggest shareholder. According to Transport Minister Costis Hatzidakis there have been difficulties in the negotiations process. ‘They want to get some of their terms across and so do we,’ Hatzidakis said. ‘We are trying to negotiate the agreement in the best way possible.’ Greece, which has long but unsuccessfully sought a European strategic partner for OTE, has welcomed DT's agreement to buy into the Greek utility. Finance Minister Giorgos Alogoskoufis said Athens hoped the two sides would agree to share the management and hold equal ownership shares of about 25 percent. In order to raise its stake beyond 20 percent,
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Deutsche needs Greek government permission, according to a recent Greek law. According to sources, the two sides are likely to agree on a 10-member board for which the chairman will be proposed by the Greek state and approved by Deutsche Telekom, and the CEO will be proposed by the German company and approved by the state. Meanwhile Karl-Gerhard Eick, DT's vice chairman and chief financial officer, told German media recently that several issues remained open in the ongoing negotiations with the Greek government, including the allocation of senior executive posts. ‘If there is no agreement (with the government) there is no buyout deal,’ Eick said. DT wants the deal to help offset slow growth in its saturated domestic market by expanding into highgrowth areas. OTE has a presence in Albania, the Former Yugoslav Republic of Macedonia, Romania and Serbia. The deal would see the two companies complement their operations with possible synergies of about 2 billion euros. In 2007, OTE reported a 15.3 percent increase in net profit due to a one-off gain from the sale of its phone directory subsidiary. Net profit reached 662.6 million euros ($1.04 billion) compared to 575 million euros a year earlier. Stelios Bouras
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Facts & figures
Greece’s commercial fleet grows by 4.5 percent
Greece’s commercial vessel fleet expanded by
4.5
percent in February from January 2001
to 2,056 ships, according to data compiled by the National Statistics Service. The figure, which concerns vessels above 100 gross registered tons, showed that total gross registered tonnage reached 38.268 million from 27.328 million at the end of 2000, representing an increase of 40 percent. In the same time period, the number of cargo ships increased marginally to 626 from 625 at the end of 2000. The data concern cases of ships sailing under the Greek flag and where the owner is considered to be a resident of Greece. Regarding the Greek tanker fleet, there was an increase in vessels to 510, from 457 in 2000, corresponding to 21.791 million gross registered tons. According to industry sources, Greek shipowners own 24 percent of the global tanker fleet, 20 percent of the dry-cargo fleet and 9.6 percent of chemical tanker vessels. Hellenic shipping consists of ships that are mainly specialized in bulk transportation of dry and liquid cargoes (crude oil and its products, coal, grain, minerals) as well as in transportation of traditional general cargoes.
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Themes As the slowdown in the global economy makes its way to Greece, the country’s top three lenders are optimistic that first-quarter earnings figures will be in line with targets.
Lenders upbeat despite economic slowdown reece's top three banks are optimistic firstquarter earnings will meet targets despite difficult international market conditions and a slowing Greek economy. European banks have lost more than $68 billion (43.4 billion euros) in charges and write-downs recently due to exposure to the US housing market crisis that has prompted a global credit squeeze. Greece's largest lender, National Bank (NBG), said first-quarter profits will be in line with its business plan target that aims for an average annual rise of 30 percent. NBG Chief Executive Takis Arapoglou also told shareholders that it is feasible for the lender, which has a market value of 16.1 billion euros, to meet its broader business plan targets. ‘The core of our business is advancing well and our business plan's target are feasible,’ he said. Local lenders have not been hurt by write-downs related to subprime loans but financial market turmoil has put pressure on their shares. ‘Overall, we find the chairman's message reassuring,’ said Athens-based Proton Bank in a note. In the last six months, shares in National Bank have lost 22 percent, while the Athens bourse's benchmark general index retreated 21 percent. EFG Eurobank, Greece's second-largest lender, said it expects first-quarter performance to top last year's results. ‘Financial results for this year's first quarter will be better than the respective three-month period in 2007,’ said the bank's Chief Executive Nicholas Nanopoulos. ‘The increase in loan volumes and deposits is quite strong in Greece as well as in the countries of New Europe,’ he added. Eurobank is also present in Romania, Bulgaria, Poland, Serbia, Ukraine and Turkey. The lender is aiming to increase earnings to 1.03 billion euros this year and to 1.55 billion by 2010. Last year, it lifted net profit 32 percent to 851 million euros on strong lending volumes at home and in Southeast Europe. ‘The increase in customer deposits is quite satisfactory with the loans-to-deposits ratio showing further improvement,’ Nanopoulos added. Like other Greek lenders, Eurobank has been expanding in the Balkan markets and Turkey to capture new areas of growth. It plans to open an office in Moscow, which will offer assistance to companies interested in entering the Russian market and to Russians seeking information about the Eurobank group.
G
Additionally, the Greek lender received approval from the central bank of Cyprus to operate a subsidiary on the island. The first-quarter reporting season for companies listed on the Athens bourse kicks off shortly after the Easter break. Greece's third-largest lender, Alpha Bank, was also upbeat on its earnings figures. ‘If there is a divergence (from targets), it will be insignificant. We believe we will have a good quarter,’ Chairman Yiannis Costopoulos said. Asked about the possibility of the bank being involved in merger or takeover activity in the domestic market, Costopoulos said, ‘Nothing is being discussed at the moment.’ Talk of acquisitions gathered momentum recently after news that EFG Eurobank had increased its holding in state-controlled Hellenic Postbank to more than 5 percent. Press reports have hinted that Alpha may be in merger talks with National Bank but the two lenders have formally dismissed the speculation. Stocks in Alpha Bank have shed some 16 percent in the last six months.
Slowing growth Data released recently by the Bank of Greece, the country's central bank, showed that credit expansion, a main driver of bank profits, remains strong.
Greek total credit expansion accelerated to 14.4 percent in December from an upwardly revised 13.6 percent annual pace in November, the Bank of Greece said. However concerns are growing regarding first-half earnings figures as the slowdown in world growth has made its way to the Greek economy. Greece revised its growth and inflation projections for the economy this year and next, citing unfavorable domestic and international developments. ‘I have given instructions for a revision of the forecasts in the Stability and Growth Pact (SGP) for 2008-2010... taking into account the changes in the world economy and the new collective pay pact,’ said Finance Minister Giorgos Alogoskoufis. He said the impact on the budget gap would be ‘insignificant’ but considerable as regards inflation. Based on an updated SGP released in December 2007, Greece was projecting that its economy would expand by 4.0 percent this year and in 2009. It estimated inflation would average 2.8 percent in 2008 and in 2009. The growth rate is seen as falling to 3.6 percent this year and 2009, and nudging up to 3.8 percent in 2010. The new estimates now also see consumer inflation averaging out at 3.5 percent this year, up from a previously forecast 2.8 percent. Stelios Bouras
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Economy The net impact on Greece’s economic growth due to the country’s stronger ties with the broader geographical region have been clearly positive, according to a report by National Bank economist Paul Mylonas.
Links to SE Europe fuel trade and domestic demand Greece finally finds itself in a ‘privileged’ position due to its geographical proximity and strong economic relations, built during the past decade with SE European economies (Bulgaria, Romania, the Former Yugoslav Republic of Macedonia [FYROM], Serbia, Turkey and Albania), in contrast to previous decades when economic relations with its neighbors were poor due to political obstacles, which have been removed with the fall of the Iron Curtain and a warming of relations with Turkey. The increasing integration of the Greek economy with SE Europe is estimated to have added about 0.6 of a percentage point to annual Greek economic growth during the past decade, helping Greece to sustain a growth rate of 4 percent on average over the same period. This benefit has arisen from three main channels: (i) the opening up of this market of more than 100 million inhabitants to Greek exports, so that they now comprise 22 percent of total Greek exports, up from 7.5 percent a decade ago; (ii) the large pool of readily available and cheap primary and intermediate imported inputs from SE Europe has helped Greek manufacturers to produce higher valueadded products, thus enhancing the competitiveness of Greek exports to the EU-15 and resulting in a doubling of this segment's market share during the past decade — mainly chemicals, pharmaceuticals and higher value-added metal manufactures — offsetting in part the loss in market share in more traditional products; iii) the inflow of about 1 million immigrants from this region, in the first phase, boosted the flexibility of Greece’s relatively rigid labor markets, raising potential output growth, and, in the second stage, has supported consumption following their integration and assimilation into the economy. Looking ahead, efficiency gains due to the restructuring of the Greek economy’s production and exporting structure through the use of cheap intermediate imports, the better assimilation of immigrants in the Greek economy, and the strong foothold of Greek firms in this rapidly growing region (with total Greek FDI in SE Europe exceeding 12 billion euros in 2007, making Greece one of the top three investors in most SE European countries) are expected to continue supporting economic growth in Greece to the tune of about 0.5 percent of GDP per year for the next five years.
Paul Mylonas Chief Economist & Chief of Strategy for NBG Group
he increasing integration of the Greek economy with this region of about 100 million inhabitants has affected the domestic economy through a number of channels: ■ First, the opening up of new markets in the early 1990s provided a stimulus to external demand for Greek products and services, with the links to the faster-growing economies of Europe helping to diversify Greek exports and cushion them from the relatively anemic growth performance of the eurozone during the past decade. ■ Second, these countries also provided Greek firms with new investment opportunities, allowing them
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to take advantage of (i) a lower cost base, and indeed provided a strategy for the restructuring of part of the Greek manufacturing sector through outsourcing, as well as (ii) the opportunity to expand their markets. ■ The third channel has been the inflow of immigrants from this region, which in the first phase boosted the flexibility of Greece's relatively rigid and expensive labor markets (especially for the low-skilled), as a result raising potential output growth, and in the second phase, has supported domestic demand following their integration and assimilation into the economy.
The impact has not only been positive. Greater exposure to competition from the lower-cost products and services of SE European countries has, in turn, adversely affected demand from EU-15 countries for specific categories of Greek exports. Moreover, SE Europe has become a competitor in attracting international FDI flows, with potentially negative effects on the Greek economy. Finally, production outsourcing by a number of Greek firms toward this region has reduced employment in the Greek manufacturing sector.
thousand
billion
% of total trade
...increasing its links with SE Europe Trade
Exports Imports
1997 9.4 7.5 1.9
2007 28.3 22.1 6.2
1.1 630
12.2 870
FDI Immigrants
Against this backdrop, NBG Research analyzes the effects of the economic integration with SE Europe on the Greek economy, with a focus on external trade, the production structure, and the effect of immigration on domestic spending and the labor market. It appears that the increased linkages between Greece and SE European economies have provided significant support to the solid economic outlook of the Greek economy during the past decade. Overall, activity is estimated to
have increased by 0.6 of a percentage point per year over the past 10 years. Perhaps the most interesting finding is that the quality of Greek exports to SE Europe, but also more generally to the EU-15, has improved through their use of cheaper imports from SE Europe — both labor as well as intermediate goods. ■Trade links with SE Europe are increasing, supporting the Greek export sector As Greece is a small economy located on the periphery of the EU, it has benefited greatly from the opening up of SE European economies and the concomitant increase in trade ties with this region. Indeed, over the period 1997-2007, Greek exports of goods to SE European countries increased by 9.8 percent per annum on average (at constant prices), while total exports of goods to all destinations grew on average by only 2 percent per year during the same period. As a consequence, SE Europe's share in total Greek merchandise exports rose from 7.5 percent in 1996 to 22 percent in 2007, whereas the commensurate share of the EU-15 countries declined from 58 percent to 48 percent during the same period. ■The commodity composition of Greek merchandise exports to SE Europe has shifted toward higher value-added products‌ The structure of Greek exports to the region has also improved significantly. Specifically, the share of relatively high value-added products in Greek exports to SE Europe (such as chemicals, machinery, fabricated metal products of high value-added) increased by about 13 percentage points between 1997 and 2006 to comprise 38 percent of total Greek exports to SE Europe. Moreover, high-tech sectors such as telecommunications, office automation, and pharmaceuticals have increased their share in Greek exports by about 80 percent in the past decade (from 8 to 14 percent of total Greek exports), mainly through the fourfold increase in these export categories to SE Europe. The key factors explaining the strong Greek export performance in the region appear to be related to the traditional trade theory, and include geographical proximity and first-mover advantage, combined with the region's need for manufacturing and durable consumer products as the rapid increase in domestic demand exceeded their economy's capacity to produce. ■‌while imports from SE Europe support the restructuring of the Greek industrial sector As regards imports, Greek merchandise imports from SE Europe have also grown well above the average growth rate of total merchandise imports — 9.5 percent per annum on average (at constant prices) over the period 1997-2006 — compared with 4.7 percent per annum for total imports during the same period. As a result, SE Europe's share in Greece's total imports increased from 2.5 percent in 1997 to 6 percent in 2006. The major part of the acceleration in imports from SE Europe reflects lower value-added products and especially intermediate goods and basic materials imported for further processing in Greece. Indeed, about 48 percent of Greek imports from SE Europe comprise primary/unprocessed food, ferrous and nonferrous minerals, textiles and fabricated metal products (of relatively low added value). Most notably, a large part of those imports are intermediate inputs in some of the most significant exporting sectors of the Greek econ-
omy, such as the metal, chemical, non-metallic mineral and food industries (jointly corresponding to more than 60 percent of total Greek exports). In this respect, the increasing integration with SE Europe appears to have helped to accelerate the transition of the Greek manufacturing sector toward a higher value-added production structure by ensuring a large pool of readily available primary and intermediate inputs for the Greek industry, in essence leading to an increasing level of vertical intra-industry trade with Greek exporters (downstream producers) importing basic materials from SE Europe (upstream suppliers). The increasing imports of primary and intermediate products from SE Europe can also be partly attributed to Greek FDI in SE Europe (see paragraph below on FDI activity of Greek firms), which reflects foreign outsourcing of upstream production by some sectors of Greek manufacturing, such as textiles, basic metals and, to some extent, food processing. To examine the extent of the interlinkage between the rapid increase in the intermediate goods imports and the increase in higher value-added Greek exports to SE Europe, NBG Research estimated an index to measure the degree of intra-industry trade between Greece and SE Europe — i.e. the simultaneous import and export of products from similar product categories (at a three-digit SITC level) between the two regions. Our analysis indicates that such trade almost tripled during the past decade mainly due to the increasing bilateral trade in metal, petroleum products, non-metallic mineral manufacturing, machinery and consumer durables sectors. An increase in the index by itself only indicates increased trade in common sectors. However, the fact that Greece is an exporter of higher value-added goods and has increased its market share in the sectors where there is a strong interlinkage with SE European economies provides strong evidence that the Greek exporting sector is benefiting significantly from the relationship. Higher value-added product categories were determined as those where an increase in Greek export prices was observed relative to import prices in the same product categories, suggesting an improved export product mix within that category.
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Economy
■ Trade with SE Europe has helped Greek exports to the EU-15 An even more significant finding is that such intermediate inputs have improved the competitiveness of Greek exports to the EU-15. The strong positive correlation between developments in Greek/SE Europe intraindustry trade and the Greek export performance in specific export categories toward the EU-15 suggests that Greek exporters are taking advantage of intermediate goods in SE Europe to improve the value-added of their products. Moreover, an examination of the structure of Greek exports to the EU indicates a shift toward higher value-added goods. Here again, the shift to higher value-added products was measured by the improvement in Greek export prices relative to those of domestic EU-15 producers in the same product categories. Indeed, the share of higher value-added products in total exports more than doubled during the past decade (reaching 46 percent of total Greek exports in 2006). This was, however, only in part due to the poor performance of low value-added products — such as primary/unprocessed goods, food and textiles, whose share declined considerably (from 33 to 17 percent of total Greek exports between 1996 and 2006). More importantly, these trends are reflected in the market share of Greek exports to the EU-15, where traditional Greek exporting sectors (such as food and textiles) are losing market share, whereas higher valueadded products (such as chemicals, manufactured metal products and pharmaceuticals) have improved their position in EU markets. Indeed, the market share in EU-15 markets of relatively high value-added Greek exports has risen from 0.11 to 0.20 percent of total EU15 imports in these sectors during the past decade (or equivalently from 0.06 to 0.14 percent of total EU-15 imports). These developments are indicative of a reorientation of Greek exports away from relatively saturated low value-added markets toward sectors characterized by a more dynamic external demand. ■ …but has also diverted trade for the EU The result of a more integrated economy with those of SE Europe was not just one-sided in favor of Greece. Hand-in-hand with the increase in bilateral trade flows
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with SE Europe, there has also been a ‘trade diversion effect,' as exports from SE Europe appear to have displaced some Greek exports to EU markets. A number of traditional sectors of Greek manufacturing exports — especially the textile and apparel sectors — appear to have been dislocated by increasing exports from SE Europe. Indeed, SE European countries saw their market share in EU imports rise by about 80 percent (to 1.8 percent of total EU-15 imports) between 1997 and 2006, whereas the market share of Greek exports in EU-15 markets declined by 30 percent to 0.21 percent (of total EU imports) during the same period. Even though it is reasonable to attribute part of the diversion of EU-15 import demand away from Greek products to more competitive exports from SE Europe, the effect of intensifying global competition and especially of manufacturing exports from Asia is considered to have also played a significant role, as has the loss of competitiveness of certain Greek exports — mostly low valueadded bulk products — due to increasing domestic labor costs. ■ The net impact of trade with SE Europe on overall activity is positive The direct impact of developments in regional trade can be measured by the change in the net trade position (in real terms). However, official unit prices for regional trade are not available and the use of nominal values is misleading in view of volatile terms of trade. Indeed, the bilateral trade surplus between Greece and SE Europe has declined over the past decade, with the ratio of exports to imports falling to 113 percent in 2007 compared with 158 percent in 1997. The declining ratio of Greek exports to imports from SE Europe reflects the abovementioned demand for imports, but also adverse terms-of-trade effects in recent years, due to higher inflation in primary and intermediate goods compared with Greek merchandise export prices. Prices for these goods categories, which mainly comprise crude materials, mineral fuels and basic metals (constituting more than 40 percent of imports from this region) have appreciated by more than 5.8 percent annually between 2003 and 2007 compared with the significantly more subdued inflation
in final manufacturing products (2.3 percent annually on average) and especially capital goods, consumer durables and foodstuffs (which jointly correspond to more than 40 percent of Greek exports to SE Europe). It is important to distinguish between the negative terms-of-trade developments at an aggregate level and the fact that Greek exports earn higher prices on certain ‘high value-added' products compared with the corresponding imported input prices. Both can and do exist simultaneously. The net direct effect on the external demand has been positive and is estimated to have added about 0.2 of a percentage point, on average, to the annual GDP growth rate during the past 10 years. The adjustment for terms-of-trade distortions was undertaken by deflating imports and exports from this region by the respective aggregate deflators for total Greek exports and imports, as a proxy for the regional deflator. An estimate of the indirect effect of the positive impact on Greek exports to the EU-15 from the use of SE Europe intermediate goods, net of any loss in market share in the EU-15 due to SE Europe on exports, is more difficult. However, NBG Research estimates that the net indirect effect from trade on GDP growth was marginally positive (of the order of 0.1 of a percentage point per year). More specifically, assuming (i) that twothirds of the decline in Greek exports in the textile, apparel, footwear, wood and mineral manufacturing sectors (given that a significant part of the domestic production in these sectors was transferred from Greece to SE Europe) and (ii) that the total decline in Greek exports of bulk materials such as minerals and metal scrap and building materials (characterized by high transportation costs) was due to the dislocation of Greek exports from the EU markets by exports from SE European countries, we estimate that the negative indirect trade effect on GDP growth amounted to 0.1 of a percentage point annually between 1996 and 2006. On the other hand, attributing two-thirds of the increasing Greek export volumes toward the EU-15 in the specific high value-added sectors (mentioned above) to the trade linkages between Greece and SE Europe, we obtain an estimate of the positive indirect effect on
trade of the order of 0.2 of a percentage point. â– Is the restructuring in Greek external trade sustainable looking ahead? In view of the increasingly significant role of SE Europe as a destination of Greek exports, the crucial question arising is whether these favorable trends in trade with this region are sustainable looking ahead. Even though the trade creation effects from the elimination of the most important barriers to trade have already been achieved in previous years, the catch-up phase characterizing these economies poses new challenges for the Greek exporting sector. On the one hand, demand for imports from this region is expected to increase hand-in-hand with the progress of these economies on the front of real convergence, whereas the increasing integration of this region with the international economy and improving domestic production structures of SE Europe will challenge the competitiveness of Greek exports. To evaluate whether these favorable trade developments between Greece and SE Europe are sustainable looking ahead, we estimated an aggregate import demand equation for Greek exports by SE European economies. On the basis of the estimated income and price elasticities (of 1.73 and -0.22 respectively) and assuming an average economic growth rate for SE Europe of 5.2 percent annually (in real terms) over the next four years, as well as a continued appreciation of Greek export prices relative to domestic producer prices in SE Europe of 3 percent per year (roughly equal to the past three-year average in a common currency), we project that Greek export growth toward the region will remain strong, albeit weaker compared with the previous decade. It is projected to increase by 5.5 percent annually, in real terms, during the 2008-2010 period compared with 9.8 percent in the 1997-2007 period. On the other hand, Greek imports from this region are expected to continue growing at a pace analogous to their annual average during the past five years (7.2 percent y-o-y annually) reflecting the strong dependency of Greece on primary and intermediate goods imports from SE Europe as well as the high intra-industry trade related to the Greek industrial FDI in this region. With these admittedly brave assumptions, the net effect on Greek GDP growth from the net external demand for Greek exports by SE European countries is expected to remain positive, though declining to 0.1 of a percentage point annually in the 2008-2010 period from 0.2 of a percentage point between 1997 and 2007. â– SE Europe is becoming an increasingly attractive tourism destination The major impact of SE Europe on tourism reflects the potential to divert tourism from Greece's source countries. Greece's neighbors all belong to the Southeastern and Mediterranean European (SEM) region, which attracts the largest share of tourist inflows in Europe (33 percent of total tourist inflows in 2006) and remains one of the fastest-growing tourist destinations in the world (20 percent increase in tourist inflows over the past six years). Although regional countries are still considered small players in terms of flows and receipts (with the exception of Turkey that represents 11.1 percent of total inflows and 12.6 percent of total tourism receipts of the region, ranking third after Spain and Italy) several of these countries (see table) have seen their respective market shares increase rapidly. In con-
trast, the respective shares of traditional SEM destinations (Greece, Spain, Italy and Portugal) have either remained stable or even declined. Indeed, our SE European neighbors appear to be emerging destinations and thus potential competitors (especially as Germany and the UK are the leading markets of origin for Greece, Bulgaria and Turkey). Their competitiveness stems from lower prices, but this advantage is likely to be attenuated as the integration process with the EU moves forward. On the other hand, Greece (as well as Turkey) has focused on providing higher-quality services, as reflected in significantly higher receipts per tourist. The impact from bilateral tourism flows is negligible. Although arrivals from SE European countries represent around 11 percent of total tourist inflows in Greece (excluding Albanian arrivals, which are less likely to represent tourists), they fall short of the respective payments of Greek tourists in the region (receipts amount to 6 million euros annually whereas payments amount to 40 million euros annually during the past 10 years). In contrast, the SE European countries have become a pole of attraction for Greek tourists over the past years (the main trends of outbound Greek tourism in the region are professional tourism, shopping-oriented trips, skiing and spa excursions and even ‘medical tourism') turning Greece into one of the most important source markets for SE European tourists (Greece was among the top three source markets in Bulgaria and FYROM and among the top 10 source markets in
Turkey over the period 2000-2006). Rapid income growth in these countries suggests that similar to trade flows, inflows of tourists from SE Europe to Greece, and most importantly their expenditure, are expected to increase over time, reversing the negative tourism balance with SE Europe. ■Greece is among the top investors in this region Greek foreign direct investment (FDI) has played an important role in the economic integration process with SE Europe, having risen significantly over the past decade (reaching 12 billion euros on a cumulative basis in H1 2007 — without taking into account depreciation — some 9 percent of the total to the region). As a
result, Greece is one of the most important foreign direct investors in SE Europe. Indeed, more than 3,500 Greek firms are actively operating in SE Europe, resulting in the creation of more than 200,000 jobs (source: EBEA 2006). Greece is one of the top two investors in Albania, FYROM, Serbia and Bulgaria and fourth in Romania (see table). â– The sectoral composition of FDI has changed significantly over time The motivation for Greek investments in SE Europe has evolved over time. We are able to trace two distinct phases of the development of Greek FDI activities: an earlier period spanning the period from the midthrough late 1990s when the interest for investment stemmed mainly from low value-added producing SMEs of the manufacturing and commerce sector, which tried to reap the benefits from lower labor costs. In this earlier stage, most FDI was of a vertical type (i.e. moving stages of the production process to SE European countries, which in many cases implied job losses in specific sectors of the Greek economy). Indeed, the main factors leading Greek companies to initiate projects in SE Europe were the saturation of the Greek market and the intensification of domestic competition, mainly in the form of import penetration in specific goods categories. Investment choices were also influenced by geographical proximity. During the second stage, investment was channeled toward reaching out to larger markets through crossborder mergers and acquisitions in the manufacturing and service sectors. Indeed, more recently, investment projects have shifted from labor-intensive, low-skilled industries to more skill-intensive industries and the services sector, especially financial services. More specifically, the share of the manufacturing sector in the stock of Greek FDI in SE European countries declined from 45 percent in 1997 to under 17 percent in 2006, with a corresponding increase in the importance of the service sector (investment in the latter is mainly of a horizontal type i.e. it does not imply an employment contraction in the investor country). Particularly striking has been the increase in the share of financial intermediation (from 28 percent to 53 percent of the total stock) as well as of telecommunication, business and real estate services over the same period (from 8 per-
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Economy
cent to 24 percent of the total FDI stock). All the above point to a gradual shift of the main motivation for Greek outward FDI in SE Europe from cost minimization to expanding into new and dynamic markets (taking advantage of the substantial improvements in the SE European business environment). In other words, an attempt to gain a strong foothold in large regional markets so as to increase scale and use the weight of the larger entity as a springboard for expanding into other countries in the broader region. ■ The returns on Greek FDI investment are expected to increase over the next few years As most Greek investment projects in the region were relatively young, average profitability during the past decade was moderate, though exhibiting a strong upward trend in recent years. According to NBG Research estimates, Greek firms' profits from SE Europe are estimated to have reached 1.3 billion euros in 2006 (70 percent above their level in 2005) accounting for 16 percent of their total profits, and corresponding to an estimated realized return on investment of about 10 percent. We should also bear in mind that only a small fraction of total profits is repatriated due to continuing pressures for reinvestment in the host countries. Indeed, the net return on Greek outward FDI as measured by repatriated profits from these investments has so far been quite low (about 0.02 percent of GDP per year during the past decade, with a negligible contribution to economic growth). International experience suggests that net profitability is positively correlated with the age of the investment, as start-up and reorganization costs are usually high in the earlier stages of investment projects. Moreover, the net direct contribution of FDI in economic activity in the investor country depends on the share of repatriated profits, which also tend to be extremely low in young investments. In an attempt to estimate the expected profitability of Greek investment activity in SE Europe, we use as a benchmark the inter-temporal profile of return on Austrian investments in Central Eastern and SE Europe during the past 20 years. Austrian outward FDI appears to resemble closely Greek FDI, both in terms of geographical orientation (72 percent of Austrian FDI was directed toward CE and SE Europe compared with 75 percent of Greek FDI) as well as with respect to their sec-
12
toral patterns (with the share of FDI in the financial sector corresponding to more than 50 percent of total Austrian FDI stock compared with 53 percent of Greek FDI in SE Europe), whereas Austrian firms had established a strong presence in the region considerably earlier than Greek firms. According to the average profitability pattern on Austrian FDI investment across time, profitability (measured by average return on equity) turns positive after four years and peaks eight to 10 years after the initial investment. Average return on equity exceeds 12 percent of the invested capital in the mature phase of investment and 16 percent for investment in the financial sector. Regarding repatriations, they become evident with an average lag of about eight years after the date of the investment. In view of the fact that the existing stock of Greek outward FDI in SE Europe exceeds 12 billion euros (taking into account that average annual depreciation was almost canceled out with average annual reinvested earnings during the 2000-06 period) and that about 60 percent of total Greek FDI stock is newer than five years old, based on the Austrian experience, we expect the annual profitability of Greek FDI to exceed 2 billion
euros by end-2009. Taking into account also the rising trend in repatriated profits characterizing the mature phase of outward investment (see graph), we expect that average repatriated profits will exceed 0.8 billion euros in 2009 compared with 0.3 billion euros in 2006. These estimates — based on rather conservative assumptions for average return on investment — may greatly underestimate the impact on activity. Indeed, it falls significantly short of market estimates of expected profitability from the SE European region, which only for Greek banks (corresponding currently to 53 percent of total FDI stock) is expected to exceed 1.7 billion euros by end-2009. In the end, the positive effect on Greek output growth is of the order of 0.2 to 0.3 of a percentage point, with the lower estimate consistent with limited profit repatriations by Greek banks as their growth consumes most of their profits in the form of higher capital requirements. ■ The costs from competition in FDI from SE Europe are not sizable for the Greek economy Structural reforms, favorable economic and geopolitical trends, and increasing prospects of EU membership made SE Europe an increasingly attractive destination not only for Greek, but also for international FDI flows. FDI inflows for the region exceeded 60 billion euros over the six-year period of 2001-2006, representing a threefold increase compared with the previous five-year period of 1996-2000. Although the figures are relatively small on a global level, the countries in SE Europe have become one of the world's best performers in terms of FDI inflows per capita. These considerable FDI flows have also raised the issue of whether investment flows previously destined for markets of Southern Europe may have been diverted toward this region. For Greece, lost FDI opportunities are considered to be minimal in view of the sectoral patterns of international FDI inflows to SE Europe. Indeed, the bulk of invested funds (especially greenfield investment) was channeled toward manufacturing sectors in which the Greek economy had already lost its comparative advantages due to increasing labor costs.
■ Employment costs of outsourcing confined mainly to the textile sector… Increased international outsourcing and import competition are often blamed for the deteriorating labor demand in the EU-15 manufacturing sector. While outward FDI has provided an important boost to the internationalization of the Greek industrial and service sectors' supporting the Greek economy, the strong presence of Greek manufacturing firms in SE Europe has also given rise to fears that the relocation of labor-intensive production to lower-wage SE European countries has ‘exported jobs' and reduced employment domestically. Both theory and empirical studies on FDI suggest that employment effects on the domestic economy depend on the type of FDI. While positive effects can be expected from horizontal FDI (similar to that conducted by firms in the services sector), the impact of vertical FDI is not clear, a priori. Vertical FDI (like that conducted by manufacturing firms in the garments and textiles sectors) may increase productivity and international competitiveness by transporting exports from the parent company to its foreign affiliates, but thus results in the substitution of domestic by foreign employment. Indeed, employment in the textiles and garments industries declined by 40 percent between 1995 and 2005 (as was also the case at the EU level where employment in these industries declined by 30 percent during the same period). As a result, Greek textiles exports declined by 25 percent in value terms. It is also estimated that about 1,700 Greek firms of the textiles/garments sector transferred their production to neighboring countries, creating about 70,000 new jobs in these sectors. All in all, Greek investment activity is estimated to have created more than 200,000 jobs in SE Europe (Source: Embassy of Greece, economic and commercial offices in Bulgaria, Romania and Serbia), leading at the same time to a direct loss of 38,000 jobs in the domestic economy, mostly in the textiles and garments sector, especially by the firms located in northern Greece. On a positive note, most of the production reallocation appears to have been already completed (EBEA, 2006). Moreover, it should be
kept in mind that many of the production processes that have been transferred to SE Europe due to lower production costs would otherwise have moved to other regions or would have been faced closure as a result of the competitive pressure from Asian imports. ■ ...whereas capital outflow has been balanced by labor inflows Immigration has played a very important role in supporting both domestic demand and the productive potential of the Greek economy (see Greece, Economic and Market Analysis, October 2007 issue). Immigrants from SE Europe amount to 8 percent of the total population of Greece (or 88 percent of total immigrant population in Greece) and 13 percent of the economy's labor force. In view of immigrants' lower average skill level and their employment in relatively low-productivity sectors of the economy (often on a part-time basis) their average income gap in comparison to the domestic population has been considerable during the past decade, with the average immigrant wage corresponding to about 63 percent of the average economy wage (on average between 1997 and 2007). Taking into account their lower wage level as well as their lower effective employment rate (20 percent lower than that of the native population in full-time equivalent terms due to their occupation in highly seasonal sectors), their disposable income is estimated to correspond to about 6 percent of the total household disposable income. Moreover, the marginal propensity of immigrants to consume out of their income is generally considered lower than the corresponding propensity for the indigenous population (0.5 compared with 0.72 for the indigenous population, according to OECD and NBG estimates) as a significant share of their income is sent to their countries of origin in the form of remittances (about 30 percent of their disposable income). On the basis of this marginal propensity to consume and assuming an average disposable income growth for immigrants slightly higher than that for the native population (due to wage catch-up), we estimate that immigrants added about 0.22 percentage points to annual consumption growth or 0.18 to annual GDP growth just through consumption effects.
Immigration has also contributed to the strong investment activity during the past 10 years. The relative abundance of low-skilled labor due to immigration contained labor costs and increased expected profitability of investment spending, especially in construction and other primary services sectors (such as retail trade) as well as in some manufacturing sectors. An admittedly rough estimate suggests that in order to keep the Greek capital/labor ratio broadly in line with its 30-year average following the increase in the labor force due to immigration, required an increase of 6 percent in the Greek capital stock between 1997 and 2007 (equivalent to an increase of 0.5 of a percentage point in annual investment growth during the past decade). Thus, the direct effect of immigration on output growth through the investment channel is estimated at 0.1 of a percentage point annually. The indirect effects on investment spending, stemming from increased productivity growth, are difficult to quantify but should broadly cancel out the negative effects on growth from the displacement by immigrants of a number of native employees in lowskilled sectors. Consequently, the joint consumption and investment effect from immigrants on GDP growth is estimated at 0.3 of a percentage point on average during the past decade. Looking ahead, the contribution of immigrants to economic activity is expected to remain significant despite the expected stabilization of their share in the domestic population. Productivity gains from the further assimilation of immigrants in the domestic economy and the concomitant convergence of their income to the economy's average, together with their rising marginal propensity to consume (as the financial links with their countries of origin are gradually loosened), are expected to ameliorate the negative effect from decelerating labor supply due to the anemic growth in immigrant arrivals. ■ Overall, the impact from the increasing regional integration is very positive for the Greek economy Summing up, the net impact on Greek economic growth from the increasing interlinkage of the Greek economy with SE Europe has been clearly positive during the past decade. The positive effects on trade and domestic demand have outweighed by far the drag on growth from the lost employment in certain manufacturing sectors, increasing international trade competition and net outflows due to payments for services — mainly tourism — by Greek residents in these countries. Looking ahead, efficiency gains due to the restructuring of the Greek economy's production and exporting structure through the use of immigrants and cheap intermediate inputs, the better assimilation of immigrants in the Greek economy, and the strong foothold of Greek firms in this rapidly growing region are expected to continue supporting economic growth in Greece to the tune of about 0.5 percent of GDP per year for the next five years. The main downside risk for the Greek economy in the near term is related to the vulnerability of the SE European economies to the adverse international conjuncture (mainly due to their increasing imbalances and their increased dependence on external financing through high FDI inflows) which could slow the dynamic growth outlook of this region.
13
Cover Large retail chains are seen continuing their expansion both in Athens and in other major Greek cities, according to leading consultant Colliers. Office space development is expected to pick up on Pireos Street as demand in other favored spots dries up. Shopping Centers & Malls The Greek retail market is undergoing a significant transformation in terms of supply of shopping, leisure and entertainment centers. The launch of Avenue Shopping Mall in 2007 (23,000 m2 gross leasable area [GLA]) was not enough to cover the ever-increasing demand of foreign and local retailers for high-quality retail space in Athens. However, a large amount of new retail projects are currently under development, expected to deliver to the capital's retail market more than 405,000 m2 of retail space within high-end shopping centers and retail parks in the forthcoming period starting from spring 2008 and expanding to 2010. Lined up in the pipeline are, among others, the upscale retail projects of the Galatsi Olympic Hall by Sonae Sierra & Acropol Charagionis, the Piraeus 180 shopping center in the Athens central business district (CBD) by Pasal Development, the BVIC mall in the Votanikos area of Athens, Golden Hall by Lamda Development in Maroussi, Athens, and Yalou by McArthur Glen in Spata, Attica.
High Streets Ermou Street, off Syntagma Square, Tsakalof, Patriarchou Ioakeim or Voukourestiou Street in Kolonaki, Levidou and Kolokotroni streets in Kifissia, Sotiros Street in Piraeus, and Metaxa and Lambraki Street in Glyfada remain the preferred locations of Greek and international retailers. Despite the fact that Ermou is still one of the world's most expensive high streets, retailers continue to express their strong desire for securing their presence in this prestigious retail market where vacant premium space is almost inexistent. It is worth noticing that the second half of 2007 was marked by the entrance of as few as two privileged retailers in the Ermou area: Public, the large multimedia and book store (app. 5,000 m2 GLA) and H&M. High streets in the traditional commercial districts of other major Greek cities, such as Tsimiski Street and Mitropoleos Avenue in Thessaloniki, Daidalou Street in Iraklion, Crete, Kouma in Larissa or Aghiou Nikolaou Street in Patras, are also emerging as very attractive retail destinations for Greek and international retail companies.
Big-Box Retail / Retail Warehousing The second half of 2007 saw the continued rapid expansion trend of DIY and consumer electronics retail
Retail, office property chains throughout the country, which had also marked 2006 and the first half of 2007. Electro World, the electronics and multimedia store chain of the international group DSGi, in July 2007 opened a store in Thessaloniki and two in Athens, while another important player in the electronic stores market, Greek company Electroniki Athinon, has opened two new stores in Athens (Holargos and Syngrou Ave). Media Markt, the large consumer electronics retailer of the German Metro Group, has announced its plans for further expansion after the opening of four new stores in the previous two years. IKEA is also expanding, and their second store in Athens opened at the beginning of 2008. There are also plans for the first DIY department store of the American brand Ace Hardware in the Greek capital, after launching their first store on the island of Rhodes. In the highly profitable hypermarket sector (in November 2007 supermarket turnover increased by 9.2% as compared to November 2006) the key players include Carrefour and AB Vassilopoulos, as well as the international discount chains of Lidl and Dia.
Demand Demand for high-quality retail properties has maintained the upward trend registered throughout 2006 and the beginning of 2007. The pipeline of new projects has already attracted an important number of foreign investors and currently new international retailers are scanning the market for potential sites and projects.
the time they receive it. Shopping Centers: Shopping centers and malls offer retail space at 10-100 euros/m2/month, depending on the space usage, size and position of the retail unit, except for anchor tenants, who usually pay according to a customized scheme. Turnover rent, which usually oscillates between 6% and 12%, is also being applied.
Yields The yields for high street prime location stores with international tenants range from 4.5% to 5.5%. Regarding prime shopping centers, the demand for large development sites in prime areas and the scarcity of such sites has driven land prices upward, resulting in a pre-tax return of investments of 6%.
Forecast
â– High street rental rates will remain stable during the first half of 2008. â– Large retail chains will continue their rapid expansion both in the Athens market and in major Greek cities, while the entrance of new international retail brands is expected at the end of 2008. â– At least four shopping centers, currently under development, will be delivered by the end of 2008.
Prime High Street Shop Rental Levels euros / m2 / month - H2 2007 Location
Rental Rates High Street: Retail rents in prime locations were sustained at high levels during the second half of 2007, maintaining Athens as one of the highest-ranking among European cities in terms of high street rental values. Store space on the high street is usually quoted for ground-floor retail area, including basement or mezzanine space or both. In the majority of prime retail locations all over Greece, landlords or current tenants are asking for key money to leave the premises and most of
Rent (euros / m2 / month)
Central Athens - Ermou Street Central Athens - Tsakalof Street Glyfada - Metaxa Street Kifissia - Kolokotroni Street Thessaloniki - Tsimiski Avenue Pireaus - Sotiros Street
220-280 160-180 150-200 150-200 120-140 120-140
Indicative Retail Projects Pipeline in Attiki Project Name
Location / City
BVIC Mall Yalou Retail Park Aghios Kosmas Marina Proposed Retail Center by Panathinaikos Viohalco Shopping Mall Golden Hall Galatsi Olympic Hall McArthur Glen Outlet Piraeus 180 Victoria Talima Project
Votanikos Spata, Attica Aghios Kosmas, Athens Votanikos, Athens Kifissos, Athens OAKA, Maroussi, Athens Galatsi, Athens Spata, Attica CBD, Athens CBD, Athens Vouliagmenis Ave
14
Estimated Size (GLA m2)
Type of Retail
Parking Spaces
Opening Year
65,000 55,000 48,000 46,000 18,500 42,000 42,600 25,000 23,580 17,000 22,000
Shopping Center Retail Park Shopping Center/ Hotel/ Exhibition Center Shopping Center Shopping Center Shopping Center Leisure/ Retail Retail Outlet Village Shopping Center Mixed Use Complex Shopping Center
4,500 n/a 4,000 3,000 n/a 1,700 1,500 n/a 870 n/a 1,300
2009 2008 2008 2009 2009 2009 2009 2009 2008 2008 2009
markets seen stable
Supply
Rents
Yields
Supply of Class A office space is still limited in Athens. The total office inventory in Athens is estimated at around 5 million square meters, of which only 20% or 1 million m2 is high-quality, with approximately 1.5 million m2 occupied by the public sector. New construction of high-end office buildings has been concentrated primarily along the main avenues of the city — Kifissias Ave, Vassilissis Sofias Ave and Mesogeion Ave — but available plots for development in these traditional business sites are becoming scarcer. The need for new, high-quality office buildings has directed developers' interest toward the long-neglected markets of Syngrou Ave, Pireos Street (one of the oldest streets of Athens), Athinon Ave and the area of Votanikos and its surroundings. Most of the ongoing construction penetrating the office market has already been pre-leased or developed for owner occupation.
Prime rental values in Athens have been moving upward, while values in the sub-markets have remained stable. Thus, rental values for Class A office space along Kifissias and Syngrou avenues are experiencing growth, ranging from 19 euros/m2 to 21 euros/m2 per month and in some cases reaching values as high as 23 euros/m2 per month. Furthermore, the new Attiki Odos highway, the construction of which radically changed the real estate map of the area, has registered ever-increasing demand which cannot be absorbed by the limited availability caused by urban planning restrictions. This has moved office space rents up to approximately 21 euros/m2 per month. Central building district (CBD) prime office buildings competing for premier office users can even reach as high as 30 euros/m2 per month although this is rare and most buildings of good quality offer space at 25 euros/m2 per month. In the sub-markets Class A office space rents currently stand at around 18-19 euros/m2 per month. Old office space is becoming obsolete and rents there are as low as 10-11 euros/m2 per month, especially in secondary markets.
Investment activity in the office sector remained stable during the last quarter of 2007. Yield levels have fallen close to 6.20% for prime properties, as the demand both from international and local investors is rising while suitable stock remains restricted. The initial yield level for prime office buildings in the Athens CBD is estimated at 6.5%.
Vacancy Vacancy rates have not experienced significant changes from last year's levels. Old office space makes up the most vacancies, with the vacancy rate, currently at 8%, slightly higher in sub-markets less attractive to users. Kifissias Avenue is the most established office market and remains the most popular among tenants.
Demand Demand is seeing some growth, with the annual total take-up at approximately 150,000 m2. However, there have been no new entrants in the office market and in general demand is driven by relocations of multinational and local companies trying to consolidate their facilities and achieve larger and better quality space at a lower cost. Pharmaceuticals, fast moving consumer goods (FMCGs), service providers and banks are at the top of the list of companies with growing needs for relocation.
Forecast
■ The Athens office market is expected to maintain relative stability throughout the first semester of 2008. ■ Syngrou Avenue's profile in the prime office market is constantly rising. More than 10 upmarket development projects are currently under way on the up-andcoming avenue, to be completed during 2008-2009 (i.e. the Onassis Foundation's 18,000 m2 House of Letters and Arts) which improves the image of the avenue and will help create interest from developers and investors to introduce new prime office space. ■ New office markets will eventually emerge along Pireos Street and the neighboring districts fueled by the scarcity of land plots available in the traditional business avenues of Athens for Class A office complex development.
Indicative large-scale office pipeline in Attica (completion by 2010) Building Name / Developer
Location
Viohalco Coca-Cola HQ J&P Karaiskaki Project (planned) Kodak (planned) Condellis J.E. Dromeas Development
CBD Fringes North West (Pireos St) Piraeus North CBD Fringes (Syngrou Ave)
Area (GLA in m2) 16,500 8,000 8,500 60,000 17,000 6,500
15
Cover After the rise in real estate property values in recent years, talk has been growing of a Greek bubble market. A study by the Athens University of Economics addresses the issue and shows that no price reduction is anticipated for at least the next 12 months.
Is there a real estate bubble? xpectation is the prime mover of economic activity. Important decisions are made by households and businesses alike, reaching even the top political level, based on economic environment expectations. The real estate market — an important component of economic activity — is also based on expectation, a sentiment which is hard to foresee. To overcome the problem, we have decided to conduct a market survey with the aim of quantifying the prevailing expectations for this particular segment of economic activity for the next, say, six-month period based on the questionnaire method. Evidently the compilation of the questionnaire and the selection of the survey's participants are of paramount importance. It should be borne in mind that survey answers do not constitute a forecast but are nevertheless useful in providing data and information to form the broader picture of current trends in the Greek real estate market. This survey refers to the first half of this year and is based on the views currently held by a large and representative sample of Greek real estate professionals. It should be noted that this market survey and its conclusions do not have the forecasting authority of an econometric model but nevertheless offers reliable information, as it is derived from real estate professionals who are experts in the field. This survey applies to a short time period of six months and it is repeated half-yearly in order to objectively reflect the current state of the Greek real estate market. The present survey covers the time period January to June 2008, real estate companies have participated from all over Greece; all responding to a single questionnaire. The half-yearly report on the Greek real estate market is presented here for the seventh consecutive time and aims to register the expectation of real estate professionals, to present the broader picture and views currently held on the Greek real estate market for the first half of 2008.
E
COMMERCIAL PROPERTY
Epameinondas Panas Professor Department of Statistics Athens University of Economics Director of Postgraduate Studies
16
■ Pessimism in the course of commercial property market is the expressed forecast of 19% of real estate experts. ■ A large percentage, 67.2%, believes there is a surplus of property offered for sale. ■ 43.1% of the survey's participants believe the percentage of unused commercial property will remain the same for the first half of the current year. ■ 61.4% of the participating professionals believe that price levels for commercial property will remain stable. ■ 18% of participants believe there are more commercial property repossessions than six months ago. ■ 57.9% of the experts believe the selling price for commercial property will not be the next bubble.
HOUSING ■ 38% of real estate professionals expect the trend of the housing market to remain the same as in the second half of 2007. ■ 60.6% believe there is a surplus of houses for sale. ■ 50.7% of real estate experts forecast stable prices for housing in the next six-month period. ■ 45% believe house repossessions are more today than six months ago. ■ 31.4% of experts believe that housing prices will not be the next bubble. This report also addresses the issue of a possible bubble existence in the prices of the Greek real estate market.
Greek real estate professionals, according to the confidence index, are not particularly optimistic for the next sixmonth period. The General Real Estate Index, which measures the overall confidence level of real estate professionals, has increased to 47.2 units from the 43.85 level recorded for the second half of 2007. The index increase was due to optimistic expectations prevailing on apportioned indices regarding confidence levels on commercial property and housing. In fact, the commercial property index picked up 1.69 units while the housing index increased by 4.7 units compared to respective levels held for the second half of 2007. The confidence index relating to the progress of the Greek national economy is particularly strengthened and has reached the level of 51.7 units.
Is the Greek real estate market in a 'bubble' state? A lot of professionals believe that abrupt price hiking is an indication of bubble existence. Another segment of experts believe that price deviation from ‘the fundamental value' is also indicative of bubble existence. Finally, others believe that an indication of bubble existence is the sudden drop in prices after a bubble bursts. We have mentioned certain characteristics or consequences that could help us investigate the possible existence of a bubble in the real estate market. The truth of the matter is the ambiguity surrounding the issue of a single definition for a bubble in international literature. One could side with Siegel's view that ‘the price of real estate is the present value of all expected fiscal income in the future.' Therefore, if real estate prices are increased further than what is stated above, then we suspect bubble existence in the market. It is hard for anyone to pre-
DO YOU AGREE WITH THE FOLLOWING STATEMENT : '' WILL HOUSESELLING PRICES BE THE NEXT BUBBLE '' ?
HOW WOULD YOU COMMENT ON THE COMMERCIAL/HOUSING PRICES TREND FROM JANUARY 2004 TILL TODAY?
31.4 37
I strongly disagree
24.59 16.39
Very rapid increase
24.3
39.1
21.7
I disagree to a certain extent
32.79
Slow increase
16.39 18.6 1,4
Unchanged
15.2 I neither agree nor disagree
Slow decrease
24.59
11,6
26.23 24.3
Rapid decrease
1,4
19.6
I agree to a certain extent
0
15
30
45
18.03
60
32.79
The majority of the experts (46.4%) agree that there has been a slow increase in housing prices since January 2004. An equally important percentage (39.1%) sees a very rapid rate of increase.
1.4 6.5 I fully agree 0 8.2
23
Very rapid increase
0
10
20
FIRST HALF 2008 Slow increase
30
40
SECOND HALF 2007
50
FIRST HALF 2007
42 SECOND HALF 2007
Unchanged
16
Slow decrease
DO YOU AGREE WITH THE FOLLOWING STATEMENT : '' WILL COMMERCIAL PROPERTY SELLING PRICES BE THE NEXT BUBBLE " ?
19
28.1 0
Rapid decrease
32.5
0
10
20
30
40
50
60
I strongly disagree
30.61 19.67
It is interesting to note that on this issue, that is price evolution since January 2004, the experts’ opinion is split. A total of 19% observes a slow rate of decrease in commercial property prices, 42% observes a slow rate of increase, while another 23% observes a very rapid rate of increase in prices.
29.8 20
dict for the short or long term real estate price levels. Nevertheless, it should be noted that due to the rate of increase in mortgages and prevailing low interest rates from the year 2005 until today, real estate prices per region have increased by at least 10% to 15%. Lately, there has been a discussion that real estate prices are higher than they should be. In the present report we have approached again the market professionals for their views, by asking the question: What do you believe is happening in forming the price level of Greek real estate? We briefly note that over 57% of those asked believe that commercial property prices will not be the next bubble, while 55.7% believe housing prices will not be the next bubble either (compared to 58.7% recorded in the previous report). These findings reveal, albeit naively, an indication of a bubble absence in the Greek real estate market. The indirect conclusion, based on the experts' views, is that no price reduction for real estate (commercial and housing) is anticipated for at least over the next 12 months. Finally, it is quite easy to discuss or to suspect the existence of a bubble in this particular sector of the market, especially when the meaning of bubble is not strictly defined. The correct approach on the issue should be focused on the fundamental parameters that establish the price of real estate in reality. Therefore, based on the above and the views of market professionals, we can assume that although real estate prices are on the increase, they are not in any red region or in a bubble state.
I disagree to a certain extent
44.9 21.31 19.3 12.5
I neither agree nor disagree
18.37 47.54 19.3 32.5
I agree to a certain extent
2.04 11.48 3.5 2.5
I fully agree
4.08 0
0
10
FIRST HALF 2008
20
30
SECOND HALF 2007
40
50
FIRST HALF 2007
SECOND HALF 2007
17
Cover
'' IS THE SELLING PRICE OF COMMERCIAL/HOUSING PROPERTY THE NEXT BUBBLE ?
28.1 32.5 I strongly disagree
30.61 19.67 29.8 20
I disagree to a certain extent
44.9 21.31 19.3 12.5
I neither agree nor disagree
18.37
Conclusions The responses to this market survey address the important issues in painting a broader picture of the Greek real estate market. The interpretation of and comments on the results lead to important and relevant conclusions. The confidence index relating to the real estate market evaluates the Greek experts' sentiments on conditions in the market and what their short-term expectations are. An index value of over 50 indicates optimism in the prevailing market conditions. A value of less than 50 shows the opposite, that is reduced activity in the said market. Although this confidence index is not based on measurable quantities such as number of sales which quantify economic activity, it is nevertheless an important tool in understanding the trends and prevailing market climate conditions. Paying due respect to market experts' opinion, this index enables us to see the ‘internal' dimension hidden behind real estate activities, and that is market confidence. There are two fundamental interpretations of this index. One has already been given before and this is the message conveyed by the absolute value of the index — that is, if over or under 50. The second interpretation indicates its trend, that is, if the index is on the increase/decrease from one report to the other. Four fundamental indices were derived from this six-monthly real estate market survey:
47.54
GREEK REAL ESTATE INDICES First half 2008
19.3 32.5 I agree to a certain extent
1. Confidence index on commercial property market 2. Confidence index on housing market 3. General confidence index on real estate market 4. Index on the expected progress of the Greek National Economy
2.04 11.48 3.5 2.5
I fully agree
4.08 0
0
10
FIRST HALF 2008
20
30
SECOND HALF 2007
40
50
18
An index value of over 50 indicates improvement — a value less than 50 indicates deterioration. An index value of 50 means: a) Either equilibrium among those who believe conditions will improve and those who believe they will deteriorate, or b) There is disagreement as to whether conditions will remain unchanged.
FIRST HALF 2007
SECOND HALF 2007
ñ The bubbles are based on crowd mentality and psychology. That is, for as long as the crowd believes that prices increase continuously, conditions for bubble formation will improve. Rule: Buyers should not be influenced by a real estate market direction that is prompted by the groundless rumors of the uninformed. The following is derived from the aforementioned data. ñ The majority (55.7%) of Greek real estate professionals do not believe that a bubble is forthcoming in housing prices. This percentage is lower compared to the percentage recorded (58.7%) in the survey report for the second half of 2007. ñ 24.3% of the experts agree to a certain extent due to the continued increase in housing prices that there is a probability of a ‘bubble formation’ in the real estate market which will constitute the second bubble following the one
46.9 47.4 47.2 51.7
which affected the stock exchange. ñ 18.2% of the experts keep a neutral attitude. ñ Regarding solely commercial property, the overall percentage of experts who disagree with the existence of a bubble reaches 57.9%. ñ Strong reservations are expressed by market professionals on the existence of a bubble in commercial property selling price levels. The findings of the current report reveal 57.9% of the experts to believe that there is no bubble in the commercial property market. ñ It is noteworthy that three out of 10 experts (29.8%) express their disagreement to a certain extent that the next bubble to appear will be the one affecting commercial property. Comparing the results of this and the previous report, it is observed that there is a substantial decrease (from 32.5% to 19.3%) in the number of experts who agree to a certain extent with the possibility that prices in the commercial property market will be the next bubble.
The three indices — commercial property, housing and general (a combination of the first two) — are used to offer an overall picture of the real estate market, that is, if the market improves, deteriorates or remains unchanged. The value of both indices is below 50 and this means the majority of market experts believe that the prevailing market conditions are deteriorating. Hence the general confidence index, which in a way reflects the experts' sentiment on the real estate market, in a authoritative manner continues to be under the 50 units level, though it has registered a marked increase in the first half of 2008 as compared to the second half of 2007. The commercial property confidence index also rose to 46.9 units as compared to 45 units in the second half of 2007. Housing market expectations are optimistic as the relevant index has improved to the level of
CONFIDENCE INDICES SURVEY REPORT FIRST HALF 2005 SECOND HALF 2005 FIRST HALF 2006 SECOND HALF 2006 FIRST HALF 2007 SECOND HALF 2007 FIRST HALF 2008
General 46.94 51.6 46.99 47.1 46.5 43.85 47.2
Housing market 46.87 55 48.9 47 44.54 42.7 47.4
Property market 47 48.3 45.08 47.2 48.53 45 46.9
GREEK REAL ESTATE INDICES
Positive surprise from useful survey
46.9 45 48.5 47.2
Commercial property
45.1 48.3 47
47.4 42.7 44.5 47
Housing property
48.9 55
47.2 43.9 46.5 General property
47.1 46.9
46.9
0
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FIRST HALF 2008
50
SECOND HALF 2007
FIRST HALF 2007
SECOND HALF 2006
FIRST HALF 2006
SECOND HALF 2005
FIRST HALF 2005
47.4 units as compared to the level of 42.7 units in the second half of 2007. The overall confidence index in the market following a drop recorded during the first half of 2006 shows a substantial increase which is due to both commercial property and housing indices. The confidence index on the overall progress of national economy has reached the level of 51.7 units. This indicates optimistic expectations on the part of real estate professionals. Finally, the table below depicting the experts' confidence levels on the expected real estate market conditions is below the threshold level of 50, that is, the majority of professionals believe the present state of the Greek real estate market is more inclined toward negative rather than positive expectations.
We were positively surprised by this very useful survey. We strongly believe that the results, although at some points predictable, illustrate aspects of the Greek real estate market that are not usually easy to measure. The most important point, I think, is that although some expectations may be negative and the level of prices continues to grow, the survey concludes that Greek real estate is not the next bubble either for the commercial or the residential sector. This conclusion is very important because in the past few years the expectations on the market were somewhat pessimistic but we see now that the trends have begun to change in the minds of market experts. The study indicates the change in the experts' views on the present and future situation in the real estate market, a fact that is illustrated by the increase in the General Real Estate Index as well. We are very confident with the results on the residential market, although there seems to be a surplus of supply over demand, as we believe that it is the force that constantly drives the Greek real estate market, as it is so closely bonded with the Greek mentality for ownership. In fact, it is the housing market trends that have mostly affected the increase in experts' expectations. It is a market in which we do not expect a boom but rather continuous gradual growth. A worrying factor is the comparatively big increase in property repossessions in comparison to the second half of 2007. The fact that people have problems in repaying their debts can lead to increases in loan interest rates and negatively affect the market. As said before, though, we do not see the Greek residential market as a possible bubble for the future. The commercial property market is in our point of view a little bit worrying as the opinions only predict for market stability at best, which is not necessarily bad but it is not very promising in terms of returns. We would like to congratulate the people that carried out the survey, because all of us active in the real estate sector do not have many reliable measures of market trends, so all the information gathered will be of significant help. It would be also very useful if the survey could be extended to more real estate sectors as it is the holiday homes market that is expected to be one of the driving forces of Greek real estate in the next few years.
By Maria Arapoglou Group Marketing Supervisor PANHOL developments - Sokratis Panagiotidis SA
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Real estate MIPIM, the leading international real estate forum and global marketplace, aims to unveil a host of outstanding mixed-use projects, combining office, residential and commercial space, and to provide unique opportunity to make important contacts in industry.
US subprime crisis has very little impact on MIPIM IPIM, the leading international real estate forum and global marketplace, took place in Cannes, France, on March 11-14, 2008. The aim of MIPIM 2008 was to unveil a host of outstanding mixed-use projects, combining office, residential and commercial space, and to provide individual companies and organizations with a unique opportunity to make important contacts in the industry, to discover new possibilities for development and to promote their real estate activities and projects. For the third year in a row, MIPIM has set an alltime attendance record. Total attendance reached 29,318 delegates from 89 countries. The 9,744 companies represented at MIPIM have also increased by 12% on last year.
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‘The challenges which have arisen as a result of the subprime crisis in the United States and the slowdown in global economic growth have had very little impact on MIPIM. The event continues to be the major international gathering for the property business, where professionals learn about large-scale projects and new geographical and commercial investment opportunities,’ according to Nadine Castagna, director of MIPIM. Among the major markets, there was a stronger showing from a number of key regions: - With over 2,000 companies in Cannes, the United Kingdom remains the best-represented country at MIPIM and increased its participation by 8%. - German participation surged by 17% this year, with 904 companies, and Belgium by 21%, while the
number of Russian companies at MIPIM increased 30% to 713 companies. - Northern Europe made a strong showing, with a 17% rise from Denmark and 14% from Sweden. - Property companies from the United States were in a resilient mood, with US attendance up 19%. There was also a strong showing at MIPIM by international investors, with over 6,800 attendees, up over 17% on last year. It was the first time that Cannes was the venue for the MIPIM Summit, where key investors and asset management specialists met behind closed doors to discuss their vision of the future of international real estate. This unique forum was broadcast exclusively on Bloomberg TV. The short, high-impact interactive Speed Matching sessions dedicated to investors also attracted consider-
able interest for the second year in a row. Global leaders in the hotel business expanded their attendance by 36.6%, with 209 hotel group professionals coming to MIPIM this year, compared to 154 in 2007. To meet the needs of professionals, MIPIM also successfully launched a dedicated encounter forum titled ‘Hotel Chat Groups,' organized jointly with hotel consultancy MKG. Key personalities from the industry also shared skills and viewpoints during a day of conferences dedicated to these issues on March 13. More than 120 mayors and around 50 government representatives (ministers, ambassadors or prefects) were present for this 19th edition. The famous Mayors’ Luncheon brought together more than 40 city mayors from 16 countries behind closed doors to foster discussion, share ideas and exchange experiences on the urban challenges they face. The conference on ‘Comparison between Central and Western (European) cities and their perspectives,' in the presence of senior representatives from the city authorities of Warsaw, Bratislava, Budapest and Prague attracted the largest audience of all conferences this year. MIPIM 2008 also welcomed many world-famous architects. The keynote address on ‘The City of the Future,' led by Dutch architect and town planner Winy Maas, attracted a full house. Lord Norman Foster, on the stand of the Russian Land developer, proved a crowd-puller with his avant-garde projects in the Russian Federation. Daniel Libeskind, Jean Nouvel, Jacques Ferrier and Jean-Michel Wilmotte also honored MIPIM with their presence by attending the announcement of the five prize winners for the Signal Tower, for which they were candidates. The competition winner will be commissioned to build a major new construction in the fashionable Paris suburb of La Defense. EPAD (Public City Planning Authority for Business District La Defense), which masterminded this exclusive event, showcased models of the selected projects on its stand. Other high points of this 19th MIPIM included the preview presentation by Urban Land Institute (ULI) and PricewaterhouseCoopers of their report on Emerging Trends in Real Estate® for Europe in 2008. The Global Housing Foundation, together with its partners UN-Habitat, Merrill Lynch and FIABCI, highlighted their exclusive partnership for raising funds to create affordable accommodation for lowincome slum dwellers in Central and Latin America, Africa and Eastern Europe. Elvira Nabiullina, the Russian minister of economic development and
trade, discussed the benefits and risks of investing in Russian regions with leading industry experts and Russia's largest developers. The MIPIM Awards 2008 gave prizes to five firstin-class property projects. For the first time this year, there was a new category for green buildings. Business Centers: Council of Europe - New General Office Building Strasbourg, France Refurbished Office Buildings: Unilever House London, United Kingdom Residential Developments: Chimney Pot Park Salford, United Kingdom Hotels and Tourism Resorts: Projekt Hotel Wasserturm - Hamburg Sternschanze Hamburg, Germany Green Buildings: Crane Track Amsterdam, the Netherlands Special Prize of the Jury: Crane Track Amsterdam, the Netherlands Greece had a vigorous and distinguished presence
in this exhibition with the participation of a great number of companies as well as the presence of many visitors. Some of the companies that took part are: Danos & Associates, Dimand, Lamda Development, Morfi Development, Reds, Themelia Chouvardas, Tourism Development, Michaniki, ETA. Michaniki SA was participating for the fourth year in MIPIM 2008, promoting five of its current projects, namely Alexander the Great, Aprhodite, Hera, Artemis, and Odessa Dream. ETA was participating in the MIPIM exhibition for the fifth time. Its participation in the specific exhibition is affiliated within the frame of presenting the investment opportunities to foreign investors as well as its development and exploitation of the tourist property that it handles. ETA's stall was 50 square meters and housed the Invest in Greece agency as a guest.
Natasa Mastorakou
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Energy Exhibition raises awareness on power saving techniques for buildings and transportation means, renewable energy sources as well as alternative production and management forms of environmentally friendly energy.
Expo showcases clean energy he hosting of the 2nd International Expo on Energy Saving and Renewable Energy Sources, EnergyReS 2008, which is the most specialized expo in the fields of energy saving for buildings and transport, renewable energy sources (RES), as well as alternative energy production and management forms that are friendly to the environment met with great success. The opening of EnergyReS 2008, which was hosted under the auspices of the Ministry for Development, the Ministry of the Environment, Urban Planning and Public Works and the Ministry for Transport and Communications, was conducted by the general secretary of the Ministry for Development, Konstantinos Mousouroulis, in the presence of exhibitors and expo visitors. The expo lasted from April 10 until April 13, 2008, and took place at the former Athens Airport in Hellenikon. The wide variety of exhibits, accommodated in impressive stands built to European specifications,
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Find more information on the expo at:
www.energyres.gr
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drew the interest of more than 15,000 visitors, who came from all areas of business activity (investors, manufacturers, small manufacturing unit owners, representatives, merchants, engineers, economists, environmentalist, technicians, journalists etc), from the scientific community, from state and local government bodies and institutional bodies, along with interested members of the public. The visitors had the opportunity to get a close look at all the latest technologies in the field of renewable energy sources (wind generators, photovoltaic, solar and hydroelectric instruments and geothermic and biogas applications), energy saving (energy services, software for managing energy works, systems for saving fuel and water, automations, solar lighting fixtures, thermographic cameras, sunblock membranes, green roofs, hybrid and electric vehicles etc), as well as innovative power production systems (production of energy from biogas, hybrid renewable energy sources systems, systems for the co-produc-
tion of electricity and heat by using natural gas, teleheating, heating of greenhouses etc), innovative and unique environmentally friendly technological applications (floating desalination unit with renewable energy sources, solar and hydrogen vehicles), along with recycling technologies and experimental devices and inventions that are just one step away from commercial realization (production of electrical energy with a gravity generator etc). In the conference area of EnergyReS 2008, constructive and rewarding scientific meetings were held under the coordination of the Center of Renewable Energy Sources, with the following agenda: 1. Energy, the Environment and Energy Saving regarding Buildings and Transport 2. Current Status, Developments and Perspectives in the Field of Renewable Energy Sources The participants in the above meetings had the opportunity to be informed by representatives of the political world, institutional bodies and special scientists on the special zoning planning for RES (the general secretary of the Ministry for the Environment, Urban Planning and Public Works, Evangelos Baltas, was the speaker for this section), as well as on the institutional framework for RES on saving energy in buildings and transport, alternative fuels (vehicles that run on bioethanol), on the current status, developments, prospects and applications of RES, on the banking system in Greece, as well as on the investments in energy along with various environmental issues. Parallel events to the expo included that hosted by the Mediterranean-SOS Network on climate, the scientific and technical briefing provided by Technika magazine, as well as by the presentations of the activities of companies (companies' business forum) participating in the expo. According to both the exhibitors and the visitors, the excellent hosting, the conduct of meetings of excellent standards, under the coordination of the Center for RES, the participation of the most important businesses, which represent large companies from both Greece and abroad, along with the participation of various chambers, embassies, non-govern-
ment organizations / CSR and the high attendance of visitors wishing to receive a scientific update and exchange views on the crucial energy and environmental issues, contributed to characterizing EnergyReS for the second time as the leading energy event of the year. The grand sponsor of the expo was Piraeus Bank, the media sponsors were Kathimerini, Oiko, Technika, EuroCharity and the Reid Media Group, while the expo was also sponsored by the Athens Water Supply and Sewerage Company (EYDAP SA), TEDKNA and MELKAT. EnergyReS 2008 was supported by the Technical Chamber of Greece, the National Association of Technical Societes Anonymes (SATE), the National Union of Certified Engineers and Contractors of Public Works (PEDMEDE), the National Union of Certified Engineers, Electricians and Contractors of
Public Works (PEDMIEDE), the National Observatory of Athens, the National Scientific Association for Wind Energy (ELETAEN), the National Association for the Co-Production of Heat and Electricity (ESSITH), the Association of Solar Energy Industries (EVIE) and the international organization Renewable Energy and Energy Efficiency Partnership (REEEP). In addition, it was supported by Greenpeace, Ecoweek, Mediterranean-SOS, Environment 21, as well as by the magazines PSDM-E, Energypoint, Egkatastatis and Notia Grammi. The huge success of EnergyReS 2008 creates a new, autonomous exhibition concept, providing an important solution in the area of the production of clean energy and energy saving in buildings and transport. The hosting parties and the exhibitors will meet again in 2009, committed to an even greater success.
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Markets Construction Sector National P&K Securities
he Greek construction sector has experienced healthy volume increases during the past decade as a result of Community funding for domestic infrastructure improvements, as well as the development of sports facilities for the Athens 2004 Olympic Games. Construction volumes fell sharply in the post-Olympics period but gradually started to improve as of 2005. We attribute the slowdown in domestic construction volumes to the following reasons: ■ Significant tender delays in awarding big infrastructure projects as a result of the change of the ruling party in Greece following the 2004 elections. ■ Reduced public investment program due to the government's efforts toward minimizing the country's budget deficit. Although we expect government spending to remain suppressed in the future, we believe that the new public-private partnership (PPP) method for infrastructure development should offset a negative impact to construction. ■ Introduction of new legal framework for awarding public projects. Under the new award system set by Greek Law 3263/2004, the lowest bidding price becomes the distinctive criterion for awarding public projects. The new law effectively substituted previous Law 2576/98 that utilized the mathematical formula method as the main decision element of the tender process. At the same time, the domestic construction sector has enjoyed extraordinarily high profit margins that peaked in 2003 — ahead of the completion of Olympic projects — and have been declining since then. We believe that the decline in construction margins is directly linked to the enactment of the new Law 3263/2004, which resulted in aggressive pricing policies mainly from smaller construction companies offering significant discounts. This has resulted in stiff competition and margin erosion as competitors were forced to bid below their targeted profit margins. Construction margins have continued to remain under pressure in 2007 but we expect them to gradually improve from
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2008 onward due to: ■ The construction completion of existing low-margin projects. Most small-medium-scale projects constructed through traditional procurement for the Greek state have either been completed or are at the completion stage. ■ The construction commencement of new high-margin build-own-operate-transfer (BOOT) projects. The construction of six new infrastructure concession projects tendered by the Ministry of the Environment, Physical Planning and Public Works (YPEHODE) has either commenced or is expected to commence by H1 08. Additional developments for the new tender of Athens urban highways (Attiki Odos extension) are expected within the coming months. ■ Market consolidation following the acquisition or bankruptcy of smaller construction companies that have been persistently offering significant project discounts as part of their survival strategy. Greece has effectively managed to benefit from EU funding and has made significant progress toward improving the efficiency of its domestic infrastructure. Under the Third Community Support Framework (CSF III) for 2000-2006, Greece received some 26 billion euros from Community structural assistance inclusive of Cohesion Fund contributions. Although significant progress has been made to date, there is still further potential to be materialized under the Fourth National Strategic Reference Framework (NSRF IV) for 2007-2013. The Greek government has recently signed 13 new operational programs (eight sectoral and five regional operational programs) with the European Commission. Under the European Union's Cohesion Policy, Greece will receive 20.4 billion euros of EU structural assistance between 2007-2013 coming from the Cohesion Fund (3.7 mln) and Structural Funds (16.7 bln). The total amount of 20.4 billion euros does not include funding from the European Fisheries Fund and the European Agricultural Fund for Rural Development. Funds channeled toward infrastructure — Operational Program improvement of Accessibly — are expected to decrease by c 37.8%
from the previous programming period and reach 7.6 billion euros for 2007-2013. The concession financing technique provides new possibilities for reducing direct financial burden that the government would otherwise have to bear. Based on this principle, concession agreements in Greece demonstrate a continuous effort of government policies designed to increase private sector involvement in the provision of public infrastructure. Recent concession agreements in Greece demonstrate a continuous effort of government policies designed to increase private sector involvement in the provision of public infrastructure. The concession financing technique provides new possibilities for reducing direct financial burden that the government would otherwise have to bear. Three major BOOT concession projects have been constructed and put into operation in Greece to date; these are Athens International Airport, Attiki Odos and the Rio-Antirio bridge. The largest BOOT project in Greece — following parliamentary ratification — is Athens International Airport (AIA). After years of slow progress in planning works, the airport officially opened in 2001. The Greek state holds 55% of AIA SA's shares with the remaining 45% held by three private shareholders led by Germany's Hochtief. The concession period was initiated in 1996 and under Greek Law 2338/95 AIA SA was granted the exclusive right to use the premises for 30 years. The entire cost for the development of the new Athens International Airport reached c 2.2 billion euros. Attiki Odos (Attica Ring Road) is the second-largest concession project in Greece. The closed toll highway has a total length of 65 kilometers and became fully operational in its current form in 2004. Attiki Odos constitutes the ring road of the greater metropolitan area of Athens and was developed as a BOOT concession with the co-financing method for a 23-year concession period. The project's cost was approximately 1.2 billion euros and was cofinanced by the Greek State (including funds from CSF III) and Attiki Odos SA concession company.
Hellenic Technodomiki Hellenic Technodomiki TEV is the largest construction-concession group in Greece and is the result of entrepreneurial partnerships between Hellenic Technodomiki SA, Aktor SA and TEV SA. Construction has traditionally been the main operating activity of Hellenic Technodomiki and continues to be the Group's main revenue generator. Following the Group's latest consolidation, Hellenic Technodomiki's operating activities have been diversified into the following six strategic divisions:
Construction The third major BOOT concession project in Greece is the Rio-Antirio (Gefyra) toll suspension bridge. The 2.9-km bridge connects the Peloponnese with Western Greece and was constructed in 2004 at a cost of 839 million euros for a 42-year concession period. Following years of financing domestic infrastructure through concessions, the Greek government has effectively introduced the PPP financing method in its effort toward minimizing the country's budget deficit. The implementation of PPPs in Greece is a relatively new method of financing and constructing public infrastructure projects. The new legal framework set by Law 3389/05 complements the existing framework of concession projects and provides the foundation for the implementation of PPPs. Under the new law the former requirement of parliamentary ratification of co-financed projects is effectively terminated. Moreover, the new law defines the public entities (central government, local government authorities) that are eligible for implementing and engaging in partnership contracts with private entities. The law excludes activities that under the Hellenic Republic's Constitution are exclusively provided by the state, such as police work, national defense and justice. Under the traditional form of public procurement, the public sector maintains possession of the infrastructure project, while it usually finances construction through longterm borrowing or taxation. In addition, the public sector is responsible for undertaking possible budget overruns that may emerge while the private sector's involvement and responsibility is limited during the contractual agreement period and is terminated with the project's official handover to the state. In the case of PPP contractual agreements, the private sector undertakes a significant portion of risk related to the financing, construction and provision of services as depicted in Figure 1. The main principle of PPPs is to allow each partner to concentrate on activities that best suit its respective skills. The challenge is to devise the best possible risk allocation by correctly pricing and placing each risk with the party best suited to managing it.
Aktor and its subsidiaries have taken up all of the group's construction-related activities both in Greece and overseas. Aktor is the group's flagship company in the area of construction, possessing the highest domestic (7th degree) construction license. Having managed to benefit from the construction of EU-funded infrastructure developments as well as the construction of Olympic venues, Aktor managed to establish itself as market leader among its peer group in the domestic market with a c 31% market share. Aktor's backlog has been steadily increasing since 2004 from c 850 million euros to today's historically high levels of c 5 billion euros.
Concessions Hellenic Technodomiki is the largest domestic concession holder with significant stakes in the first two major infrastructure concessions in Greece. Through Aktor Concessions, the group currently holds a 59.3% stake in Attiki Odos (from previous 39.2%) following Pantechniki's acquisition, while it also maintains a 20.7% stake in the operator of the RioAntirio bridge. The group has acquired significant expertise in concession operations and has managed to further expand its portfolio with four additional highway concessions of c 6.3 billion euros total investment. 1. Corinth-Tripolis-Kalamata highway (87% stake, budget 1.600 million euros, concession period 30 years) 2. Northern Peloponnese highway (18% stake, budget 2.800 million euros, concession period 30 years) 3. Thessaloniki submerged tunnel (50% stake, budget 600 million euros, concession period 30 years) 4. Maliakos-Kleidi highway (20% stake, total budget 1.300 million euros, concession period 30 years)
Waste Management The group holds a leading position in the field of power generation from RES through Helector and its subsidiaries. Furthermore, Hellenic Technodomiki is active in the design, construction and operation of environmental solutions. The group — through its subsidiary Hellenic Energy & Development (HE&D) - owns an installed capacity of 60 MW from wind and biogas production.
RES - Wind Hellenic Technodomiki has recently finalized the restructuring of its RES — wind activities that are now incorporated under the group's subsidiary ELTECH Anemos. The group currently operates 30 MW of installed wind capacity, is constructing additional wind farms of 81 MW capacity, has ensured installation licenses for 89 MW and production licenses for another 355 MW. Furthermore, Hellenic Technodomiki is in the process of applying for additional licenses of 1,083 MW capacity.
Real Estate Hellenic Technodomiki holds a 50.83% stake in listed subsidiary Real Estate Development Services (REDS). The company focuses on the development of shopping and leisure centers, offices, mixed-use projects and residential projects both in Greece and abroad. REDS has effectively expanded its operations in the Romanian real estate market in anticipation of solid growth prospects following the country's full EU membership. The NAV of the company's portfolio of properties is valued at 109.2 million euros and is expected to increase in conjunction with planned property developments in Greece and Romania within the coming few years.
Other holdings As part of its strategy, Hellenic Technodomiki maintains minority shareholdings in the casino and quarries/mining industries. Today the group holds 14.7% in the Athens Mont Parnes Casino, 19.9% in European Goldfields and a 5% stake in Hellas Gold. Regarding these holding, Hellenic Technodomiki expects to unlock value through either operating or selling its respective stakes.
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Companies
Annual Results Moreover, the three priorities for 2008 were presented: ■ Completion of operational reorganization with the creation of a flexible operational structure that will improve efficiency and performance both for the parent company as well as for its subsidiary, OPAP Services. The re-engineering study is expected to be submitted by the consortium of companies AT Kearney & Planning by the end of May and the implementation will start immediately thereafter. ■ The modernization of the cooperation framework with the agent network, as a result of the ongoing discussions currently under way in order to finalize and agree on the key terms of the contractual agreements by June 2008. ■ The strengthening and enrichment of Stoichima with new forms of betting as well as the introduction of a new coupon that will provide players with the opportunity to select different sports events with a single coupon. Regarding the reasoned opinion which the European Commission sent to the Greek Government on February 28, 2008, requesting the amendment of the legislation which sets restrictions on the sports betting market in Greece, the chairman and CEO of the company noted that even in the case of potential rejection of the arguments of the Greek government for the maintenance of the current status in the gaming market, this does not necessarily imply market liberalization, but will simply lead to a new regulatory framework. Lastly, the chairman and CEO expressed his optimism for the continuing strong performance of Kino in 2008, with moderate growth rates compared with 2007, as well as the overall performance of Stoichima which is expected to be positively impacted by the EURO June 2008 event.
OPAP
Europe's biggest betting firm, OPAP SA, has announced the Group's financial results for the fiscal year 2007. The major figures of full year 2007 financial statements were presented while the company's targets and priorities for 2008 were also discussed. Group revenues for 2007 reached 5,065.8 million euros versus 4,633.4 million euros in 2006 (up 9.3%) mainly due to the continuous strong performance of the Kino game (up 30.7%). Adjusted EBITDA (excluding the one-off payment of 50.0 million euros equally recorded in the third and fourth quarters as financial aid toward the victims of last summer's forest fires) amounted to 860.0 million euros from 738.2 million euros (16.5% increase) with improved EBITDA margin at 17.0% from 15.9% in 2006. The increase in EBITDA margin mainly reflects the lower operational costs following the in-house undertaking of the organization and operation of the Stoichima game, partially offset by an increase in the payout of Stoichima as well as an increase in distribution costs. Adjusted net profit increased by 19.4% at 608.9 million euros from 509.8 million euros in 2006. As regards the company's dividend policy, the Board of Directors decided to propose to the Annual Ordinary General Shareholders Meeting the distribution of a dividend of 1.74 euros per share, compared to 1.58 euros in 2006 (up 10.1%). Given the payment of an interim dividend of 0.60 euros per share that took place on December 21, 2007, the amount remaining to be paid is 1.14 euros per share.
Mytilineos The Group's consolidated turnover for the fiscal year 2007 amounted to 912.6 million euros compared to last year's 843.3 million euros, marking an increase of 8.2%. This sales increase is particularly important taking into account the fact that it was achieved under manifest deterioration of the US dollar / euro (US$/euro) parity movement from the level of 1.30 at the beginning of the year in question to the level of 1.46 by the end of the same period, a change which had a negative impact on Group turnover of 55 million euros. Despite the abovementioned US$/euro parity movement, the price decline of alumina from the record levels of 2006 and the sharp rise in oil prices to the level of $100/barrel, the Group's increase in net profit after tax by 34% is considerable compared to financial year 2006, which amounted to 210.7 million euros, while the net profit before tax and minority rights amounted to 193.6 million euros, compared to 105.6 million in the corresponding period in 2006, marking an increase of 83.2%. Finally, earnings before interest, taxes, depreciation and amortization (EBITDA) amounted to 153.7 million euros from 188.2 million in 2006. The Group's net debt is maintained at the exceptionally low level of 160 million euros. The Group's total assets for the current period exceeded 1.65 billion euros compared to 1.37 billion euros in 2006. The Group's equity on December 31, 2007 amounted to 800 million euros, compared to 779.1 million euros on December 31, 2006, whereas if the mark to market of subsidiaries is taken into account, the Group's adjusted equity exceeds 1 billion euros. Subsidiary ª∂Δ∫∞'s positive development and strategic plan-
26
ning made a big impression on the company's financial results for 2007, having confirmed its establishment as one of the leading players in the sector of the Engineer-Procure-Construct (EPC) projects in the wider region of Southeastern Europe. The Company's 2007 turnover amounted to 284.2 million euros while earnings before interest, taxes, depreciation and amortization (EBITDA) amounted to 57.2 million euros from 60.9 euros in relation to 2006 (a year which marked the Company's record performance in every respect ever since its incorporation). The EBITDA margin continues to remain at a very high level (20.1%), both in absolute value and when compared to the international competition. Finally, net profit after tax and minority rights amounted to 36.8 million euros, compared to 40.6 million euros in 2006. Endesa Hellas has already assumed a leading position in the energy sector, regarding key market trends and developments (liberalization of the market). The new company's progress until today has proved that it meets all the necessary requirements to become the major independent energy producer in Greece and the main driver for its development in the wider region of Southeastern Europe with a broad basis of production potential of thermal and renewable energy sources. The integration of the combined heat and power (CHP) plant (COGEN) into the system, in addition to the rapid development rates of the two combined cycle gas turbine (CCGT) power plants in Volos and Aghios Nikolaos operating with natural gas will allow Endesa Hellas to provide the Greek market with over 1,300 MW of electrical power by 2010, thus contributing decisively to the serious social issue of the deficient system and
Annual Results PPC The total revenues of Public Power Corporation in 2007 amounted to 5.15 billion euros, versus 4.79 billion in 2006, an increase of 7.7%. In the fourth quarter of 2007, the negative impact on hydropower generation caused by the very low precipitation levels during the year continued to result in a severe decrease in hydropower generation by 49.8% in 2007 compared to 2006. This decrease had a negative impact estimated at 208 million euros on 2007 financial results compared to those of 2006, due to the substitution of the reduction of hydropower generation by ‘expensive fuels' (natural gas and energy purchases), combined with the fact that in 2007 electricity generation increased by 3.6% compared to 2006. Other operating expenses, including lignite, amounted to 517.2 million euros, from 536.1 million euros in 2006, a reduction of 18.9 million euros (-3.5%), a decrease of approximately 7% per electricity generated MWh. EBITDA amounted to 818.7 million euros, compared to 739.7 million euros in 2006, an increase of 10.7%. EBITDA margin reached
15.9%, compared to 15.5% in 2006. Pre-tax profits in 2007, including the net revenue of 165 million euros from the sale of PPC's share in telecom Tellas SA, amounted to 276.4 million euros, compared to 42 million euros in 2006, an increase of 234.4 million euros. Net income amounted to 222.3 million euros, compared to 22.1 million euros in 2006, an increase of 200.2 million euros. Capital expenditure amounted to 856.8 million euros, compared to 713.3 million euros in 2006, an increase of 20.1%. PPC successfully managed to deal with the consequences of the long summer heat waves that tested the country's electricity system, while succeeding in the quick restoration of damage caused by the catastrophic fires that resulted in numerous significant power problems.
Revenues Revenues from energy sales increased by 365.6 million euros (8.2%), from 4,442.6 million euros in 2006, to 4,808.2 million euros in 2007, as a result of an increase in
the volume of sales by 2.8%, and of annualized average tariff increases of 4.8% in August 2006 and 3.6% in 2007 (April and August) and about 6.4% in December 2007. In 2006 the Ministry of Development initiated a refund scheme to encourage the reduction of electricity consumption by households. The scheme in question remains in force during the period 1/8/2007-31/7/2008. Consequently, 19.4 million euros have been deducted from the aforementioned energy sales revenues, while no corresponding deduction was recorded in 2006.
‘In 2007 we continued the intensification of our efforts for internal financial discipline through the strengthening of a corporate culture for achieving efficiency improvement. Within this framework, we achieved a reduction of 7% in other operating expenses per generated MWh, compared to the previous year. √ur challenges in 2008 are achieving additional efficiency improvements and the beginning of the essential implementation of the ambitious investment program we announced at the end of 2007.'
Dr Takis Athanasopoulos, Public Power Corporation's chairman and chief executive officer
the concurrent reduction of expensive imports. According to Endesa's business plan for the period 20082012, which was recently announced at the Madrid Stock Exchange, 1.4 billion euros of investments are expected to be implemented in Greece by the Endesa parent company pertaining to thermal power plants (excluding the investments in renewable energy sources). The implementation of this project is expected to comprise the catalyst for the essential liberalization of the energy market in Greece and further upgrade the level and the structure of the Group's results. The Group's significant profits in 2007 offers the possibility for the ª∂Δ∫∞, having been established as the major specialized contractor Mytilineos Company to propose a of energy projects in Greece, upon the completion of the co-generation dividend increased by 132%, that power plant of 334 MW at the energy center of Endesa Hellas in Aghios is 0.51 euros for the 2007 financial Nikolaos, Viotia, and the beginning of the electricity production stations year compared to 0.22 euros for with natural gas of 430 MW also at the energy Endesa Hellas center in the 2006 financial year, at the GenAghios Nikolaos and Aliveri of 420 MW for Public Power Corporation eral Meeting of May 8, 2008. This (PPC), has been dynamically expanding to competitive markets abroad. It dividend yield, according to the should be noted that the expansion of METKA to the international markets closing price its share on March 20, started with the assignment of a 110-million-euro project in Pakistan and 2008, exceeds 7%. ª∂Δ∫∞'s diviwill be continued with the assignment of new projects abroad. Today's dend will be also increased by ª∂Δ∫∞ signed backlog amounts to 826 million euros, which is expected 25%, and the proposal for this will to be significantly increased in 2008. ª∂Δ∫∞'s progress is expected to be 0.50 euros compared to 0.40 make a great impression in both the results of the year 2008 and those euros in 2007 at the Company's of the following years. General Meeting on May 15, 2008.
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Companies Hellenic Technodomiki Hellenic Technodomiki TEV Group of companies announced its financial results for full year 2007 in accordance with International Financial Reporting Standards (IFRS). Consolidated turnover for FY 2007 reached 914.7 million euros compared to 717.6 million euros in 2006, increased by 27.5%. Consolidated earnings before interest and tax (EBIT) for FY 2007 amounted to 80.8 million euros, over 52.1 million euros in 2006, showing an increase of 55.1%. Consolidated EBITDA for FY 2007 reached 108.3 million euros, a 52% increase compared to 71.3 million euros in 2006. Profit after tax for the Group rose by 174.6%, amounting to 138.9 million Regarding the sector of energy and environment, the Group reported for euros, while profit after tax and minority interests for FY 2007 stood at 130 mil2007 consolidated turnover of 78.1 million euros, operating profit of 27.0 lion euros compared with 47.5 million euros in 2006, increased by 173.7%. million euros and net profit after tax of 16.5 million euros. With the strong Consolidated profit per share after tax reached 0.81 euros, over 0.30 euros in belief that this particular sector will experience rapid growth and embed 2006. considerable value, the Group, over the last years, made large investments The Group's construction sector for 2007 presented a turnover of 764.2 that have already started to pay off. In the renewable energy sources sector, million euros, operating profit of 34.1 million euros and net profit after tax of growth has accelerated essentially and an even greater boost is expected 19.9 million euros. Perspectives for the construction sector in the future are due to the enactment of the new land-planning framework concerning rather positive. In the Greek market, the big public-private partnership (PPP) renewable energy that has been set forth. In the environment sector, the projects in which AKTOR holds a leading role are already under construction. Group's overall strategy focuses on providing environmentally friendly waste Furthermore, AKTOR will claim an important share in the new infrastructure management solutions, covering the whole spectrum of available methods. projects that are expected to be announced. Most of these projects concern It is noted that the issue of waste in Greece has taken on great dimensions highway network infrastructure. The contribution of foreign operations is also due to social pressures and the European legislation in effect. Thus an expected to be prominent. The Group's construction backlog currently exceeds important number of relative projects are anticipated in which the Group is 5 billion euros. The concessions sector reported for 2007 consolidated turnover set to participate. of 10.8 million euros, operating profit of 5.5 million euros and net profit after The real estate sector reported for FY 2007 consolidated turnover totaltax of 30.1 million euros. It should be noted that, with regard to the companies ing 34.5 million euros, operating profit of 7.4 million euros and net profit Attiki Odos, Attika Diodia and Attikes Diadromes, full consolidation for FY 2007 after tax of 3.6 million euros. At the moment, the Group places great imporwas applied only for the last fortnight of 2007, while for the rest of the annual tance on the completion of the undertaken actions regarding the property in period the aforementioned companies were consolidated under the equity Kantza and Gyalou as well as on the development of newly acquired propmethod. This sector's contribution to the Group's consolidated income is erty in Greece and Romania. expected to be even higher in the next few years, as the portfolio of concession On a parent company level, turnover for FY 2007 amounted to 3.4 milprojects, bearing strong revenues and profits, broadens. The quarries sector for lion euros, over 6.6 million euros in 2006, down by 48.5%. Earnings before FY 2007 reached a turnover of 23.3 million euros, operating profit of 2.9 milinterest, tax, depreciation and amortization reached 10.5 million euros, lion euros and net profit after tax of 1.2 million euros. while profits before tax rose 14% to 40.3 million euros. Net profits after tax were higher by 15.7%, that is 36 million euros in 2007 over 31.1 million euros in 2006. Finally, per share profit after tax stood at 0.23 euros, over 0.20 euros in 2006. The management of the company will propose a dividend distribution of 0.18 euros per share for FY 2007 at the General Shareholders Meeting.
Vivartia In 2007, consolidated sales of Vivartia Group increased by 17.8% to 1.1 billion euros from 950 million euros in 2006 (pro forma basis), i.e. including the figures of the Bakery and Confectionary Division for full year 2006. It should be noted that the published figures for 2007 are not directly comparable to 2006 figures, as the activity of the Bakery and Confectionary Division — formerly Chipita — for 2006 has been incorporated in the consolidated results as of 1/9/2006 (four months). The Group's ∂μπTDA of 126.6 million euros has been affected during 2007 by provisions and extraordinary expenses of 24.8 million euros which mainly concern the fine imposed by the Hellenic Competition Commission, as well as expenses related to administrative changes within the Group. In comparable terms, however, i.e. without taking into account the aforementioned provisions and extraordinary items, the Group's EBITDA increased by 6.5% to 151.6 million euros from 142.3 million euros in 2006 (pro forma). The Group's 2007 earnings before tax reached 51.8 million euros from 82.3 million euros in 2006 (pro forma) as a result of the aforementioned provisions and the increased financial expenses of the Group which reached 13 million euros, approximately reflecting the cost of early repayment and/or conversion of bond loans, which was directly related to the change of control of Vivartia's ownership in July 2007. As a result of the above and the increase of minority rights, in 2007 the earnings per share reached 0.13 euros. Vivartia's management will propose to the Shareholders General Assembly the distribution of a special dividend of 0.32 euros per share, through a share capital decrease. Finally, following the recent acquisition of US Nonni's and the strategic partnership with Everest Group, Vivartia Group has entered dynamically into a growth path which is fully aligned with the 2008 objectives as described in the five-year period 2008-2012 business plan. According to the Group's five-year plan, it is expected that for the year 2008 sales will reach 1,451 million euros, EBITDA of 217.2 million euros and earnings after tax and minority rights of 70.2 million euros.
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Annual Results Piraeus Port Authority The Board of Directors of Piraeus Port Authority SA (OLP) on March 27, 2008 approved the financial reports of the Company for the financial year 2007. The financial reports are summarized as follows: The Company's turnover increased by 18.9% amounting to 171.35 million euros, against 144.14 million euros in the relevant period of 2006. The increase of import-export cargo volume, a large part of which was transferred from 2006, and the increase in revenue from increased car throughput (car terminal), passenger traffic and slops management constitute the main factors of the increase in turnover, given the fact that in the calculation of the above percentage contributed also the to reduction of income due to personnel mobilizations in the last two months of 2006. Other operating revenues were reduced by 2.5% (due a slight decrease in the rental income) amounting to 7.6 million
euros against 7.8 million euros in 2006. Operating expenses increased by 8.7% and amounted to 143.26 million euros compared to 131.78 million euros in the relevant period of 2006. Personnel costs increased, due to the wage and salary rises in 2007, but also because of the reduced personnel remunerations due to the mobilizations during the last two months of 2006. The calculation of the above percentage was also affected by the expenses for the repair and maintenance of the Company's fixed assets, expenses calculated upon the increased revenue such as the concession fee, contributions to the Social Security Foundation (IKA) and expenses for slops management. The rest of the expenses increased by 23.6% and amounted to 3 million euros against 2.43 million euros in financial year 2006, due to the re-evaluation of provisions for pending legal
The financial results of the period present a significant improvement compared to those of 2006, mainly due to the increase in capitals proceeds from the exploitation of the Company's high cash and cash equivalents that on December 31, 2007 amounted to 49 million euros against 22.62 million euros on December 31, 2006. Net profit before taxes amounted to 33.45 million euros, against 17.45 million euros for the relevant period in 2006, showing an increase of 91.7%. Net profits after current and deferred taxes increased further by 103.3% due to the lower tax rate in 2007 (2007 = 25%, 2006 = 29%) and the differentiation in the deferred taxation.
cases from third parties, which on December 31, 2007 are increased. Asset depreciation incorporated in the operational cost increased by 13.8% and amounted to 10.41 million euros against 9.14 million euros in 2006.
Aegean Airlines Aegean Airlines announces a strong improvement in the financial results for the year ended December 31, 2007. More specifically, total revenue rose by 20% to 482.7 million euros from 401.1 million euros, resulting from strong passenger growth and successful network expansion. It is noteworthy that Aegean Airlines showed an improvement in profitability for full year 2007 besides increased competitive conditions prevailing on Western European markets and the sharp rise in oil prices in the last four months of the year. Pre-tax profits increased 30% to 44.6 million euros from 34.4 million euros. Net earnings after tax for the full year jumped 39% to 35.8 million euros. Net earnings growth from continuing operations was even higher, standing at 45%. Key factors which contributed to profitability improvement were the rise in average passengers per flight and distribution efficiencies due to rising web bookings. Aegean Airlines welcomed 5.2 million passengers on board in 2007, achieving an 18% y-o-y growth. Domestic traffic increased by 10% with Aegean Airlines carrying 3.4 million passengers. International traffic rose by 35%, reaching 1.9 million passengers. The fleet renewal program was initiated in 2007 and will be completed in 2010. Aegean Airlines, continuing its expansion path, has increased the total number of Airbus A320/321 orders to 27 from 25, by exercising its option for two additional A321s with delivery in 2009 (total order of 23 A320s and four A321s).
‘I am pleased to report healthy full year financial and operating performance. 2007 has been an important year for Aegean Airlines as the share capital increase and the consistent improvement of our results provide financial security for implementing our growth plans. In addition, in 2007 we have exceeded the 5 million passengers mark, reporting an 18% rise in traffic. 2008 is also expected to be an important year for our company as by the summer period, Aegean Airlines will cover six out of seven of the most popular international destinations from Athens — with the most important new one being London — with the brand-new Airbus A320/321. The operation of a new fleet will improve the company's image and competitive position, allowing us to achieve operational efficiencies. Nevertheless, 2008 will be challenging due to the uncertainty in financial markets and conditions and the sharp rise in oil prices. In response to the aforementioned challenges the company has accelerated the fleet renewal program through the early redelivery of the last Boeing 737-300/400s by June 2009. The completion of the fleet renewal program one year earlier than the original plan aims at bringing forward the benefits related to the operation of a homogeneous young fleet, both in terms of revenues and in terms of operating costs.’
Dimitris Gerogiannis, managing director
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Themes Apart from the development of the retail mastihashop network, Mediterra is planning to develop approximately 200 new products for the lines Mastihashop, Mastihashoptherapy and Cultura Mediterra which will be the result of broadening its production activity.
Mastihashops take off
editerra SA was founded in the summer of 2002 within the framework of the reorganization of the Chios Mastiha Growers’ Association. The primary target of Mediterra SA was the development of a retail outlets network under the ‘Mastihashop’ brand. The main shareholder of the company, the Chios Mastiha Growers’ Association, decided to promote Chios mastic through the development of the Mastihashop retail network in Greece and abroad, via mastic products (produced on the island of Chios) that manifest its different uses and attributes. Truth is that there were some underlying difficulties; finding the will and making the decision for change are never easy. Nevertheless, since the Board of Directors as well as the General Assembly of the Chios Mastiha Growers’ Association approved the business plan, along with the fact that the Chios Mastiha Growers’ Association is, by default, the manager of Chios mastic, there were a series of decisive changes. These changes turned Mastihashop into one of the most rapidly developing brands in Greece and Chios mastic one of the most recognizable product. In February 2008, Mediterra SA entered the Alternative Market (ENA) of the Athens Exchange with capital of 3,650,000 euros (7,300,000 stocks x 0.50 euros). The reasons that led the shareholders and the administration to the decision to enter the Alternative Market of the Athens Exchange were two: first, the will to show that the company has strategic allies that support its intention and will for international development. Second, the need to underline the extravert orientation of the main shareholder, as well as of the company itself, as a means of successful development. The main shareholders are the Chios Mastiha Growers’ Association (51%), Zaitech Fund / Attica Ventures (28%), Platona Enterprises (5.5%) and Korres SA (5.1%).
M
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Aim Taking into account the fact that Chios mastic is a luxurious product and the fact that nowadays we meet augmenting nutritional and environmental concerns as well as the quest for new stable values and cultural connotations within a well-being framework, the Mastihashop retail network aims at becoming the vehicle for the those consumers that entertain those perceptions internationally. The idea of the Mastihashop retail network is not bound within the native island home of mastic or within Greece. It is an idea that, starting with Chios mastic, aims to promote a series of products to satisfy the abovementioned needs and trends, supported by the myth and the culture of the native region. Our vision is for the Mastihashop retail network to become the embassies of Chios mastic throughout the world as well as the meeting points of the Eastern Mediterranean region's culture.
Activities The company has commercial and manufacturing activity, retail and wholesale activities, the intensity and the relevance of which depend on the region of reference, geographical or else, consumer habits and, of course, the knowledge degree of the natural mastic and the values that it carries. Nowadays, along with the Mastihashop operation, Mediterra SA also handles: ■ The distribution of Chios mastic in Greece ■ The development and distribution of the Mastihatherapy line in pharmacies ■ The development and distribution of the Cultura Mediterra line in food stores.
necessary depth to the product mix as well as a credit to the Mastihashop proposition. The necessity of sound and trustworthy partnerships is dictated by the nature and many uses of Chios mastic. The length and the type of partnerships, the place and the way of production depend on the product, on the know-how it carries, on the credibility of the partner, and, last but not least, on the approval and comprehension of the Chios mastic values and attributes as well as their contribution to the product.
Product mix In the Mastihashop retail network there are dozens of different mastic products which can be sorted in the following groups: Chios mastic, Food, Beverages, Pharmaceuticals, Cosmetics and Cultural items. Today, the Mastihashop retail network counts 10 shops in Greece and two abroad. During the period between 2008 and 2011 we are planning to operate six more Mastihashops, four of which will be in Greece.
Next steps Within the next four years, Mediterra SA, apart from the development of the retail mastihashop network, is planning to develop approximately 200 new products for the lines Mastihashop, Mastihashoptherapy and Cultura Mediterra which will be the result of broadening its production activity as well as the existing partnerships. Two of the main priorities will be the development of the business units Cultura Mediterra and Mastihashoptherapy.
Business partnerships A determinative factor for the successful and effective growth of this endeavor is the building of strong business partnerships which will lend the
Yannis Mandalas Managing Director - Mediterra SA