Greece Food and Drink Report Q4 2009

Despite posting real GDP growth of 2.9% in 2008 it was forecast that the global economic crisis would catch up with Greece in 2009. Indeed, BMI expects the economic climate in Greece to continue worsening throughout the year and we therefore retain our 2009 real GDP growth forecast of -3.5%. This below consensus forecast is based on the assumption of sustained weakness in local and international credit markets, plunging consumer confidence and a slump in key industries such as tourism, shipping and construction Indeed, first quarter results from some of the country's largest food and drink players bear testimony to the fact that conditions are toughening. Greek based soft drinks bottler Coca-Cola Hellenic Bottling Company (CCHBC) announced that during Q109, its net profit registered a higher-than-expected drop of 93% year-on-year (y-o-y) to EUR1.9mn (US$2.5mn). The drop in net profit can be attributed to the ongoing economic slowdown, which has adversely affected the demand for soft drinks, along with the devaluation of foreign currencies in its key markets. There were also reports during the quarter that CCHBC intends to axe up to 130 jobs in its logistics division in Ireland as part of a cost savings campaign. The company has cut 4,500 jobs across its business since the second quarter of 2008. CCHBC is the world's second largest Coca-Cola bottler and holds the franchise to bottle Coca-Cola products in most of Eastern Europe and parts of Western Europe. This drop in earnings is particularly worrying for the global soft drink industry, because it is so unusual. CCHBC operates in the high growth Eastern European market and has a track record of posting consistently strong results. Meanwhile, Delhaize owned retailer Alfa-Beta Vassilopoulos (AB) also reported a 72% drop in first quarter net profit to EUR2.1mn (US$2.9mn) due to slowing consumption.

The prognosis for investment in the Greek food and drink sector over the longer term still remains bright, as witnessed by the announcement during the quarter that Belgian retail group Delhaize intends to take control of the remaining shares not already held in the country's second largest retailer AB. Delhaize currently owns 65.27% of AB and in mid May offered EUR30.5 (US$42.6) per share for those outstanding, representing a premium of 22% on the closing price before the bid was announced. At the end of June, Delhaize increased its voluntary tender offer price for Greek retailer by 11.5% to EUR34 (US$47.8) per common share, as it looks to buy up at least 90% of AB.

As Greece's number two retailer (behind Carrefour) AB has the necessary size to be able to compete aggressively on price during the current downturn and therefore should be less impacted by increased price sensitivity than smaller, less efficient operators. In addition, Delhaize's willingness to invest during the economic downturn suggests a belief that Greece offers medium- and long-term opportunities; a view supported by BMI's economic forecasts for the Western European region. Prior to the onset of the global economic downturn, Greece was one of the fastest growing economies in Western Europe and, overall, BMI expects the country to be one of the quickest to recover as the global economic situation picks up.