Greece 10 Years Ahead

Strategy Update –
The Silver Lining
17th Annual Capital Link
Invest in Greece Forum

New York, December 14th 2015

CONFIDENTIAL AND PROPRIETARY

Any use of this material without specific permission of McKinsey & Company is strictly prohibited
Contents

Macro
update

An
investment- Investment
based opportunities
economic
model

2
Contents

Macro
update

An
investment- Investment
based opportunities
economic
model

3
Suffering the deepest and longest crisis in its modern history, in 8 years of
recession, Greece has lost ~27% of GDP
Change in real GDP; Percent

2008 2009 2010 2011 2012 2013 2014 2015E

0.7%

-0.3%

-1.4%

-3.2%

-4.3%

-5.5%
-27%
Cumulative real
-7.3% GDP change

-9.1%
SOURCE: AMECO 4
Austerity measures and instability have impacted society and
living conditions

drop in wealth in just 12 months

17% (Jul’14 - Jul’15)

of the Greek population lives

23% under the poverty threshold

Greek people report an

5m annual personal €12k
income lower than

250k SMEs closed during the crisis

reduction in SMEs gross

38% value added

€100 billion reduction of deposits

since 2009 in Greek banks

SOURCE: ELSTAT, Eurostat, ESEE, Press 5

But Greece has realized a remarkable fiscal adjustment…
Interest expense
€ billion
Primary deficit
Primary surplus

Primary balance1
-4.6 -10.2 -5.0 -2.5 -1.3 0.8 0.3 -0.2
% GDP

Total balance1
-9.5 -15.2 -10.7 -9.7 -6.3 -3.2 -3.6 -3.2
% GDP

Nominal GDP 242 237 226 208 194 182 178 176
1.5 0.6
-7.3 -6.9 -5.3
-11.7 -12.0 -9.7 -0.3
12.8 -15.0
-5.8 -6.3 -5.6
-2.6
-12.3
-11.2 -11.3 -5.1
-20.1
-22.9 -24.2 +30 €bn
-24.1

-36.2

2008 09 10 11 12 13 14 2015E
1 Troika definition, excl. extraordinary items i.e. the bank recap and other items for 2012,2013 (bank recap costs of 5.3 €bn and 19.2€bn respectively)

SOURCE: Eurostat; EL.STAT.; IMF June 2014; Budget 2016 6

…and hopefully, once stability and confidence return, the positive growth
trajectory can be resumed
Change in real quarterly GDP (non-seasonally adjusted); Percent
2
1
0
-1
-2
-3
‘Crisis within
-4
the crisis’
-5
-6
-7
-8
-9
-10
-11

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2008 2009 2010 2011 2012 2013 2014 2015

1st bank
1st program 2nd program
recap

EU Summit agreement Interim government after 2 elections incl. an interim

on debt haircut PM resignation government

SOURCE: EL.STAT. 7
Even the imposition of, extreme, capital control measures managed to
shift behavior patterns in a positive way

▪ Shift to direct transaction channels

CONSUMER
BEHAVIOR

(including web-banking, plastic

money, ATM)
▪ Potential increase of transparency and
consequent tax evasion prevention
BUSINESS

▪ Potential increase of transparency and

ACTIVITY

consequent state contributions from

business activity (incl. payroll, transactions,
turnover)

▪ Closing the gap with EU benchmarks on

e-payment metrics
▪ Potential reduction of operating cost and
FINANCIAL

increase in transaction fees

SECTOR

▪ Bleeding of deposits ceased and slow

return of deposits back into the system.
Monthly average growth of +0.3% since
July vs. -4% avg drop in previous months)
▪ New legislation could lead to repayments
of a share of the large NPL stock
8
Banks are now recapitalized and private participation has increased
significantly
Ownership structures pre- & post-recap 2015
Post-recap Greek banks have an estimated Capital Adequacy Ratio (CAR) of 18.1%,
one of the highest in Europe; average of top EU banks at 16.7% (June 2015)

National Bank
Eurobank Alpha Bank Piraeus Bank of Greece
2 11
26
35 38

68 57
67

89
98
74 62
65
43
32 33

Pre Post Pre Post Pre Post Pre Post

▪ Banks are moving towards healthier profitability levels with a 2019 ROE estimate
of 9.9%, comparable to EU peers benchmarks
▪ HFSF’s close monitoring of top management can assure a successful way forward

SOURCE: Bank reports, Bank of Greece, Goldman Sachs, McKinsey analysis 9

After the Program agreement in August, & legislation of several rounds of
prerequisites, it is of critical importance that these reach the ‘real economy’

Rebuilding
Tackling tax public Boosting
evasion e
administration investments

a
c
Restructuring
b labor
d framework &
pension
system
Overhauling
legal &
judicial
system
10
Contents

Macro
update

An
investment- Investment
based opportunities
economic
model

11
The total estimated potential of a new growth model could STILL lead to a
complete economy rebalance & unforeseen increase in both GVA
and employment
ESTIMATES

>51.5 51.0
TBD ~5.0 ~4.5
43.0 8.5
Incremental
GVA (vs. 2010)
€ billion at 2010
prices

>640
Captured GVA ’lost’ Remaining
TBD potential in 2010-14 potential
Incremental 470 173
Employment
(vs. 2010)
Tourism impact Value-added loss
Thousand jobs
due to dramatic in all other
increase of G10YA major
arrivals vs. sectors and
5 largest 9 Rising Sectors not Total estimates ‘Rising stars’
‘production’ Stars2 incl. in potential
sectors 1 G10YA
analysis

1 Including Retail, Crops Agriculture, Food processing, Energy (energy efficiency measures, economy-wide) and Tourism
2 Rising Stars: Aquaculture, Medical Tourism, Generics Pharma., Cargo Hub, Long term & Elderly Care, Waste Mgmt, Classical Greece, Specialty Foods
SOURCE: Greece 10 years ahead; Greece Growth Roadmap; McKinsey 12
To fuel these levels of growth, additional investments of ~€ 16bn p.a.
versus “historical lows” would be required…
Average annual incremental investments
Average annual investments: Historical & growth aspirations identified
€ billion, 2010 prices € billion, 2010 prices

53 15.5 15.5

45
Other 5.7

~40 9.0

Rising Stars 1.3

15.5
Retail 0.6
23 Agriculture 1.2
22
Food 0.7
1.5 0.5
Manufacturing
0.9
Energy 1.5 0.7
1.4
Tourism 3.6
2.3

2000-04 2004-08 2012 2014 Target By sector By sector

generating the where the
€ 150bn of total investments investment investment
in the next 9-10 years demand occurs
SOURCE: AMECO; McKinsey analysis 13
14
…with the majority of these investments having to be covered by the
private sector
Annual incremental investments for 2014-23; € billion PRELIMINARY
ESTIMATES
EU Structural funds, however
Direct and indirect
sizeable, represent only ~20% of total
privatization-driven
investment needs and potential
investments could represent
~20% of cumulative
15.5 ~3.0-3.5 private sector investment
need & potential

~0.5 ~12 ~0.5-1.0

~0.8-1.5
~1.0
~8.0-10.0

Total Structural Structural Private Privatization Multiplying Multiplying Net new

incremental Funds (EU) Funds (GR) investments receipts effect from effect of private
investments privatizations Structural investment
required Funds capacity

SOURCE: Eurostat; IMF; McKinsey analysis 14

Contents

Macro
update

An investment-
based Investment
economic opportunities
model

15
Despite the adverse conditions…

Companies with 2014

revenues > €25 mn

16
…there are signs of successful entrepreneurial activity…

Profitable companies
(EBITDA growth 2009-14)
~16% of GDP

~16% of GDP

17
…indicating potential for investments in healthy assets

Revenue Healthy
Growth liquidity
82% 79%
Profitable
companies with
growing
revenues, healthy Extro-
liquidity that are version
extrovert ~6% of GDP 58%

18
Principal investors need to look into these opportunities through a
“Greek lens” instead of using traditional valuation methods

Different approach in asset valuation across

sectors, given unique market context and state of
the economy

Fragmentation of assets and low coupon/

ticket size

Operational intransparency in the Greek business

system, driven by its historical structure and
management practices

Regulatory flux, decreasing the perceived stability

and long term investor confidence

19
There are few indicative and non-exhaustive sectors that make promising
investment cases

▪ Strong potential to
reverse the ▪ Operational
tourism efficiency
HEALTHCARE ▪ Externalities (e.g.,
improvements ▪

FERRY SHIPPING
HOTELS

“massification” Capitalize on cost

oil prices) & OpEx
trend ▪ Critical mass competitiveness

AQUACULTURE
downsizing
– Capacity through and leading
programs have
increase via consolidation seabass / seabream
reversed downward
position
expansion, ▪ Medical tourism trajectory in 2014-15
upgrading and opportunity ▪ Further
▪ Increase market
customization
▪ Program consolidation and
share and diversify
– Leveraging of requirement for operational
offering
dormant public spend <6% improvements ▪ Consolidation and
capacity of GDP achieved possible debt restructuring
▪ Significant tourism
in motion
momentum ▪ New management/
ownership of top
players

▪ Fragmentation ▪ Rebates/ clawbacks ▪ Privately owned ▪ Need for holistic

▪ Multiple legal limitations providers of “public operational and
entities/ no group ▪ Different intrinsics of services” conflict financial turnaround
structure hospitals vs. ▪ High leverage
diagnostics 20
Strong growth in arrivals has been erroded by a steep drop in spend per
visit, driving tourism into “massification”
HOTELS HEALTHCARE FERRY SHIPPING AQUACULTURE

Cruises

+10.2% p.a.
+0.9% p.a. 24.3
16.9 20.1 2.2
Number of 14.4 15.2 16.2 15.9 14.9 15.0 16.4 2.2
arrivals, incl. 1.4
cruises
Millions

12.2 13.4
10.7 11.4 11.3 11.6 10.4 10.5 10.4 0.4
Receipts, incl. 9.6 0.4
0.4
cruises
EUR billion

-1.7% p.a. -4.6% p.a.

746 746 700 730 697 640 639
Spend per visit, 616 604 552
incl. cruises
EUR

2005 06 07 08 09 10 11 12 13 2014

European N/A N/A 3.6 3.6 3.5 3.1 3.1 2.8 3.3 3.5
market share1
Percent
1 Based on international tourism receipts
Note: Data include cruises
SOURCE: Bank of Greece; UNWTO 21
With overall capacity mix practically unchanged over time, despite a focus on 4&5* hotel
beds growth, efforts should intensify especially in upgrading existing capacity to
higher classes
HOTELS HEALTHCARE FERRY SHIPPING AQUACULTURE

Accommodation mix evolution

Thousands of beds

Share of class in
beds evolution
100% = 716 732 763 695 768 773 792 2008-14; Percent

5* 11% 13% 13% 13% 15% 15% 16%

61%

4* 26% 26% 24%

26% 25% 25% 25%
20%

3* 24% 23% 25%

23% 24% 24% 24% 23%

2* 32% 31% 30% 31% 30% -2%

29% 29%

1* 8% 8% 7% 7% 7% 7% 7% -2%

2008 2009 2010 2011 2012 2013 2014

SOURCE: Hellenic Chamber of Hotels 22
Capacity constraints appear, with peak utilisation being critical INDICATIVE

for some destinations, in particular for higher class accommodations

HOTELS HEALTHCARE FERRY SHIPPING AQUACULTURE

High peak capacity utilization starting to appear in key destinations …with constraints especially relevant for the
even as of 2013, allowing for limited room for growth… high end hotels

Peak2 capacity utilization, percent, 2013 Peak capacity utilization for hotel sample3, , 2013
Number of beds, ‘000s
72% 77% 76% 95% 93%
Thessaloniki
53

Kefalonia Mykonos Kos

71 76 91 Rhodes
82 83
Zakynthos
Chania
1* 2* 3* 4* 5*
80 23 111 90 105 67

In case of accommodation not available,

Similar utilization for informal capacity with
tourists likely to explore trade-down
top destinations (Rhodes and Kos) at ~90%
before changing destinations
1 Includes Chalkidiki; 2 Peak is in August; 3 Based on survey commissioned by the Chamber of Hotels with sample of 82 vacations-focused hotels
across Greece in Crete, Chalkidiki, Rhodes, Corfu, Kefalonia, Kavala, Zakinthos etc.
SOURCE: McKinsey analysis, Chamber of Hotels, Hellenic statistical authority, EOT, SETE 23
Greece has already achieved to keep its public spend below the 6% of
GDP threshold required by the Program
HOTELS HEALTHCARE FERRY SHIPPING AQUACULTURE

Health expenditure as % of GDP, 2013

Private Public
10.9 11.0 11.0
xx Nominal GDP per
10.1 capita (EUR ’000s)
2.3 1.7
2.6 8.9 8.9 8.8 8.8 8.7 8.6
2.4 8.1
1.3 1.5
2.5 2.0 2.2 7.1
3.1 2.6 6.6 6.4
1.1
1.2 6%
1.9
8.6 9.2
8.4 7.7 7.6 7.3
6.4 6.8 6.5
5.6 5.5 6.0 5.5
4.5

FR SE DE AT ES NO IT UK GR FL IE CZ LU PL

32.1 45.5 34.2 38.1 22.5 77.4 26.5 31.5 16.5 37.1 38.0 15.0 83.1 10.3

SOURCE: OECD Health Statistics 2015, ELSTAT, Eurostat 24

Given correlation to GDP, health expenditure is expected to return to
growth - albeit at a slow pace - as soon as the economy picks up xx HC spend
as % of GDP
HOTELS HEALTHCARE FERRY SHIPPING AQUACULTURE

EUR billion
Adjustment Normalization
24
22
20
18
16

0
260 Health Expenditure

240

220

200

0
2007 08 09 10 11 12 13 14 15 16 17 18 2019
Nominal GDP
8.8 9.0 9.8 9.2 9.7 9.2 8.7 8.3 8.1 7.9 7.7 7.6 7.5
SOURCE: BMI forecasts (8 Jun 2015), Oxford Economics 25
Most hospital groups - despite suffering from clawbacks/rebates and high
debt levels - are still profitable
Group data, 2014
HOTELS HEALTHCARE FERRY SHIPPING AQUACULTURE

EBITDA
Revenues1 EBITDA margin Bank Debt Net debt2-to-EBITDA
Players EUR mn EUR mn Percent EUR mn Ratio

218 11.8 5% 166 13

149 1.9 1% 158 80

140 -7.6 -6% 370 -48

117 17.2 15% 163 9

115 19.7 17% 83 4

79 10.3 13% 47 3

38 0.6 2% 32 49

1 After rebate & clawback; 2 Bank debt minus cash & cash equivalents
SOURCE: Company reports 26
Ferry operators cover the market with a complex TIER 1 ONLY
PEAK SEASON
& dynamic network of routes
HOTELS HEALTHCARE FERRY SHIPPING AQUACULTURE
Overview of 2013 route Network
Piraeus - Crete N. Aegean
Crete - Cyclades Sporades
Piraeus - Dodecanese Saronikos
Cyclades
Kavala

▪
Salonica
More than 25 principal lines
Limnos where tier 1 operators are
active
Aivali ▪ 50+ lines where tier 2 and
Ag. Efstratios Mytilene
Skiathos Dikeli tier 3 operators are active
Volos Alonissos

Skopelos Psara ▪ Annual changes in line

Chios configurations result in a
Ag. Konstantinos “chaotic” map
▪
Samos
Rafina
Piraeus Andros
Fourni
Web like route network
Lavrio
Egina Ikaria
complicating line-by-line
Kea Kos
Agistri
Syros
Mykonos analysis to optimize capacity
Kythnos
Poros
Naxos allocation
Hydra Paros
Spetses Ios
Santorini
Chalki
Rhodes
▪ Need to group lines into
Milos Folega- routes in order to enable
ndros network optimization and
capacity allocation among
the main players
Kasos

Chania Heraklion

SOURCE: Company websites 27

Four of the six main corridors appeared to be unprofitable or Unprofitable corridors

to break-even at the gross margin level - % Gross margin

HOTELS HEALTHCARE FERRY SHIPPING AQUACULTURE

2012 revenue in scope excluding

2012 Gross margin1, Percent
subsidies paid by the state 2012 Gross margin1
Million euros Million euros; % of revenue Worst operator Best operator

C1 Adriatic 320 0 0% -10% 15%

C2 Cyclades 127 25 20% -5%2 24%

C3 Attica-Crete 137 13 10% -5%2 21%

696
C4 Attica – N. 44 -6 -13% -31% 3%
Aegean

C5 Attica – 44 1 2% N/a 2%
Dodecanese

C6 Saronikos 25 0 -30% 13%

0%

1 Revenue – Opex – commissions to agents; excludes other SG&A

2 Excluding pure Ro-Ro players
SOURCE: Company websites 28
The sector was unprofitable but after optimization efforts, it showed
potential to add ~178 €mn in profitability and reach a 20% EBITDA margin
HOTELS HEALTHCARE FERRY SHIPPING AQUACULTURE

Overview of sector profitability for ~80% of the market, EUR million - % of revenues

95% 5% 10% -5%

Before 696
optimization
663
32
70
-37
~ +178mn
EBITDA
70% 30% 10% 20%
After 7174
optimization
505
212 140
72

Revenue OpEx2 Gross SG&A3 EBITDA

in scope1 margin
1 Adriatic (Greek side), Attica – Crete, Cyclades, Attica – North Aegean, Dodecanese, Saronikos – Excludes small routes
2 Including commissions to agents; parking cost for active vessels calculated on a daily basis (10% of labor + other costs excl. commissions per day); parking cost for the
parking lot not accounted
3 Excluding commissions to agents; typically 7-10% of revenues
4 Revenue increase of ~3% due to a different mix of vessels/ fares by route; traffic assumed to remain constant when transfers to lower/ higher priced alternatives occur
29
SOURCE: Port authorities
Top players managed to record operating profits over and ESTIMATES
beyond the positive effect of dropping fuel costs in 2015
Group data, 9m 2015; EUR mn
HOTELS HEALTHCARE FERRY SHIPPING AQUACULTURE
Δ
Δ Fuel cost Revenue Net operational
Δ EBITDA benefit vs. 9m effect
Players Revenues vs. 9m 2014 vs. 9m 2014 2014 vs. 9m 2014 Bank debt

222 37 -272 3 7 285

136 14 -18 0 -4 205

126 14 -192 -2 -3 278

104 13 -7 0 5 162

1 Analysis for 2014 vs. 2013 FY results, as no interim reporting is available; 2 Estimates

SOURCE: XRTC, Annual Reports 30

 ESTIMATES
Seabass/seabream are the 2nd fastest growing products after
salmon, but currently constitute a very small percentage of the market
HOTELS HEALTHCARE FERRY SHIPPING AQUACULTURE

Aquaculture production in Mediterranean countries Top aquaculture products in Europe

2012, Percent, Thousand tons 2011

Main products
of Greece

100%= 137 213 264 163 205 Market share

1 Production volume
6 4 Percent
17 4
6
35
34
Seabream 50 30
25 40
25
0 Salmon
15 20
77
15 Trout
26 Mussels
Seabass 31 10
57 Carps
49 Oysters
Mussels 5
Trout Seabass/seabreams
14 26
6 0
Other
3 2 1
5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9
Growth rate, 2000-11
Greece Turkey Spain Italy France Percent, %

SOURCE: FAO 31
The seabass and seabream market in Greece is highly volatile in terms of
pricing mainly due to misalignment between forecasted and actual demand
HOTELS HEALTHCARE FERRY SHIPPING AQUACULTURE

Average exporting price of Greek seabass/seabream vs. official production volume

Production volume Price

Ktons €/kg
150 138 130 6
127
103 111 5
97
100 88 82 85 4
68 3
58
50 2
1
0 0

Total Greek seabass/seabream production volume estimates from different sources

Max-Min Kontalli Globefish

Ktons
FEAP FAO IOVE study
350
300
250
200
150
100
50
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

SOURCE: FAO, IOVE 32

The on-going progress of debt restructuring of the top aquaculture players
will determine the future of the sector
Group data; 2014; EUR million
HOTELS HEALTHCARE FERRY SHIPPING AQUACULTURE

Revenues Revenues ΕΒΙΤDA Capacity

2010 2014 margin 2014 Bank debt 2014 ’000s tons

185 195 7% 236 38

123 33 -28% 140 35

119 139 -1% 195 25

75 112 6% 59 ~15

43 35 -47% 48 ~10

24 43 8% 20 5

SOURCE: iMentor; Company reporting 33

Thank you!

34