ECONOMY

Tobacco sector — with few exceptions — is in decline

The domestic tobacco industry has always been one of the greatest investors in the Greek economy, supporting it through the high tax on tobacco and by employing thousands of workers. Unfortunately, in the past five years most of the sector’s top five firms have shown signs of fatigue and decline, except for the two top companies, Papastratos (a Philip Morris Holland BV subsidiary) and Karelias. Among the many reasons for this decline, the greatest one is in the fierce competition in the domestic cigarette market, as in Greece there are 14 companies operating, with some 100 brands and 265 blends. The top-selling brands in the country are Marlboro, followed by Assos (Papastratos), Peter Stuyvesant (British-American Tobacco), Camel (Japan Tobacco International), Karelia and Silk Cut (Gallaher). In the blends market, there has been a rise in the popularity of «light» cigarettes, although most Greeks still opt for full-strength cigarettes. In the last five years, Greek tobacco industries have promoted new products, managing to resist penetration by multinational industries. Their main strategy to withstand the big firms’ pressure is to strengthen exports and make investments abroad, particularly into the Balkan states. New investment Papastratos’s parent company, Philip Morris Holland, intends to build a new factory in Greece. According to information exclusively obtained by Kathimerini, the European arm of the multinational giant is negotiating the construction of an ultra-modern factory at Aspropyrgos, where Papastratos owns a plot. The same sources suggest that the investment is planned to materialize in the next couple of years. However, all this will depend on the market survey for the realization of such an investment, which has been a long-term objective of the Greek company even before it was acquired by Philip Morris Holland a year and a half ago. If it actually takes place, it will be the second-biggest industrial investment in Greece in the last two years, after the construction of the yogurt plant by Friesland in the prefecture of Achaia. Great exporters Founded by Giorgos and Stathis Karelias in Kalamata, in the southern Peloponnese, Karelias is the biggest Greek industry in the sector and has continued its rise in 2005. With investments expected to top 18 million euros this year, aimed mainly at renewing its mechanical equipment, the historic firm, established in 1888, plans to create new tobacco products while also looking into penetration to new international markets. Today Karelias SA exports some 72 percent of its total turnover, with a presence in 64 countries. The company ended last year with a total volume of 157.04 million euros, up 12 percent compared with 2003. Net pretax profit in 2004 came to 32.38 million euros, a 19.2 percent increase over the previous financial year. Under supervision In contrast, the situation at Keranis is, to say the least, disappointing, with workers resorting to industrial action as they have not been paid for two months. Production has stopped, new investors are nowhere to be found, not to mention the 6 million euros of compensation the company will have to pay to its insurance company, General Union. Surely its founder, Georgios Keranis, who established the company back in 1926, could not have imagined that after three-quarters of a century, the firm would function for the last four years under market authorities’ supervision. For 10 years, there have been no amortizations. A move to the installations at Glyfa in Evia remains a dream despite numerous announcements by the board since 2001 that it would occur in a matter of weeks. The Development Ministry is blocking the latest increase of share capital after reports by the chartered auditors, and the firm’s stock has been under suspension since April 19. Amid all this, the company is advertising for the entry of a strategic investor. Over the years, Keranis has changed dozens of boards, people of dubious abilities were proposed as board members, hundreds of millions of euros came into the company through share capital increases but the company remains the sector’s black sheep with a series of loss-making financial years and great decline in market share. The purchase of the plant at Glyfa from Titan cement company had been advertised as the beginning of a new era for the company. More than four years on, the board’s excuses for the delay include problems about permits and in some of the buildings’ structural stability. The other two Greek tobacco companies, Georgiadis and SEKAP, have also lost some of their market share, partly due to the recent decision by the Economy Ministry to impose a minimum price on light cigarettes, effectively making cheap packets more expensive. The two companies remain the market’s also-runs.