InterviewCrisis forces Greek coatings firm to turn to toll manufacturing

26 October 2012 13:43  [Source: ICIS news]

LONDON (ICIS)--One of Greece’s largest coatings manufacturers, Vitex-Yannidis Group, has turned to toll manufacturing with the aim of boosting production and profitability at its manufacturing plant near Athens, Greece, a vice-president said on Friday.

The company - which specialises in decorative paints - is offering the service to international or domestic customers as it aims to increase capacity utilisation at the site where production has plummeted by 40% since the financial crisis hit the country in 2008.

Armodios Yannidis, one of three vice-presidents who run the family-owned company, told ICIS that the decision to boost toll manufacturing is part of a wider re-think of the business strategy to ensure the company’s survival in the “brutal” business conditions the company has endured since 2008.

“We have divested non-core businesses, cut the workforce from 430 to 240, and cut expenses including marketing and consumer advertising. We also implemented a voluntary pay cut of 5-20% for middle and top management.”

Sales fell from €60m ($78m) in 2007 to €40m in 2011 when the company experienced the first financial loss in its 80-year history. It also expects to report a loss in 2012.

Yannidis points out that the company still makes a healthy operating profit but has to make repayments and take depreciation on its new facility outside Athens.

The company moved out of central Athens by investing in a bigger capacity plant in 2004/5 before the crisis hit and is now left with the new site operating at low utilisation rates. The plant can produce 26m litres/year of paint with one shift working five days per week.

“As we have free capacity we want to increase toll manufacturing as part of our long-term strategy. With our history, people perceive us as a trustworthy family business. Intellectual Property protection is our number one priority.”

He added: “We have been doing private labelling [toll manufacturing] for many years and already have new customers. Now we want to appeal to international companies which want to reduce costs.”

As the Greek financial crisis deepened, managers at the company have had to improve communication with banks, feedstock suppliers and customers to ensure it is still possible to do business effectively. 

“From the beginning we had to safeguard credit lines with banks and suppliers. We have always been transparent and given insights into the Greek market for foreigners to strengthen relations and build trust with creditors.”

Yannidis said the company has never missed a scheduled payment and has not been required to change contractual conditions with any of its suppliers. Some customers have been moved from 4-5 month payment terms to 2-3 months. “We have not changed terms for long existing accounts which are well behaved,” he added.

Key feedstocks include titanium dioxide (Ti02), synthetic and alkyd-based resins (water and solvent-based), additives, pigments, solvents and fillers mainly purchased from outside Greece. “We are now paying 20-25% less for Ti02 than at the peak last year,” he said.

Yannidis insists that there is not widespread social unrest in Greece which has a population of 10m. The demonstrations are confined to a few streets. However crime has increased as unemployment crept up to 25%.

However, GDP has fallen by 20% in five years with investment dropping by 50% and corporate investment falling to zero. Meanwhile inflation, he says, has increased by 11% since 2008, leaving people with much lower spending power. 

“Liquidity is also a big problem. Even the big banks will not give new credit lines for business and consumer lending is very expensive. You could not get credit to expand business abroad – you would have to use your own resources.”

However, Yannidis is optimistic for the future. As wages have fallen and structural reforms have taken place, Greece has become more competitive – rising 22 places to 78 in the World Bank “Doing Business” index. GDP for 2013 is expected to drop by 4% but there could be marginal growth in 2014, he says.

“We should not stop the austerity – we need to pass the reforms but we do need to return to development and that will only be achieved through the private sector. They need to lower company tax rates: 90% of Greek companies are in loss so they are getting paid nothing even with a high tax rate.”

($1 = €0.77)


By: Will Beacham
+44 20 8652 3214



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