Business year in review part 1: January to July
The year began on an optimistic note with up to 60% of companies intending to give their staff pay raises in 2015, and just 1% planning to cut pay. The Irish Business and Employers’ Confederation said the average increase to basic pay predicted by the 462 surveyed companies was 2%. Wage increases, combined with changes in employee numbers, would increase companies’ total pay bills by 55% during the course of this year. Ibec chief executive Danny McCoy said: “Pay will increase for most in 2015, but not all. The economy is recovering strongly, but is still about 6% below its pre-crisis peak, and overall price levels are below where they were in summer 2008.”
Further positive news came from credit risk analyst Vision-net.ie, revealing that 18,000 firms were formed during 2014 — the first time the start-up total topped 17,000 since 2007. December showed the best monthly data since 2000, with 1,728 new companies established. “The seven-year high in company formations and the best performing December since 2000 signals a positive outlook for companies in the coming year,” said Christine Cullen, the company’s managing director. Cork, Limerick, Clare, Tipperary, Louth, and Wicklow all saw increases in start-up numbers in 2014 compared to all of 2004. 1,479 firms were declared insolvent in 2014, a 7% decrease on 2013 — the lowest level since 2009.
Irish food and drink exports grew 4% in 2014 to reach a record high of almost €10.5bn, Bord Bia revealed in its annual performance and prospects report in January. The fifth consecutive year of export growth represented an expansion of 45%, or €3.2bn, since 2009. The strongest performing sectors were dairy product and ingredients which exceeded the €3bn mark, prepared foods €1.8bn, and seafood €540m. Chief executive Aidan Cotter said renewed growth in international markets was reflected in a 15% rise in trade at €3bn, or 29% of total food and drink exports.
Ireland was expected to be one of the top performing economies in the eurozone, with an expected GDP growth of 4%, according to the Cantor Fitzgerald 2015 economic outlook. The company said that “fiscal discipline, strong growth, rating upgrades, and ECB support have all helped to tighten Irish spreads”, and predicted Ireland’s debt-to-GDP ratio could decline below 100% by 2017, from a peak of 123% in 2013.
Economic sentiment in the eurozone rose to a seven-month high and German unemployment dropped, keeping the region on a recovery path as the ECB prepared to unleash its quantitative-easing programme. In Germany, the number of people out of work declined a seasonally adjusted 20,000 to 2.81m, twice as much as predicted. Sentiment picked up as concern about Greece’s future in the eurozone was countered by anticipation of more ECB stimulus and the boost to incomes from falling oil prices.
In a story that would be repeated throughout the year, small and medium-sized businesses were warned of the risk of being worse affected than larger firms in the event of cybercrime. Ernst & Young cyber security expert Niall Jordan highlighted increased online security risks becoming more wide-ranging and sophisticated in line with improvements in companies’ defences. While larger corporations are better positioned to absorb any financial impact, SME’s could be forced out of business and should have a clear policy in place to seek to prevent any security breaches.
It was announced that food and drink companies could avail of loans from €100,000 up to multimillion-euro packages as part of a suite of new credit facilities launched by Ulster Bank aimed at start-ups and established companies seeking to introduce a product range or to grow through exports.
Dr Ailish Byrne, senior agri-food manager, said: “Food and drink is worth €25bn in turnover to the economy and employing more than 230,000 people. Ireland has a global reputation as a provider of high quality, innovative and sustainable food and drink excellence. Our goal is to support both existing and new customers in this sector.”
The country’s largest hotel group, Dalata, continued its growth by adding the Holiday Inn in Belfast to its portfolio of hotels for €25.7m. The announcement accompanied the group’s first set of full-year results since its €256m flotation in March 2014, which showed revenues climbing more than 30%. The group’s revenue per available room — a key performance metric in the sector — grew almost 16% on a like-for-like basis due to a 13% rise in average room rate. Dalata would go on to expand its portfolio of properties further during the year as it continued to snap up opportunities across the country.
Ireland’s unemployment rate declined another 0.2% to hit 10.1% — its lowest level since 2009, the last time the percentage figure was in single digits. The Government said each person returning to employment was saving the exchequer €20,000 per year via reduced social welfare payments and increased tax revenue. The Coalition said it was targeting an unemployment rate of under 10% by the end of 2015 and so-called ‘full employment’ by the end of 2018. “Assuming the economy continues to grow strongly in 2015, as we expect, an average jobless rate of 9.7% is now envisaged for this year, with the figure likely to be running around the 9% level come December,” said Alan McQuaid, chief economist with Merrion Stockbrokers.
The main representative body for Irish oil and gas exploration firms, the Irish Offshore Operators’ Association, outlined its desire to see more incentives for marginal field operators, as well as a lowering of the corporate tax rate for such companies to help progress the sector. Its call followed the Government launching its first offshore licensing round for three years in 2014 and significantly altering the tax framework for the sector, with the top rate of tax on profits made from any future oil find in Irish waters going from 40% to 55% and a 5% royalty revenue also going to the State for each year of a producing field’s lifespan.
Paddy Power, which would return to the news towards the end of the year, announced it plans to return €392m — roughly 12% of its current market value — to shareholders during 2015 as it had not identified attractive enough acquisition and investment opportunities or other uses for surplus cash. The decision sparked expectation that it would continue to return surplus cash to shareholders over the coming years — with the figure potentially reaching €800m. Davy Stockbrokers upgraded Paddy Power from ‘neutral’ to ‘outperform’ status, saying it had scope for “material consensus earnings upgrades over time through a combination of better-than-expected top-line growth and scope to expand profit margins”. It added that the company had “considerable” scope to pay out “substantial additional cash to shareholders” over the next two years, totalling €800m between ordinary and special dividends.
Dairygold expected its annual milk supply to exceed a billion litres over the coming years, as the north Cork-based co-op announced that its milk supply had risen 2% to 975m litres during 2014. While the volume was rising, so too was the quality of milk, and notably its solids content, for which the co-op praises the commitment of its suppliers, the co-op said. “The post-quota era offers real opportunities and Dairygold is ready to take full advantage,” said James Lynch, Dairygold co-op’s new chairman. The business also launched an e-commerce retail website which it plans to develop further.
Irish workers were named among the world’s elite in terms of tech skills, having risen one place to eighth in the World Economic Forum’s latest rankings.
The country’s education system was lauded in the annual Global Information Technology Report, which gauged Ireland’s technological proficiency against 143 other economies and placed us in the top 25 in terms of network readiness. “It points to steady progress in our ICT development, as we’ve jumped four places against fierce international competition in the space of four years,” said Oracle Ireland managing director Paul O’Riordan.
On a less positive note, it emerged that Government debt in the eurozone surged to the highest levels since the introduction of the single currency in 2014, underscoring the challenges still confronting the 19-nation bloc. Greece’s debt swelled to a new high of 177.1% of GDP at the end of 2014, up from 175% a year earlier as the spotlight began to turn towards the country. In the eurozone as a whole, government debt rose to a record 91.9% of GDP last year from 90.9% in 2013. The figures gave added impetus to European leaders’ demands that Greece revamp its economy before receiving further bailout support.
In some good news for Tesco, which was dealing with falling sales, a report by Indecon Economic Consultants indicated that the retailer benefited the economy to the tune of €3.27bn a year, directly and indirectly. The food retailer ranked as the world’s biggest single buyer of Irish food and drink, responsible for nearly 47,000 Irish jobs — 14,500 directly in stores, head office and depots, according to the report. Earlier in the month, the British retailer reported one of the biggest annual losses of €9bn in UK corporate history, with its Irish operations one of the worst performing divisions, where sales fell by 6.4% to €2.55bn, ceding market leadership to SuperValu. Annually, Tesco supports more than 13,000 Irish farm families working with over 500 small and medium local suppliers.
The Expert Group on Future Skills Needs advised the Government to upskill younger workers to support the 10,000 new jobs the marine economy will create by 2020. The group warned that the sector’s potential may be hampered by a lack of awareness about possible careers, with openings set to emerge everywhere from operatives and low-skill roles to professional and engineering positions in marine renewable energy and maritime monitoring. Ireland’s deep water ports and 7,500km coastline makes it well-placed to capitalise on the growing potential of the global marine economy and create sustainable jobs in the coastal regions, the group reported.
Italy continued to grow as one of Ireland’s most valuable overseas markets. Newly released figures showed exports of beef to Italy rose 18% in 2014 to €184m, while seafood exports were up 13% to €31m. Italy ranked as Ireland’s third largest destination for beef, after the UK and France, taking some 47,000 tonnes, and accounting for almost 20% of total exports to continental Europe. Irish food and drink exports to Italy grew in value by 6% to €311m in 2014, with beef accounting for 60% of the total.
One of the UK’s most prominent businessmen, JCB chief Graeme MacDonald, controversially said a British exit from the EU would not make “one blind bit of difference to trade with Europe” given the importance of the UK market. He said the level of bureaucracy associated with doing business in European markets is prohibitive and claimed that trade would not be impeded by British or European authorities if the UK was to leave the EU. “There has been far too much scaremongering about things like jobs. I don’t think it’s in anyone’s interest to stop trade.” His comments were among a barrage of commentary on British Prime Minister David Cameron’s promise to hold a referendum on the UK’s EU membership by 2017 which persisted through the second half of the year. Fears of an exit becoming more tangible in some quarters followed the Conservatives general election win in May.
A buoyant set of exchequer figures for May confirmed that the economy was on a rapid growth path as June got off to a good start for the government. The Department of Finance figures showed that revenues from all the main tax headings rose significantly in the first five months of the year. Overall the Government collected tax revenues of over €17.28bn in the first five months to the end of May, up 10.9% in the year — amounting to €734m more than it had expected at this stage in the year. Conall Mac Coille, chief economist at Davy Stockbrokers, estimated that the Government had €1.7bn more in its coffers than it had anticipated at the time of the last budget in October 2014.
It also emerged that the number of households in negative equity was falling rapidly — increasing hopes that the figure could fall to zero as early as the end of 2017. The unexpected pace in house price rises was driving the improvement, according to Davy.
The Economic and Social Research Institute said the number of households in negative equity following the property crash stood at 160,000 at the end of last year — a figure likely to fall to 100,000 by the end of 2016, it was estimated. A further rapid fall, if home prices continued to rise was also predicted by David Duffy, the senior housing expert at the ESRI. In 2010, there was €8bn worth of household negative equity, which had increased to around €16bn in 2012, but assuming house price growth of up to 10% in 2015, those 100,000 households in negative equity would amount to just €2.5bn, the report said.
As the month drew to a close, Greek Prime Minister Alex Tsipras unexpectedly called a referendum on the terms of the country’s bailout proposed by its international creditors after months of wrangling. The dramatic move left the country in the eye of a storm as European leaders and representatives of the IMF fretted over the potential outcome. “After five months of hard negotiations our partners, unfortunately, ended up making a proposal that was an ultimatum towards Greek democracy and the Greek people,” Tsipras said, “an ultimatum at odds with the founding principles and values of Europe, the values of our common European construction.” His risky decision to put the terms of the bailout to Greek citizens followed a rejection the proposed measures after days of fraught talks in Brussels with European leaders.
First-time buyers bear a greater burden of the costs arising from mortgage lending restrictions despite being 30% less likely to default on their loans than other homeowners, it emerged. Research by the Central Bank showed first-time buyers are far less likely to default on mortgages than their counterparts whose loans were taken out on a subsequent property. Of the 291,000 loans analysed, approximately 15% of second and subsequent borrowers were in default, with the same rate one third lower for first-time borrowers.
In a major boost to Alexis Tsipras, more than 61% of Greek voters rejected the terms of the country’s proposed bailout put to them after the Syriza leader’s bold move to hold a referendum. In a historic referendum which wasn’t greeted with much warmth by many eurozone leaders, the Greeks emphatically rejected the terms of the austere proposal. Thousands of people gathered in Athens’ Syntagma Square in celebration once the no side’s victory became evident. Tsipras claimed the vote gave him a mandate to negotiate fresh terms and denied the referendum was a vote as to whether Greece would remain in the eurozone. Nonetheless calls for a Greek exit grew after the result. German Chancellor Angela Merkel warned that Athens had ruined any hope of compromise with its eurozone partners. A U-turn on Tsipras’ part was just around the corner.
On the domestic front, the country’s largest mortgage-selling group forecasted a rise of only 5% in home-loan lending in 2016, suggesting the modest interest-rate cuts by lenders will do little to lure first-time buyers into the market. The Association of Expert Mortgage Advisors projected new mortgage lending would rise to between €4.2bn to €4.5bn before the year was out, up from €3.85bn in 2014, and would increase to €4.7bn in 2016.
The numbers suggested the new Central Bank controls introduced in February to limit the amount of home-loan credit to individual borrowers were beginning to hit first-time borrowers. Mortgage lending hit a trough at the height of the banking crisis in 2011, when lenders advanced just €1.8bn in new loans, compared with €40bn in 2006.
New research from the UK suggested Irish building supply firms were being severely hit through non-payment for services by a fresh wave of insolvencies hitting the construction sector. British trade credit insurer Atradius warned that the first half of 2015 saw a 25% year-on-year rise in trading losses among Irish firms linked with the UK building sector, as insolvencies there increase. Atradius protected firms from the risks of trading domestically and overseas, and paid out almost €500,000 in claims in the last month. “Since the construction downturn, many Irish construction companies and suppliers have sought new opportunities in the UK to achieve business growth,” said Stuart Ramsden, Atradius’s country manager for Ireland. “However, the sharp increase in construction insolvencies has led to a number of Irish companies facing trading losses and left with invoices unpaid.”
Bord na Móna planned to build a pilot solar energy farm in Offaly next year and is currently in talks with a number of potential development partners with the view to gaining a foothold in the burgeoning sub-sector of the new energy market. Chief executive Mike Quinn said Bord na Móna’s solar energy plans are at a “very early stage” but that the business “will definitely” build solar farms on its landbank in the midland counties in the coming years. The pilot solar farm project — as part of its new Mount Lucas windfarm in Offaly —launched earlier this year, will provide energy for more than 45,000 homes.
CONNECT WITH US TODAY
Be the first to know the latest news and updates
