Wednesday 7 December 2016

Bosses looking for signs of a recovery

The country's top bosses have massively different views on how the economy will perform, write Nick Webb and Louise McBride

Nick Webb and Louise McBride

Published 04/09/2011 | 05:00

Ireland's biggest public companies have reported trading results over the last fortnight. We delved beneath the numbers to find out what these interim results actually mean for the economy and what the country's top businesses see coming down the road.

  • Go To

GRAFTON GROUP

THE performance of Grafton Group -- owners of Woodies DIY -- is one of the best indicators for retail sector. Grafton's Irish sales are a sign of consumer confidence and discretionary spending. It also serves as a proxy for the health of the building industry.

Last week, Grafton noted that the Irish economy "continues to face major challenges", but it believed there were some signs that the economy was stabilising.

Grafton chief executive, Gavin Slark told the Sunday Independent that one sign that suggested the economy was not getting any worse was that the fall in the Irish housing market this year was lower than last year.

"Also, from talking to people in the banking and housing sector, there is a feeling we are starting to get to the point where this is a little bit of stability creeping in for 2011 and heading into 2012," Slark added.

Slark said one of the biggest challenges in the Irish economy today was the drop-off in the new-home building industry. He said: "Activity in that sector is slightly lower this year than last. We are hoping that we may see some recovery in new homes in 2012 as that would be a catalyst and driver for economy activity."

PADDY POWER

What could be a better sign of confidence and having a few bob in your back pocket than having a bet? The average amount staked by Irish punters fell by one per cent year on year, according to Paddy Power's latest numbers.

The fall in the amount staked is even more extreme when telephone betting across the group is examined. This dropped 13 per cent to €48.97.

While Paddy Power had a stonking set of interims last week, the Irish retail market wasn't anywhere as strong as other territories.

"Conditions in Ireland remain tough," according to the bookies' boss Patrick Kennedy.

Glanbia

While a big chunk of Glanbia's business is now overseas, its Irish consumer products division provides some insight into the strength of the domestic retail market.

"The difficulties in the Irish food retail environment have persisted in the first half of 2011. The market size is estimated to be currently only just above 2007 levels and year-on-year real growth is negligible," according to Glanbia boss John Moloney. "Approximately one-sixth of total purchases made by consumers are on promotion and a focus on price remains the key market dynamic. Consumer confidence is fragile and declined again in recent months as a result of the difficult domestic economic situation. This challenging trading environment is expected to persist in the second half of the year."

Kingspan

Gene Murtagh's green building materials firm is like taking the pulse of the Irish construction sector. Parts of it any way. Globally things have begun to slow.

"During the first half of 2011, penetration growth, rising refurbishment activity and geographic expansion all combined to drive the business forward. The pace of growth, however, eased during quarter two and is likely to ease further in the second half reflecting the limited evidence to date of a sustained economic recovery in the group's key markets," according to Murtagh.

"However, we remain very mindful in the period ahead of renewed global uncertainties and their possible impacts.

"The construction market in Ireland has suffered a dramatic contraction in recent times, and remains subdued," he added.

But there was some positive news. "The refurbishment market has been somewhat resilient, and at approximately 50 per cent of current activity, is providing some foundation for activity at present."

INM

THE media sector represents a whole bundle of economic indicators, ranging from consumer spending and confidence to employment prospects and the strength of the retail market. "Trading conditions, particularly in Ireland, remained very difficult and a significant increase in exports failed to translate into domestic demand," according to chief executive Gavin O'Reilly.

"General advertising conditions still remain tough and volatile. Visibility has not improved since our AGM in June and continuing uncertainty over the response to the eurozone debt crisis continues to constrain advertising and consumer spending," he added.

"As a result, we are not anticipating any material advertising uplift or normalisation in advertising conditions before the year-end."

ICG

John McGuckian, chairman of the ferry company Irish Continental Group, said last week that the economic outlook for Ireland "remains challenging, with austerity programmes affecting both consumer demand for travel and freight markets".

Weak consumer sentiment ate into ICG's results for the six months of this year -- the total number of passengers carried by Irish Ferries was down 3.6 per cent on last year -- while total cars carried in the first half of 2011 were down 3.1 per cent. Davy's Stephen Furlong said the drop in ICG's imports reflected the weak Irish consumer sentiment.

"The economic backdrop remains weak with subdued consumer demand in both Ireland and the UK," said the company in its results.

"The Irish Government's initiative to stimulate the hospitality industry through lower value added tax took effect. (It) is a welcome development but has yet to show a demonstrable improvement in incoming tourists by sea."

Gerard Moore, an analyst with Merrion Capital, said the tone of ICG's results suggested the company believed the Irish domestic economy was still in recession.

"The results indicate that the company believes Ireland is a two-tier economy," said Moore. "Exports are up -- but imports are down and the domestic economy is still struggling."

AER LINGUS

Aer Lingus boss Christoph Mueller said that "economic conditions in Ireland remain challenging" when announcing the airline's annual results last week. Aer Lingus trading numbers give a sense of what's happening in the domestic tourism market as well as serving as a barometer for trade and consumer spending patterns. People travel when they have money... and confidence that they will have money in the future.

"Aer Lingus entered 2011 against a very difficult economic backdrop, shortly after austerity measures imposed by the European Central Bank and the IMF at the end of 2010," said the airline in its interim results.

"The continuing recession in the airline's primary markets, in particular the core Irish market, has negatively impacted and may continue to negatively impact the airline's business," said the airline. "Any further deterioration in the Irish economy, particularly events which may damage consumer confidence or disposable income, may have a significant adverse effect on the business."

The airline is still grappling with weak demand from Irish consumers -- which explains why 55 per cent of its revenue is now sourced outside Ireland.

IL&P

WITH debt forgiveness and the absence of credit key issues for the recovery of the economy, Irish Life & Permanent's latest numbers are hardly a boost for confidence. The performance of the country's largest mortgage lender is also inseparable from the state of the property market. Lower lending and higher arrears means that a recovery in property prices is a distant and vague prospect.

The bank and life assurer saw its mortgage arrears increase by 24 per cent in the first six months of this year. With unemployment ticking up in July and August, its arrears figures could increase later on this year -- which could in turn push up its losses for the second half of 2011.

"Consumers remain very cautious and households are seeking to reduce their level of debt," said the company in its interim results last week. "The housing market remains extremely weak with house prices continuing to decline. The demand for new residential mortgages continues to be impacted by consumer confidence, the availability of credit and the general economic uncertainty," according to Kevin Murphy's results statement.

The company also said that the fall in house prices had pushed more of its customers into negative equity.

Both the bank and life assurance business "were impacted by the continuing difficulties in the broader economy including rising unemployment levels, reduced disposable income and weak consumer confidence," Murphy told investors.

FBD

THE insurer expects consumer demand to continue to fall for the rest of this year -- but at a slower rate.

In its results for the first six months of this year, the Andrew Langford-led firm said its chances of increasing the amount of money it generated from premiums as a result of the poor consumer demand would be "limited" for the remainder of the year.

FBD Hotels in Ireland, however, performed better than last year -- and one of the reasons for this was the increase in the number of people staying in its hotels.

"The number of foreign visitors has increased and there are early signs of recovery, particularly in the Dublin hotel market," said the insurer in its results.

Therefore, just like Aer Lingus, FBD is relying more on overseas tourists -- than local custom -- to boost its business this year.

Sunday Indo Business

Read More

Promoted articles

Editors Choice

Also in Business