Bad day at office for high-fliers
Irish bosses have seen their companies rocked by the recession -- do they think the worst is over, asks Louise McBride
THOSE at the helm of Ireland's biggest public companies haven't had much chance to put up their feet over the last two weeks. They've been busy releasing their annual results for last year -- which against a backdrop of one of the worst recessions in 25 years, have been unsurprisingly gloomy.
The latest blitz of company results gives us a rare opportunity to see what our corporate top dogs think about the recession. So do the bosses of some of Ireland's biggest companies think the worst is over?
When announcing the DIY group's results earlier this month, its executive chairman, Michael Chadwick, said the company is "well placed" to benefit once markets pick up -- something the company clearly expects by the end of summer.
"In Ireland, the pace of (economic) decline has moderated and economists anticipate economic activity beginning to increase in the second half of 2010," said the company. "The economy has moved closer to the end of a deep downturn. The strength of recovery will be influenced by the pick-up in the global economy and growth in exports aided by increased competitiveness."
The company, however, still expects "low consumer confidence, a weak labour market and tight credit conditions" to continue for the next few months.
The collapse of the Irish property market has certainly eaten into the pockets of the DIY group -- at €13.6m, the group's pre-tax profits for last year were about a fifth of what they were in 2008
AIB ate more than a few slices of humble pie this month. In its annual report, executive chairman, Dan O'Connor, said the bank's financial performance last year was "highly unsatisfactory". "AIB was one of many institutions around the world that had to cope with turmoil in global financial markets in recent years," said O'Connor. "But we made significant contributions to our own problems."
Neither is the bank particularly upbeat about the economy's prospects. "With a decline in employment in construction, total employment is expected to have fallen by over 8 per cent in 2009 -- accompanied by a rise in the unemployment rate to almost 12 per cent on average," said the bank in its financial review. "Employment is forecast to decline by a further 4 per cent in 2010, leading to a rise in the unemployment rate to over 13 per cent."
O'Connor didn't make light of the problems. "The challenges facing AIB are considerable," he said. "Rebuilding AIB will not happen overnight but a process of positive change is now under way."
though the building materials boss admitted that his company experienced challenges in 2009 which were "never encountered before", Gene Murtagh, believes the economy will stabilise this year. "While the year ahead will present continued challenges, there is now tangible evidence of stability emerging," he said. "Conditions are becoming more predictable than in the recent past. The virtual collapse in (building) activity experienced in 2008 and 2009 should be replaced with a more stable, albeit notably lower base from which to build business again."
Although Murtagh said there were opportunities for the business in 2009, he added that "the current year will continue to pose challenges for Kingspan as some economies climb slowly out of recession, leaving behind a construction environment that has not yet caught up with the general contraction of last year. In some markets, building activity is therefore still likely to have further to fall."
Kingspan found itself in the eye of the property storm last year. Its operating profit for 2009 was less than half what it was the year before.
Blackrock International Land
Although the chairman of the property company, which owns properties in Ireland, Britain and continental Europe, admitted there had been "difficulties in the property sector" last year, Carl McCann is optimistic that the economy and property market will pick up soon. Commenting on the company's results, he said he expected the value of Blackrock's properties to increase significantly "when the benefits of the anticipated economic recovery take effect".
The company, however, added that the outlook for the Irish property market "remains uncertain pending implementation of the Government's measures to address the underlying credit situation". Like many firms, Blackrock is no doubt anxious about the credit freeze in Ireland.
The company also mentioned the difficulties in the investment property market, hinting at a stalemate in certain countries. "Attention is drawn to the risks associated with the valuation of investment properties," it said. "The continuing difficulties being experienced in the world's financial markets have resulted in reduced numbers of property transactions in the markets in which the group operates, with virtually no activity in some areas. This lack of comparable evidence has decreased the certainty in valuations compared to those arrived at in more stable conditions with a normal level of market evidence."
The spike in unemployment is reflected in Permanent TSB's mortgage book -- at 7,228, the number of homeowners who are struggling to keep up with their mortgage repayments with the bank is now double what it was in 2008. The bank expects that unemployment will push more homeowners into difficulties this year. The company said it expects "arrears in our Irish loan book to peak in 2010".
IL&P chief executive Kevin Murphy was cautiously optimistic when unveiling results for the group.
"For 2010, I am looking forward to a significant improvement in the profitability of the life business but I expect 2010 to be another difficult year for the bank," said Murphy. "2009 was a very difficult year. However, we made progress in addressing key challenges and, together with an expected improvement in broader economic conditions in Ireland, we are better positioned for this year than we were for last."
Although IL&P didn't run up the huge losses that its rival AIB did, it still went into the red by €313m last year.
Murphy expects IL&P to return to profitability in 2011.
The recession wasn't the only thing on the insurer's mind last year. The company described the cost of claims arising from flooding and freeze cases in November and December as "far in excess of any previous weather-related event in the Irish market".
Not surprisingly, the FBD boss described last year as "a challenging year for the insurance industry and the economy". It seems the company, however, believes the worst of the downturn is behind us. "While economic uncertainty remains, the rate of Irish economic contraction has slowed considerably," it said.
While the company suggested its underwriting business, which includes car and home insurance, is well-placed to withstand challenges in 2010, it said that the environment for its property and leisure business, which includes its Irish hotels "is expected to remain difficult in 2010". "Oversupply in the market place is the key challenge facing the property and leisure business, recovery will be dependent on a reduction in market capacity," it said.
Although Glanbia owns strong household brands such as Avonmore and Kilmeaden, its boss John Maloney admitted the company had been rocked by the "extreme volatility in global dairy markets" in the first half of 2009. "Whilst the outlook remains challenging, we are seeing some positive signs in our operating environment which should underpin our performance in 2010," said Maloney.
Glanbia revealed last week that it is in talks to sell its Irish dairy and foods division, Dairy Ireland, to its major shareholder -- the Glanbia Co-operative Society.
CRH's chief executive Myles Lee appeared a bit downbeat when announcing his company's results. Lee said that government-funded infrastructure investment "only partially compensated" for the construction downturn in Europe and the US. And Lee clearly doesn't expect the construction downturn to end just yet. "We expect a difficult demand backdrop through much of 2010 with continuing declines in non-residential (construction) activity," said Lee.
CRH's profits slid to €732m last year from €1.6bn in 2008.