Business Irish

Saturday 23 August 2014

Dan White: Could those be green shoots appearing after all?

Market Insider

Dan White

Published 27/01/2013 | 05:00

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THE 37 per cent increase in first-half profits at recruitment group CPL and the decision by An Bord Pleanala to grant Intel planning permission to extend its Leixlip plant are further signs that, after five years, the Irish economy is finally beginning to recover.

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However, with British Prime Minister David Cameron promising a referendum on that country's EU membership, the outlook remains uncertain.

Last week Anne Heraty's CPL recruiters reported a 37 per cent increase in operating (pre-interest) profits to €5.8m and a 13 per cent increase in turnover to €162m for the six months to the end of December 2012.

These results were the best set of interims from CPL since the half-year ended December 2007. And when it comes to gauging the health of the Irish economy CPL is a good company to keep an eye on.

When employers start to cut back, recruitment and temporary staff agencies such as CPL are among the first to feel the chill.

As the Celtic Tiger turned into a pussycat, CPL's half-year operating profits collapsed from €11.4m in the six months to December 2007 to less than €1.7m two years later. Since then operating profits at CPL have been gradually recovering.

However, the nature of CPL's business has changed during the downturn. It had 8,500 temporary staff on its books at the end of December, an 8 per cent increase on the number at the end of June. In fact the vast bulk of CPL's revenues, over 95 per cent, now come from temporary staff rather than traditional recruitment.

According to Ms Heraty: "The group has continued to develop our competence in the provision of fully outsourced services that are complex and difficult to replicate and which usually require a combination of a European language and a technical skill."

She also stated that such outsourcing allowed client companies "to recruit personnel based on the variable demands of the business".

Translated into plain English this means that many multinationals have effectively contracted out most of their staffing requirements to companies such as CPL. This allows them to effectively sidestep most of the obligations imposed on employers by Irish labour law as the bulk of "their" workers are not employed by them but temporary staff hired on short-term contracts by the recruitment company.

However, in an economy with an unemployment rate touching 15 per cent, jobs routed through the likes of CPL are still a heck of a lot better than no jobs at all.

And following the IDA's success in increasing net direct employment at foreign-owned companies by a further 6,500 in 2012, the early indications are that 2013 will be another good year. On Thursday, An Bord Pleanala announced that it had approved the granting of planning permission to Intel to extend its Leixlip plant.

While there has been no announcement from Intel on how many extra jobs will be created, the headcount at Leixlip, which already stands at 4,500, is likely to increase even further if construction of the extension goes ahead.

That's the good news from last week. The bad news is that British Prime Minister David Cameron has promised an in/out referendum on Britain's EU membership in 2017. This has enormous potential implications for this country. Addressing a conference in Dublin on Thursday, British Business Secretary Vince Cable warned of the "nightmare scenario" of Britain leaving the EU and stated that such an outcome would be bad for both his country and Ireland.

But will Britain actually end up leaving the EU? Mr Cameron has stated that he merely wishes to "renegotiate" Britain's membership terms and that he will campaign for a 'Yes' vote if a satisfactory deal can be agreed. The problem with such an approach is that it threatens to unleash forces Mr Cameron won't be able to control.

Many members of his Conservative Party aren't rational Eurosceptics but swivel-eyed Europhobes to whom any deal with Brussels, no matter how advantageous to Britain, would be unacceptable. They want out regardless. The fact that, as Mr Cable pointed out last week, withdrawal from the EU could be very bad news indeed for Britain matters not a jot to these fanatics.

But will such a referendum ever actually take place? The timing is interesting. Mr Cameron's coalition with the Liberal Democrats, the most Europhile of the British political parties, meant that he was never going to get a referendum in this parliament, which is scheduled to last until May 2015.

An EU referendum in 2017 would take place almost halfway through the next parliament, assuming that Mr Cameron wins the next British general election and is still prime minister. But will he? With the British economy still mired in deep recession and the opposition Labour Party well ahead in the polls a single-party Conservative government is the least likely outcome after the next British general election. Far more likely is that Labour ends up in government either on its own or in coalition with the Liberal Democrats.

All of which means we should pay far more attention to good news now rather than the outside prospect of bad news in four years time.

Sunday Indo Business

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