Ireland Inc will make progress -- but maybe not enough
Are we to turn a corner over the next 12 months -- or will the third year of the recession turn out to be our worst yet? Louise McBride asks some of Ireland's top business brains what treatment they expect from the new year
Published 09/01/2011 | 05:00
ONLY nine days into the New Year -- and already we've been hit with enough gloom to shake off any leftover Christmas cheer.
At the heart of that gloom are the 450 or so workers who face the dole queue after a series of job cuts and company closures were announced last week. Last Wednesday, Britvic Ireland, the drinks company which sells 7Up, Ballygowan and MiWadi, said it would be cutting about 100 jobs. More than 100 jobs are to go in Superquinn due to the expiry of a lease on its store in Naas, Co Kildare.
About 35 hairdressing jobs will be lost after Toni & Guy announced it would be closing four of its salons as part of a restructuring plan to secure the future of the business.
Some 85 jobs will also be lost in Galway after the Jona Group, which includes a pub, nightclub and chain of off-licences, went into voluntary liquidation early last week. At least 137 jobs could be lost in Celtic Bookmakers, the betting firm owned by former Fine Gael minister Ivan Yates, after the company went into receivership.
Music and books retailer HMV also announced that it would be closing 60 stores over the next year after being hit by a major slump in sales in the run-up to Christmas. Although it is expected that most of the Irish HMV stores won't be affected by the closures, the announcement doesn't bode well for its staff.
So will 2011 hold any chinks of light for Irish businesses -- or could the third year of the Irish recession be our worst yet? The Sunday Independent asked some of those at the helm of Irish businesses if it's going to be a sunny or desolate new year.
THE AIRLINE BOSS
Padraig O Ceidigh
The executive chairman of Aer Arann, Padraig O Ceidigh, almost saw his airline go under when Aer Arann went into interim examinership last August. The airline came out of examinership last November after the High Court approved a survival plan for the company.
"We've definitely put the worst behind us," says O Ceidigh. "The airlines that have survived have re-engineered and reinvented themselves so they are more robust. We are not going to see the same amount of airline failures as we have seen since late-2008."
O Ceidigh believes that Ireland has turned a corner on the recession.
"There's a realisation among the public that we are where we are so let's see what we can do to get out of it," he says. "It will take a number of years to get out of the recession and we're not going to go back to the good times we had in 2006 and 2007. But we will have more realistic, long-term economic growth. We will have more emigration over the next few years, however -- and that's a concern because of the education invested in our young people."
O Ceidigh believes there will be marginal growth in the European aviation industry this year. "There's certainly a pickup in worldwide aviation although that's been largely driven by India, Asia and the United States," says O Ceidigh. "The aviation industry in the EU will see about a third of the growth experienced worldwide. The Irish and British aviation markets will be challenged this year. Both countries were hit a bit more by the recession and tourism was down significantly on British and Irish routes last year."
O Ceidigh says that the British market -- the main market for Aer Arann -- is "still very weak" and that this weakness will continue into 2011. "The British market won't get any weaker, however," he says. "I believe we have hit the bottom of the tourism downturn. There's a bit more confidence coming back -- more people are moving around for holiday and business trips."
Last June it emerged that Ireland was officially out of recession thanks to a slight increase in our Gross Domestic Product (GDP -- a measure of economic growth) figures.
For most people, however, the harsh realities of the recession are still here and the entrepreneur Bill McCabe, who previously headed up e-learning company CBT Systems (later known as Smartforce), believes those realities will continue into the new year.
"Technically, Ireland will come out of recession this year but it will take more time before it reflects itself in a feeling of recovery," says McCabe, who is chairman of the venture capital firm, Oyster Capital Partners.
"The banking system needs to do more than worry about repairing its own balance sheets. A recovery will not happen until the banks start to lend to small and medium-sized businesses -- and to people looking to buy a home.
"Hopefully we'll see people having the confidence to buy homes and spend money in 2012 -- but we'll need a government policy that will ensure that banks lend to the real economy."
McCabe says the past two years have been good for venture capitalists -- essentially, investors who provide money to firms and small businesses.
"Company valuations have become more realistic, so venture capitalists have been able to acquire companies at good valuations," he explains. "Because of the cycle in venture capitalism, it will take a little time for these valuations to translate themselves into returns."
McCabe is also involved in bio-energy, a type of renewable energy. Bio-energy, however, hasn't had as good a year. "Bio-energy is a business that requires equity players and leverage," explains McCabe. "Leverage [essentially, large loans] is just not available at the moment."
THE MOTOR BOSS
You may not have spotted a 2011 car just yet but if last year's pick-up in car sales carries into the new year, it shouldn't be too long before you do so.
Although car dealers are unlikely to ever see a return to the boom times of the early 2000's, with car sales up almost 15 per cent last year, 2010 was nowhere near as disastrous as 2009. The Apprentice host and chairman of the Bill Cullen Motor Group believes 2011 will be a "steady year" for the motor trade. "The extension of the scrappage scheme to July 2011 will give dealers the boost to keep sales moving along," says Cullen. "The will is out there to spend a few bob despite the snow hammering the normal December boom. Again, we have to put that behind us and push forward with new marketing initiatives and better products."
However, Cullen believes the recession won't lift "until we have government leaders who take positive actions that will restore people's confidence". "The recent stamp duty reductions should stimulate property sales come springtime and we need some job creation initiatives as a priority," he adds.
THE ESTATE AGENT BOSS
With property prices now back to 2002 levels, the days of estate agents turning up in sports cars to sell your home are long gone. And although we are unlikely to have hit the bottom of the property market just yet, the chief executive of Douglas Newman Good, Keith Lowe, believes that 2011 will be a better year than 2010.
"The reduction in stamp duty to 1 per cent as announced in Budget 2011 is likely to lead to an increase in transactions for estate agents across the country," says Lowe. "In addition, property prices have fallen again in 2010, with prices in most urban areas now essentially half of what they were in the peak years.
"You would have to feel confident that there will be a marked increase in the number of property transactions this year. In many areas, it is now cheaper to buy than to rent and the price of some homes are actually over correcting in various sectors of the market."
As Lowe believes there is a "strong chance" that Ireland will pull out of the recession this year, he is more optimistic than most. "High exports will continue to be a big plus," says Lowe. "An election followed by a new government will also be positive. With the much-feared Budget now out of the way and certainty around the International Monetary Fund and stamp duty rates, Ireland has a strong chance of economic growth in the year ahead -- albeit at a low rate."
THE SUPERMARKET BOSS
Apart from car dealers, retailers had another horrid year last year thanks to high rent, price deflation and rock-bottom consumer confidence. Tesco Ireland chief executive Tony Keohane believes the new year will be a better year for retailers, however.
"While weather and the uncertainty about Ireland's future made 2010 very challenging, many of the issues are now clearer, allowing people the chance to plan better," says Keohane. "This gives optimism that people will have the confidence to spend some of the savings they have stored up."
Consumers are still nervous though, adds Keohane. "The Budget and its impact on spending will not be clear for a few weeks yet. Consumers continue to look at ways of saving money. Everyday business costs such as rents and utility charges remain too high. I think the ingredients are there for 2011 to be a better year for the Irish economy. If Ireland drives its productivity and competitiveness agendas, it has an opportunity to turn this difficult situation around."
THE HOTEL BOSS
The recent increase in the British VAT rate, coupled with the weak euro, could make 2011 a better year for Irish hotels than 2010, according to Pat McCann, chief executive of Dalata, which manages Maldron Hotels, and previous boss of the Jurys Doyle group.
"Ireland will become better value for British tourists as a result," says McCann. "Last year was a very difficult year for hotels and it would probably be ambitious to say that we will see an improvement this year. We would hope that business will start to level out though. It depends on what happens with the British and US markets. The British market has seen such rapid decline that we need to see some sort of stabilisation there."
Ireland, once one of the most expensive countries to book a hotel in, now has some of the cheapest hotel rooms in Europe. However, hotels have been forced to cut their rates so low that their current prices are not sustainable, warns McCann.
"The difficulty in the hotel sector is that you are either staying in the game by keeping your prices low -- or else you're going out of the game," he says.
"There are still a lot of issues for hotels. There's not much corporate activity with the banking problems hanging over us. Our corporate bookings are down about 30 per cent on the boom years. Hotels are often the first to see the effects of a recession -- and the last to see the benefits of an upturn."
THE ELECTRONICS BOSS
Like all retailers, Peats World of Electronics felt the pinch of the cold snap in the run-up to Christmas.
"The weather in December had an effect on our trade and it's hard to recover from that," says Ben Peat, chairman of the electronics retailer. "I hope that the downturn in retail will have bottomed out for 2011 but if there's going to be any sort of growth, it will be very marginal. Last year was a very tough year. We are in the business of discretionary spending but every shopper is looking for offers and for reasons to buy. Offers eat into your margins."
Peat describes 2009 and 2010 as "the worst years" he has ever seen in retail. "The descent has slowed down but big issues, such as the cost of rent and rates, remain," he adds. "We will see more redundancies in the retail sector this year. Big names will go -- as will individuals -- particularly after the December we have had."
Peat isn't holding his breath for the recession to end. "It will be a couple of years yet before Ireland comes out of the recession," he says.
THE FAST-FOOD BOSS
The idea that fast-food outlets are immune to the recession doesn't ring true with John Atherton, managing director of McDonald's Ireland. "We're not winners in a recession," says Atherton. "Our business is flat -- we've more customers but they're spending less. We're taking in the same revenue but people are having to work harder to get it."
Atherton isn't too optimistic about the coming 12 months. "We expect 2011 to be another difficult year -- as difficult as 2010 and 2009," he says. "Consumer confidence is down. People are not very optimistic. They are concerned about jobs and their disposable income is going down.
"Until people get confidence to go out and spend money, we will find it very difficult.
"We need people walking past the front door. However, people are not going out to cinemas and shops so we don't have the footfall on the high street for people to come in and buy something to eat. Tourism is down, too -- there were a million less tourists in Ireland last year than in 2009."
Atherton believes that a turnaround in consumer confidence is crucial to any economic recovery in Ireland. "2013 will be the earliest we'll see consumer confidence come back," he says.
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