Pressure is growing on the bosses' barometer
Company-performance figures released recently give accurate signs of the future Irish economy, writes Roisin Burke
Published 21/11/2010 | 05:00
THEY are the highest paid people in the country. And they have the inside story on what's happening across their sectors. Over the last two weeks, Irish company bosses have been updating the markets on the performance of their companies. Outside all of the corporate waffle, the figures provide an accurate barometer of how the Irish economy is going to perform over the next year.
Bookie Paddy Power is one of the key indicators for the Irish consumer and how we feel. If consumer confidence is strong, we bet and bet big. Unfortunately, the firm's latest figures show the opposite is happening. Amounts staked this year are down five per cent. Mind you, we're winning a bit more, with winnings up nine per cent.
"Irish economic conditions have become more challenging," the bookie group boss Patrick Kennedy said.
In other markets, however, there was growth, with the amount of online betting in the Australian business up 34 per cent.
The group announced 1,440 new jobs "to be in place by December 2013". Betting against the mooted doubling in gaming taxes, some 500 of these -- from web wizards to number crunchers -- are to be in Ireland, at the Tallaght online nerve centre.
Greencore saw its share price soar last week after taking the wraps off a mega merger with British rival Northern Foods. The company's results are real indicators for consumer-spending patterns and food-price inflation due to commodity prices.
The world's biggest sandwich-maker bounced back to profits this year but expects sales growth at "more modest levels" for early 2011, boss Patrick Coveney said.
Soaring commodity prices for cereals and cocoa mean "ingredient inflation is more pronounced now than it was a year ago", he said.
Convenience foods like its Goodfellas pizzas and Donegal Catch brands have batted well during the recession, and though Greencore has exited some areas of that business Mr Coveney predicts "buoyant demand" in that area for 2011.
Gene Murtagh's buildings materials group is a wind sock for the construction market and for economic growth. News was grim. Mr Murtagh warned national austerity measures here and abroad would hammer the market for the year ahead.
"That broad cautionary sense has also crept into expectations for the construction environment in many of the group's markets," its report last Monday said. However operating profits are forecast to remain flat.
But perhaps the most crucial thing to come out of Kingspan's numbers was the news that it had done a €120m deal to buy CRH's insulation business. Mr Murtagh paid cash for the assets, which shows cojones in these tight times. Could he be looking at a brighter future?
Are consumers across Ireland and the UK still having one of their five a day? Nope. It appears that banana sales are not as recession-proof as people thought. The upcoming spectre of food inflation coupled with an increasingly weak retail landscape has hit Fyffes hard.
"Trading conditions were difficult for much of the first half of the year as previously indicated, resulting in a significant reduction in profits in the group's banana category," said chairman David McCann.
However, the situation may improve as "market conditions have normalised during the summer months. The group continues to pursue increases in selling prices in all markets".
Allied Irish Bank
The lack of confidence by business in Irish banking was confirmed last Friday as AIB revealed it had seen corporate depositors withdraw €13bn in deposits since the start of the year.
With a dazzling display of euphemism, the bank's trading statement said: "Economic conditions remain challenging in Ireland." Profits will be down on last year, it added.
This has a major impact on the economy and on consumer spending and corporate spending over coming months.
The bank's number of defaulting loans is increasing, especially in the Irish market. The number of its customers in mortgage arrears is rising, but more slowly in Q3 than in Q2.
"Future unemployment will strongly influence mortgage arrears," Friday's report said.
While Ireland is just a pimple on the corporate bum of the low-cost airline, its latest figures may indicate falling Irish consumer confidence. "We have again cut our Dublin winter capacity by 15 per cent, and have switched more aircraft to other European countries, which have scrapped tourist taxes, and cut airport charges. The Irish Government must scrap this damaging €10 tourist tax," boss Michael O'Leary said.
"Traffic at Dublin Airport is heading for a second year of record losses during a year when Ryanair's traffic will grow by seven million passengers," he added.
However, given that any recovery will be dependent on exports, the health of our European trading partners is key to our survival.
Increasing Ryanair profits mean that things are improving across its European routes. And people are paying more for travel.
Ryanair expects year-end yields to be "slightly better than previously forecast, within a range of €380m to €400m."
Irish Life & Permanent
Reporting on the eve of the IMF taskmasters descending on Dublin, Ireland's biggest mortgage lender flagged mortgage market concerns.
"Arrears cases (more than 90 days) in the Irish residential and commercial mortgage books continue to rise," CEO Kevin Murphy said last Wednesday.
Consumers falling behind on payments on other loan products is a growing concern. "Arrears in consumer finance continue to decline."
"The Irish economy is recovering," Mr Murphy maintained, "but more slowly than expected in 2010.
The very strong performance of the export sector -- both multi-national and domestic companies -- has been offset by weakness in consumer confidence and by the effect of fiscal tightening.
"However, unemployment is showing evidence of stabilising." This is good news for the economy but better news for the banks as it may indicate that the number of people failing to pay mortgages may moderate.
Bank of Ireland
"Economic conditions in Ireland remain challenging as anticipated. However, growth appears to have returned to the global economy," according to chief executive Richie Boucher.
But a forecast of a 40 per cent drop in profits means there aren't any green shoots worth talking about.
"While good export performance has continued, consumer confidence has abated. Unemployment levels, while remaining elevated, appear to have stabilised."
The bank seems to think the worst is over for customers struggling with loans. "While economic conditions remain challenging ... impairment charges on loans and advances to customers peaked in 2009 and that the overall charge will progressively reduce in each of 2010, 2011 and 2012."
BoI's corporate loan book has begun to benefit from "general improvement in world economic conditions".
"While arrears in our Irish mortgage books have continued to rise, there is evidence that these are stabilising ... our loan losses for our Irish mortgage portfolios are in line with our expectations. Arrears in our UK mortgage book have stabilised over recent months."
Christoph Mueller has done quite a job turning around Aer Lingus and the airline is probably a better barometer of Irish trade and consumer confidence than its rival -- this is because most of its traffic either originates from or arrives in Ireland. While profits are up 34 per cent, Mr Mueller is cagey about the future.
"We remain cautious on the outlook for 2011 given concerns about the durability of the recent aviation sector performance as well as continuing economic uncertainty in our primary markets.
"We continue to have concerns about the sustainability of the current aviation sector upturn in Europe and North America.
"Aer Lingus remains exposed to the continuing weakness of the Irish economy," he said.
"We also note the uncertain impact that proposed austerity measures may have on Irish and UK consumer confidence and spending."
Stan McCarthy's global food group expects double-digit growth by the end of this year.
But although business and profits continue to grow solidly, raw material costs of dairy, sugar, cereal and edible oils are "trending upwards" too, the food group noted.
The agri-food giant will continue to expand its food technology in the Americas region -- it bought a California flavours business recently -- and its food pharma business worldwide.
"The group remains on track to deliver mid-teen growth for the full year," the report said.
Are we going to be buying Xboxes for Christmas or is the retail sector completely bombed out? DCC distributes everything from KP peanuts to Bollinger champagne and Xboxes, therefore it gives a real insight into the mind of the Irish consumer.
DCC boss Tommy Breen expects profits to rise in the 12 months to March 2011. But not by much.
There is a "difficult trading environment" for its food and beverages business. So not much in the way of champagne being consumed.
Winter is a lucrative season for its biggest and most profitable energy division. While last year's big freeze was a bonanza for this oil-distribution and fuel-card business, Mr Breen expects more modest growth in the first quarter of next year.
Its healthcare division will feel the strain of cutbacks. "In Ireland, government-spending constraints continued to increase price pressure in the public healthcare system ... the trading environment in the Irish hospital sector remains challenging," Mr Breen said.
The company is also exposed to the UK, our main trading partner. "Demand for goods and services will be impacted by the current economic downturn, especially in the key British market."
Latest figures from Gary McGann's paper company provides more of an insight into the global economy rather than lifting the lid on any major trends in Ireland. Profits were up by 26 per cent last quarter and boss Gary McGann is positive about future prospects.
"Good market conditions, combined with higher input costs, underpin continued corrugated price recovery," he said.
The cardboard-box maker has upped its prices, which it hopes will restore margins in 2011, along with better global market conditions.
The international food ingredients and cheese group is expecting a positive performance for this year after a strong first half. But before we get carried away, this is primarily due to improved conditions abroad. This is good news for the export market.
However, at home there's little to cheer about. "Although the Irish consumer food market continues to be challenging, the group's overall operating environment remains positive due to improved global dairy markets and good demand across key nutritional product sectors," its recent statement said. The market for its dairy products here has been "mixed" but conditions are improving.