Saturday 22 October 2016

Greek pain is set to continue despite a Herculean effort

Published 28/06/2015 | 02:30

The Diskobolos at Portland Art Museumsetting
The Diskobolos at Portland Art Museumsetting

Greece's predicament is the real tragedy of the single currency. When the Greek people elected Syriza to power at the start of the year, they did so for a couple of reasons.

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They wanted to try something new - a different approach. And they were angry and fatigued with austerity and wanted to win back some pride by putting it up to their creditors.

Tragically, the last six months have yielded very little that is new for Greece. The government has invested so much time and political energy into resolving the debt issue, that limited economic gains in previous years have not been further developed.

The economy and the exchequer tax take have not progressed. The country's banks have been badly weakened in the last six months.

Syriza's opening position in talks with the EU, ECB and IMF, has been diluted beyond recognition. The motives have been right - but the methodology has not worked. As recently as February, the new Greek government wanted a debt write-off, discussions with a different group to the Troika, and end to austerity and a plan to help stimulate the economy and growth.

The Troika have yielded virtually nothing. Concessions on reducing the size of the primary surplus from around 3pc to 1pc have been on the table. Minor tweaks around extending the duration and interest rate of some sovereign debt were also on the table, but not really anything else.

The Alexis Tsipras-led government has put up quite a fight but come up against a brick wall on all of the big issues. Even worse, trust has broken down in a way that will be detrimental to Greece into the future.

The obvious lessons are there for Ireland.

Back in 2011 we had a raft of politicians and experts saying that both the last government and the current one were not negotiating hard enough with the Troika.

We needed a new team and a new approach of playing hard ball. Barstool talk in Ireland was that we should send in Gerry Adams to negotiate with these guys. Imagine where that would have got us.

I haven't heard that view expressed in Ireland since Syriza ran into the Troika's brick wall.

After all the talk, all the political capital and all the effort, the future for Greece remains as uncertain as it did back in January.

Liberty can't escape the insurance industry woes

Boston insurance group Liberty Mutual must have thought it had hit the jackpot when it bought what used to be Quinn Insurance in 2011. It was a business in administration, in the teeth of a recession and one that in the past had made profits of over €100m.

Anglo Irish Bank was a distressed seller, the administrator held on to the old bad insurance book and Liberty could set the clock at zero. Liberty paid €1 for its initial 51pc share but invested €100m in the revitalised business and then bought out IBRC's 49pc stake two years later for €100m.

But it has been a tough road since then. Liberty has spent a fortune establishing its brand and winning new business in non-life insurance. Its timing has not been as good as it first appeared.

After initially securing the 1,500 former Quinn Insurance jobs, it cut that down to around 1,000 and during the week it announced that another 270 would go through voluntary redundancy in Cavan, Blanchardstown and Enniskillen.

The job cuts have been attributed to the UK market, where there has been a massive insurance price war. It may have come to an end this year but only after motor insurance premiums were cut on average by one third between 2011 and 2014. Liberty now looks set to cut and run from the UK market.

In Ireland, competition has also been fierce, especially in motor insurance which is the biggest part of Liberty's business. Collectively, Irish insurers lost €191m underwriting motor insurance in 2013.

Liberty had around 10pc market share in Ireland but motor insurance accounted for a massive 72pc of its gross written premiums that year.

Investment income for all insurers has been squeezed. Liberty was the seventh largest player in the Irish non-life insurance market in 2013. It is a well-run business and the Americans know what they are at, but they aren't going to make a financial killing in a hurry in Ireland.

The underwriting losses in the sector in 2013 followed four profitable years. Now insurers are repricing their products and premiums have risen sharply in the last 12 months to try and turn things around. To put it in context, in 2013 for every €1 earned in motor premiums, claim costs amounted to 97c.

Liberty stuck another €25m of new capital into the business at the beginning of 2014 to "strengthen its capital and solvency position and to reduce the risk of failing to meet regulatory requirements due to investment market volatility", according to the company accounts.

Its total outlay so far in the Irish market is about €225m. In two full years of trading, it has made a profit of €20m followed by a loss of €12m. This is as much about the insurance cycle as any bad calls by Liberty.

However, its foray into the UK looks to have been ill-judged. That may have been about promises it made to retain jobs, but either way it has been a very tough market.

Back in 2011, the whole thing looked like a bad deal for the State. To offset the scepticism about the transaction, there was talk that within five years the Liberty Insurance business could be worth €800m and IBRC (that is, the State) could sell its half to Liberty for €400m.

It now looks like IBRC will be gone by 2016 and the State's takings will have come to around €100m. Liberty is at least committed to the Irish market. It will just take a while for it to earn its money.

UTV Ireland profit warning: Take three!

Assume the worst and hope for the best might be a good business mantra -but few companies adhere to it when launching something new. Exuberance and optimism take over.

And UTV Media got its projections all wrong about the possible short-term success of its new TV channel UTV Ireland.

Reality really began to bite as viewership figures continue to disappoint.

Another week brought another revised set of figures for how much UTV Ireland will lose in 2015. UTV now reckons it will be £11.5m (€16.1m) or nearly four times its original estimate of six months ago.

The problem for UTV is the combined double whammy of a lack of viewers and a lack of advertising revenue. Reasonable viewing figures but a lacklustre advertising market can always turn around over time. Companies have to act smart and wait for the market to turn. But when neither side of the equation is working, it costs money to fix.

UTV is up to its proverbials with UTV Ireland whether it likes it or not. It will have to roll up its sleeves and get out the chequebook.

That is not to say that it cannot be fixed, it just may take more time and money.

Davy stockbrokers has pencilled losses for UTV Ireland, and the UTV Media group until 2018.

The Belfast-based group has now ordered a review to look at how it can turn UTV Ireland around - but it could be next year before that will yield real results, if at all.

The other problem for UTV Media is that it isn't a huge business with a huge balance sheet. If UTV Ireland loses £11.5m this year, half that much next year, add in the start-up costs and you get a loss of £20.25 (€28.4m) in just two years for the new channel.

The projected losses are big enough that UTV Media agreed with its bank lenders for the net debt/Ebitda covenants on its loan facilities to be raised from 3.5x to 4.5x for a period of one year.

That will provide some flexibility and time according to Davy, but some management in UTV Media must be wondering would it have been better to buy TV3's debt when it was on the market.

UTV obviously felt a divide and conquer strategy was the best way to go. It took TV3's biggest programme assets and probably believed that would weaken the business sufficiently for UTV Ireland to move in.

The logic is there - but so far the signs are beyond disappointing for UTV and probably a little worrying.

Sunday Indo Business

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