Business Irish

Tuesday 11 December 2018

Business year was more good than bad and just a bit ugly

It’s been a very good year for senior executives at Eir, in particular chief executive Richard Moat, following the company’s buyout. Photo: Chris Bellew/ Fennell Photography
It’s been a very good year for senior executives at Eir, in particular chief executive Richard Moat, following the company’s buyout. Photo: Chris Bellew/ Fennell Photography
Richard Curran

Richard Curran

It has been a year more about good news than bad in the business world. The economy continued to power ahead, and exporting businesses were firing on all cylinders despite the weakness of sterling. The commercial property market was ebullient and some businesses saw a chance to cash in on the positive wave. But it wasn't good news for everyone, as even mature Irish corporate giants had a few banana skins along the way, while international threats to Ireland's competitiveness and dark clouds around Brexit still hung around.

Here is a flavour of those who had a good year and a bad one.

Good Year

1 Tracker mortgage scandal victims

After years of faffing around, the banks were finally forced to sit up and take notice of the tracker mortgage scandal - which they created. It wasn't easy. It took a detailed Central Bank probe, unfortunate individuals telling their stories to an Oireachtas committee, and direct high-level government intervention to get a serious response from banks. The numbers involved have increased dramatically, with the latest estimate from the Central Bank suggesting that around 33,700 people have been affected.

Banks have been dragged kicking and screaming into conducting complete and wide-ranging trawls of who they deprived of tracker mortgage rates.

For those directly affected, 2017 has been a good year. Not all of them have got their cash yet, and they will have to weigh up whether their compensation payments are sufficient. But thousands of people, who, this time last year, were likely to get nothing, have now been included in the redress scheme.

One case I came across recently involved a customer receiving over €29,000 in refunds for interest overcharged, interest on that overcharge of another €1,400 and a further €1,000 to cover professional advice.

The compensation element came to €3,100. Not a lot I would have thought for nearly €30,000 in overcharges.

The total came to €34,000. If this proved to be an average across 33,700 accounts, the total compensation bill will be over €1.14bn.

2 AIB

Notwithstanding its own role in the tracker mortgage scandal, the Department of Finance got a successful IPO of AIB away.

The State bagged over €3.4bn as it sold off 28pc of AIB. The shares have risen strongly since then and the debate will now focus on whether to sell down more of the bank stock at these prices.

If the State's remaining 72pc stake was sold at current price levels, the taxpayer would get back all of the €20bn or so put in to bail out the bank. However, it might make more sense to hang on to a majority stake for a while longer. But at least, it suggests we have a strong chance of getting all of our money back - excluding the opportunity cost, but let's not complain too much!

3 McCanns of Fyffes

It was a good year for the McCann family behind Fyffes. Shareholders in Fyffes approved a €750m takeover of the banana importer by Japanese company Sumitomo.

The deal ended the family connection with the company which began when Neil McCann's father, Charles, became an agent for Fyffes in 1902 and sold their produce in his Dundalk shop.

The McCann family shared out around €87m for their shares through the family's Balkan Investment Company. This company is owned by nominee companies and ultimately goes back to a family trust, so it isn't known exactly who in the family got what.

4 Eir executives

Senior executives at Eir, formerly Eircom, and big payouts, seem to go hand in hand. As a consortium controlled by billionaire French telecoms investor Xavier Niel agreed to purchase 64.5pc of Eir for an enterprise value of approximately €3.5bn, senior management are in line for payouts of up to €100m.

The biggest beneficiary will be Eir chief executive Richard Moat, who will leave the company with a very large cheque in his back pocket. It is understood he will receive the lion's share of the executive cash.

Moat has been in charge at Eir for just three years. He joins a long list of former Eircom executives who have made millions from shares they own in the company.

Moat has done a very good job in rebuilding and refocusing the business, but tens of millions in three years is one hell of a get rich quick scheme.

5 Border county residents

There have been few winners out of the Brexit debacle so far, and it still has quite a distance to run. However, the firm line taken by the Government on ensuring no hard border after Brexit has done a lot to calm the nerves of people who cross the Border daily for work, or do a lot of cross-border business.

The assurances given by the British government to Ireland, and therefore the EU too, guarantee a range of freedoms on the island from education, health and cross-border initiatives to no checkpoints. It is still uncertain, but it looks better than it did a year ago.

It is hard to put anything about Brexit in the good year camp, but there are positive signs that the UK is heading towards a softer Brexit. This could potentially help everybody in the country.

The level of solidarity shown by our EU partners was hugely surprising. A year ago, the debate was around how we would get a look-in at the negotiations in Brussels; how we didn't even have a dedicated Brexit minister; and how we were likely to get stitched up by Brussels, London or both.

6 Dairy farmers

They've had a great year. The miserable start to the end of milk quotas saw many borrow and invest for greater milk production in the midst of a sharp fall in prices. Last year much had improved and things got even better in 2017. Teagasc estimated earlier this year that average dairy net margins would hit €1,200 to €1,400 per hectare this year, compared to €795 in 2016. A year ago milk prices were rising and heading towards 30c per litre, but they are now firmly up around 33c. But be warned, farm groups say there is a price fall coming in 2018 and they want processors to use cash reserves to keep prices up. Get ready to hear some complaining again.

Bad Year

1 Apple Inc

It is hard to see how a global corporation, on track to become the world's first $1tn company could have had a bad year. Well, in an Irish context it did. The company has yet to agree a framework for ponying up the €13bn in back taxes to the Irish State demanded by the European Commission.

Delays to its plans for an €850m data centre investment in Athenry have now called the entire project into question. Apple would have built more than one data centre here and at a recent meeting with the Taoiseach, chief executive Tim Cook could not commit to the project going ahead in Ireland at all.

Apple's huge presence in Cork and Dublin keeps churning out profits and employing thousands of people, which is great news.

However, details of its new tax structure involving the island of Jersey appeared in the Paradise Papers, which doesn't do it any good.

2 Ireland's reputation on tax

2017 saw a whole new focus on whether Ireland is a tax haven. Donald Trump was name-checking us again in this context - the second successive US president to do so.

The Exchequer is relying more and more on rising corporation tax receipts to balance the books. So the attractiveness of our foreign direct investment package is as important as ever. There are possible big flies in the ointment on this, however. We will have to wait and see what happens with Trump's Corporation Tax reform package, and whether it will have a negative long term effect on inward investment.

Incentives in the Bill around repatriation of overseas profits could reduce the sums corporations have available to invest overseas. They may find it easier to repatriate billions and boost their share prices through buy backs.

Closer to home, the EU continues to have Ireland in its sights as it drives to impose a turnover tax on tech giants and pushes for greater tax harmonisation.

Ireland can technically continue to say 'no' on many of these issues, but in practical terms that cannot go on forever. Europe's enormous support on Brexit may be a favour to Ireland that will be called upon on tax in the future.

At the very least the pressure is building.

This has been another good year for Corporation Tax receipts, which are likely to exceed €8bn, but not so good for our tax reputation.

3 Ryanair

Ryanair's share price finishes out the year roughly a little ahead of where it was a year ago. Yet, the airline is facing into a whole new world, having finally agreed to recognise trade unions. Ryanair has been on the crest of an incredible growth wave but its problems this year were ultimately of its own making.

The airline made a mess of its pilot scheduling, lost too many pilots to rivals and simply failed to manage its rapid growth properly.

It had become a victim of its own success. But when trouble first erupted over its rostering back in September, the airline moved to dampen speculation that it didn't have enough pilots.

It also tried to play down the significance of having to cancel thousands of flights. It has been on the back foot since then, as pilots gained momentum in their drive for collective bargaining and trade union recognition.

The airline eventually caved in before Christmas and agreed to recognise unions. One could argue that 2017 was actually a good year for the company, on the assumption that its business model and scale will allow it to coast through the turbulence of industrial relations issues in the future, and recognising unions is a positive step.

At €100m per year in additional costs, the low-cost airline can afford to recognise trade unions. However, it also opens up a whole Pandora's box of fresh challenges and unknowns. Not least, how management will handle the changes required and whether Michael O'Leary will enjoy running a unionised airline as much as he enjoyed running a non-unionised one.

4 Paddy Power Betfair

It might seem odd to include a major Irish company that is growing profits and integrating a merger successfully into a bad year category. The Paddy Power Betfair profit machine continues to drive on but 2017 saw two bumps in the road. One is operational and the other is about management.

This year saw the impact of regulatory tightening around gambling in some of its markets, combined with the impact that greater competition in online gambling is having. Paddy Power Betfair is a giant in the industry and is among the best in the world at what it does. Its real growth potential lies in online but this has become a crowded market. Group online revenues actually fell around 3pc in the third quarter of this year despite a very solid overall group performance.

Aside from these changes in the marketplace, the main reason why it was a bad year for the group was the resignation of its chief executive, Breon Corcoran. He finishes up on January 8 having surprised the market during the summer with news that he was to leave. He has been instrumental in developing group strategy, implementing the merger and achieving cost savings.

Shares in Paddy Power Betfair tumbled on the news of his departure, and in August they were trading at £72, compared to £107 just 18 months earlier. News of Corcoran's successor, Peter Jackson, was well received and the shares have clawed their way back to £87. Jackson has a solid track record in the industry but filling Corcoran's shoes will not be easy.

Sunday Independent

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