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Richard Curran: 'Paschal's exchequer cup is overflowing - well for now, anyway'


Minister for Finance Paschal Donohoe at the Budget 2020 media breakfast

Minister for Finance Paschal Donohoe at the Budget 2020 media breakfast

Minister for Finance Paschal Donohoe at the Budget 2020 media breakfast

Paschal Donohoe is rolling in cash. And it keeps on coming. Don't ask for how long it can all last, because nobody knows, but last week's exchequer returns highlight how the Government has been riding its luck for several years now.

Another step towards another record year for corporation tax receipts grabbed the headlines. Despite the obvious good news that the State may well take in more than €11bn this year, questions remain about how long this can last and, if it is short-lived, what is the best thing to do with the money.

But elsewhere in the figures, there is a wall of cash coming in. For the first 10 months of this year, income tax receipts were up by a massive €1.3bn on last year.

Yes, unemployment has fallen and there were 45,000 more working in the summer of 2019 than a year earlier. The scale of the increase in income tax receipts isn't just explained by more people working. It has to reflect pay increases and the ability of the tax system to take a slice of that extra money.

Outside higher income tax receipts, State coffers benefited from an additional €378m in Central Bank surplus income compared with 2018. Capital receipts were boosted by an extra €278m, mainly chipped in by IBRC, the liquidated former Anglo Irish Bank.

The cost of servicing the national debt fell by €642m. It still cost €5bn. Then there is the €660m of Corporation Tax receipts above what had been built into the figures by the Department of Finance.

So if you include the €642m reduction in servicing the national debt, which came about because of the benign sovereign bond market, government finances benefited to the tune of almost €2bn from one-off or other sources largely outside our control.

On the expenditure side, there is all the money budgeted for spending that hadn't actually been spent by the end of October. This included the fact net voted government expenditure was a massive €2.1bn below profile, or the expectation built into the budget.

Net voted capital expenditure was up €892m but even that was €364m below profile. So if the Government had spent all the money it had expected or planned to, and did not benefit from the uncertain revenue streams, its figures would look very different.

That is not to say the figures are not solid or good. In fact the Government has access to enormous amounts of money, but it just may not last forever. The National Broadband Plan, the National Children's Hospital and other projects all look more affordable from the perspective of these figures.

The population is growing. More people are working. So things like excise is up €476m and Vat is up €741m.

But there is another €2bn swashing around that may not all recur here again.

DuPont deal is a big call for Kerry Group chief Scanlon

Steady as she goes or a big transformative deal? That is the choice facing Kerry Group chief executive Edmond Scanlon.

Kerry's approach to M&A in recent years has been focused on acquiring smaller rivals in key markets to expand globally. After acquiring these businesses it integrates them into the "Kerry way" and efficiency gains follow. It is a tried and trusted formula which is yielding results.

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Kerry shares have risen 32pc this year, making it the top performer in the Euro Stoxx Food and Beverage Index. Kerry has spent close to €200m on deals in the third quarter alone.

But it is reported to be taking a look at acquiring or merging with Du Pont's ingredients and nutrition business. This deal would be big by any standards as this DuPont division is a €18bn ($20bn) business. However, it would also deliver one of the broadest food ingredients portfolios in the world.

If media reports are accurate, Scanlon may have a lot to weigh up. Kerry is probably not the only interested party but is reported to be the front-runner. A DuPont deal could be transformative - a phrase that used to be associated with Kerry but not for a while.

Equally, no deal is transformative simply by writing a large cheque or issuing new shares. You have to make it work. A deal of this size would have to be carefully structured. It could be constructed in a way which involves hiving off DuPont's nutrition division into a new business which would merge with Kerry Group.

What would be the shareholder split and who would be in charge? Such a big beast would take time to be fully integrated into the "Kerry way" with its proven track record.

DuPont's preferred option is a so-called Reverse Morris Trust (RMT), where its shareholders would initially retain more than 50pc ownership in what would become a new company comprising its nutrition and biosciences business and Kerry. An RMT is potentially a tax-free transaction.

Kerry Group has never lacked ambition. Its major transformative deals happened back in the 1990s and noughties. But the current more mature solid performance means Kerry is seen as a reliable steady performer which always delivers.

Paying for a DuPont acquisition would likely involve issuing new shares which would drag on the Kerry share price. At €113 per share, its market capitalisation is €20bn.

It is a hard call for Scanlon. Stick with what continues to work very well or take a chance but for a bigger prize?

Mainstream boss O'Connor benefits from thinking big

Sustainable energy entrepreneur Eddie O'Connor continues to deliver with his Mainstream Renewable Power. The business's latest venture is in Chile where it raised $580m for major wind and solar energy projects.

Mainstream remains a private company with O'Connor owning around 40pc of the shares. At a grey market in its stock last year, shares sold for €9, which values O'Connor's 30 million shares at around €270m.

In January this year, investors subscribed for new shares in the company at prices ranging from €3 to €6. O'Connor had big ideas when he founded Mainstream and they have turned into very big plans.

Accounts for the company show that in 2018 it made a profit for the year of €487m. This came after selling its Neart Na Gaoithe offshore wind project in Scotland for €610m. This project had been dogged with planning issues for years and various court challenges went all the way until eventually Mainstream won, freeing it up for a sale.

Accounts show the firm's cost of sales of €75m was due to the Scottish project. As a developer of projects from conception to completion, it is ironic Mainstream is a multi-million euro wind energy business with zero revenue from power generation in 2018.

It develops and then moves on. After building and then selling on Airtricity, O'Connor could see the global potential of wind energy and solar projects but offshore wind in particular has moved slowly here.

The Government is under pressure to deliver on renewable energy targets and, together with improvements in the technology, offshore is back on the table.

Meanwhile, O'Connor is sitting pretty with a 40pc stake in a business with a track record, huge credibility, very little debt and a large bundle of cash.

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