Wednesday 23 October 2019

Richard Curran: '2018 has been the year of the Good, the Bad and the Brexit'

Brexit has often dominated the headlines — and the markets. Photo: Bloomberg
Brexit has often dominated the headlines — and the markets. Photo: Bloomberg
Richard Curran

Richard Curran

It has been a difficult year to define or neatly sum up in the business world. The headlines have been dominated by Brexit which is all about uncertainty and bad news.

Yet the economy still kept growing at a very solid pace. New jobs from inward investment and indigenous firms have been created and the rate of unemployment has continued to fall.

It’s been yet another stellar year for Amazon founder Jeff Bezos. Photo: Reuters
It’s been yet another stellar year for Amazon founder Jeff Bezos. Photo: Reuters

At the same time, it has been a year in which old uncertainties have come back to the fore. Many people say they are not seeing a decent slice of the wealth being created through huge corporate profitability. The housing crisis has set a different tone on quality of life issues and it has remained very much front and centre.

Uncertainties about the implications of Donald Trump's trade wars, his corporation tax changes and his sheer unpredictability have prompted some to question whether the global economy is heading for a real shock.

Stock markets have had a bad year and many investors are unsure about the deeper long-term implications that the inevitable end of quantitative easing may have on the bond market.

Against that backdrop of profit and progress combined with deep uncertainty, some have had a better year than others. Here is a sample of some who have had a good year and a few who haven't done so well.

Ryanair boss Michael O’Leary has had it tough. Photo: PA
Ryanair boss Michael O’Leary has had it tough. Photo: PA

Good Year

1. Paschal Donohoe

Napoleon Bonaparte wanted to be surrounded by lucky generals. Finance Minister Paschal Donohoe, a bit like his predecessor Michael Noonan, has been quite lucky in the job. Despite the terror of Brexit, the housing crisis and Trump, the Irish economy has continued to enjoy favourable tailwinds.

Even when he has failed to keep a handle on public spending, such as the massive overruns in the Department of Health, the strength of the economy has boosted the exchequer coffers and made things a lot easier.

In a year when health spending is overrunning by more than €1.1bn, the corporation tax take continues to grow, reaching a record €9.4bn in the first 11 months of the year. Compare this with €8.2bn for all of 2017 - which itself was a record.

Despite a clampdown on international tax avoidance that is supposed to see a certain day of reckoning for Ireland, the opposite is happening with headline numbers. The State took in 20pc more corporation tax than it expected. The figures allow the minister to run a budget surplus this year for the first time since 2007, despite ratcheting up public expenditure.

2. Seamus Mulligan

Waterford-born Seamus Mulligan sold Adapt Pharma during the year for $735m. Mulligan owns 75pc of the company, having taken a punt on it six years ago. He stands to receive $550m from the deal if future targets are met but this year bagged an initial cash payment of $431m.

This isn't the first big company sale for the former Elan executive. He has co-founded two pharma businesses in the last 13 years. After only seven years the first sold for $500m. He then moved to Adapt, and it has been sold with a $735m price tag.

Adapt has developed a spray treatment which can be applied in cases of opioid overdoses.

3. Anglo Irish bondholders

Who would have thought that you could hold or buy junior bonds in a bank that went wallop with a financial hole of €30bn and still get paid in full? That is what happened this year with holders of €270m worth of junior Anglo Irish Bank bonds. We don't really know who the beneficiaries are. These bondholders held out and refused to accept a write down on their bonds and have now been rewarded, at the Irish taxpayers' expense for their "endeavours".

Bonds like this change hands regularly and some of them were most likely bought at rock-bottom prices. There is no public register of ownership and we may never know who some of them are and how much they paid for the bonds.

We do know that Irish taxpayers funded the collapse of Anglo Irish Bank and Irish Nationwide together to the tune of €34.7bn. A fraction of that money is coming back - possibly around €1.2bn from the liquidation of IBRC and a slice of the expected €2bn to €3bn surplus Nama will make when it winds up.

4. Glanbia plc

On the plc front there weren't that many real winners in share price terms. The ISEQ overall index of Irish shares is heading for a 20pc drop this year. International uncertainty, frothy valuations and Brexit are key factors. But against that backdrop Glanbia has continued to execute its strategy well. Its nutrition business, which has been growing in the US, has done well and been backed by the acquisition of the SlimFast brand in October for $350m

Revenues grew in the first half but profit fell. This is on the back of heavy capital investment by the group and it expects its second half performance to remain strong. Glanbia shares are up about 8pc in a year of stock market carnage. Currency fluctuations are a factor but the company has a plan and is sticking to it.

5. Jeff Bezos

If you are as rich as Amazon founder and chief executive Jeff Bezos, every year is probably pretty good. This year was even better. Bezos was pronounced the richest person in the world by Forbes in March of this year, as his 17pc stake in Amazon was valued at $112bn.

Things got even better when the share price peaked in September at $2,000 valuing the company at $1 trillion and his stake at $170bn. Since then the share price has dropped dramatically to around $1,190. Yet, unlike Apple or Facebook, it is still trading at a higher level than at the start of the year.

Bezos is growing Amazon and the carnage on the main streets of retail America this Christmas is driving home that point. Bezos has not managed to deal with the very real scandal of low pay rates in the firm. His net worth grew by a staggering $84bn in a year, prompting (somewhat inaccurate) headlines to say he makes more money in a minute than the average US household makes in a year. This year he did finally respond to criticism about low pay by introducing a minimum $15 per hour pay rate for Amazon staff.

Bad Year

1. Ryanair

Ryanair may have made a lot of progress this year in negotiating trade union deals with staff, but it came at a price. Throw in the headwinds of staff costs and oil prices, and the share price has taken a pasting. It started 2018 on €15 and is now down around the €10.60 mark. That is a drop of nearly €5bn in its market capitalisation.

It was a tough year for the board with a heated AGM and an initial decision to ban the media from the event, on which it later relented. Shareholder advisory groups questioned the fact Ryanair chairman David Bonderman had been in situ for 20 years. He was re-elected to the board but with a vote of 66pc - not a ringing endorsement.

2. Aryzta

When it comes to tight votes at annual general meetings, few are closer than at baked goods group Aryzta. None of the directors secured more than a 62pc vote to stay on, including company chairman Gary McGann and chief executive Kevin Toland.

It was an annus horribilis for Aryzta as a series of profit warnings seemed to get worse. In May the stock lost 27pc in a day on yet another profit warning.

The group will hope it has turned the corner after getting its €740m (net) rights issue away by the skin of its teeth with a 52pc vote backing it. The rights issue is done and the group can now concentrate on its three-year cost-cutting plan. Quarterly results published before Christmas gave some encouragement that in trading terms it may be about to turn a corner.

3. Greencore

If you buy a business in the US and then sell it just 16 months later at a profit, why should that be a bad year? In Greencore's case the US acquisition and previous operations in America were a centrepiece of its future growth strategy.

When things started to go wrong in the US, Greencore chief executive Patrick Coveney dedicated his time to trying to fix it. The best fix was to sell the American operations for £817m. Finding a buyer at that price was undoubtedly a relief for senior management and a short-term boon for investors who will benefit from a share buy-back at a premium price. Eaten bread is soon forgotten and next year the focus will turn to how to continue growing a business which is almost exclusively focused in Brexit Britain.

4. Mark Zuckerberg

It seemed that Mark Zuckerberg spent most of 2018 explaining - and badly at that. Facebook was engulfed in scandals and criticism that it has failed to properly police the content that appears on its platforms.

Zuckerberg promised a big rethink at the company.

From the Cambridge Analytica scandal to promises that it must do better, Facebook's reputation took quite a pounding in 2018. So did its share price.

It is down 38pc since July. That has wiped around $234bn off the market value of the company.

As 2018 draws to a close there is a sense that the Facebook data management story is going to run and run with fresh revelations published in The New York Times in recent weeks suggesting it has maintained special undisclosed data-sharing arrangement with more than 150 companies.

Facebook's big rethink is in big trouble.

5. Mike Lynch, founder of Autonomy

In November the United States filed criminal charges against Mike Lynch, the software engineer who founded Autonomy. Lynch was born in England to parents who were originally from Tipperary.

He sold the business to Hewlett-Packard in a deal worth $11bn seven years ago. HP wrote off three-quarters of that value after the acquisition and made allegations against Lynch and his colleagues of financial mismanagement.

HP began a civil legal action and Lynch, who has always maintained his innocence, counter-sued saying HP had mismanaged the business after the deal.

A Serious Fraud Office investigation in the UK ended in 2014 without any charges being brought but the US authorities have continued to investigate. They allege 14 counts of fraud and conspiracy.

Lynch says the whole thing is a "travesty of justice."

Sunday Independent

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