Wednesday 18 September 2019

Richard Curran: 'Donohoe's EU digital sales tax win was just the first round of fight'

Facebook plans to move more than 2,000 staff from Grand Canal Dock to the AIB Bankcentre in Dublin’s Ballsbridge
Facebook plans to move more than 2,000 staff from Grand Canal Dock to the AIB Bankcentre in Dublin’s Ballsbridge
Richard Curran

Richard Curran

Just a week ago commentators (including myself) described how Paschal Donohoe had become isolated in opposing France's idea of a digital sales levy on tech giants. We believed Donohoe would be practically standing alone among EU finance ministers during the week, in defiance of a groundswell of opinion that a digital tax on sales was the way to go.

Instead of being boxed into a corner, our feisty finance minister put the gloves up and saw bigger opponents back away. Even the Germans were in no hurry to see an EU-wide levy introduced.

Instead they want to wait for an OECD report to be completed, which should shed new light on the most pragmatic way forward. This is in line with the Irish position. A big win for Paschal? Not quite.

The French won't be happy. (Perhaps they'll get us late into the night as the final touches are agreed on Brexit).

The digital tax issue has not gone away either and individual countries are going ahead with their own measures. However, the damage the Irish Government feared could be done by going with an EU-wide levy has for now been avoided.

At the same time it has been reported that the European Commission is considering conducting a tax probe into Facebook's Irish corporate structures. It isn't clear whether a full investigation will take place, but reports suggested the EC had sought documentation relating to tax structures.

Once again, at the very least it brings Ireland's corporate tax policies into the spotlight. Bear in mind the practices for which Apple Inc was fined by the EC were historical as the various loopholes it used had already been closed off in Ireland.

Facebook has faced criticism before when it comes to how much tax it pays, but it is full steam ahead when it comes to its investment in Ireland. Facebook announced it is moving 2,275 of its Dublin staff from Grand Canal Dock to AIB Bankcentre building in Ballsbridge. The difference is, its new offices could take up to 5,000 more employees.

This marks a huge commitment to Ireland and not one that could be unpicked in a hurry. It is deeply ironic that just as Ireland has faced more bad publicity around its corporate tax rules and had to close off more loopholes, actual corporate tax receipts continue to go through the roof.

Not even Brexit is eroding the corporate tax take as FDI continues apace. The real challenge for the economy, and the government, is where all of these workers are going to live. This isn't just about the housing or rental crisis, it is about public transport, parking and congestion.

Before the crash the Fianna Fail government had a smart economy blueprint in which IDA Ireland only pursued higher value jobs in FDI projects. The economic crash meant that policy had to change. We needed an emergency jobs plan for a country on life support. That meant attracting the maximum number of jobs possible.

Call centres came back in vogue. Anything that moved on the jobs front was hoovered up. And it has made a big difference - especially in the main cities.

It is getting close to a time now when the next jobs policy might revert back to fewer but higher value jobs as Dublin housing stock and infrastructure creaks.

Brexit now holds key to future of Greencore after US reverse

It is quite a feat for a chief executive. You run a successful company in the UK and decide to take on America. Your US venture is dogged by problems. Eventually several years later you stop losing money in the US operation so you spend three-quarters of a billion dollars buying a bigger business there.

You build it up as key part of your strategy. You raise new equity to make the acquisition and you say it will be transformative for the company. Just 16 months later you shock the market with a big profits warning because the US division is going badly. You promise to fix it.

Six months later you say you are selling the US business and retreating back to the UK. After all that, you then say you are "happy" to stay in your job leading the group.

This is Patrick Coveney's story at Greencore. Despite the surprise profit warning in March which sent the shares tumbling by 30pc, and the withdrawal from the US less than two years after the transformative acquisition, Coveney is most definitely staying on at Greencore.

The trick is the price. He is selling the business for more than he paid for it. Having found a buyer for Greencore's Peacock Foods who is paying £817m for it, shareholders are keen to get their hands on the benefit. Finding a buyer who will pay a reasonable price has saved the day.

Coveney is at least pragmatic rather than stubbornly trying to fix something that hasn't worked. Few would argue that Coveney is making a mistake by selling the business for this price, but perhaps the mistake was made some time ago in the failure to make the US operations really work for the group.

It is a bit of a 'least worst' outcome for Greencore shareholders who approved the sale and special dividend during the week. They are in line to get 72p per share in a special dividend from the proceeds although a significant number of them would prefer a share buyback to avoid tax bills on the dividend.

What's left in Greencore is a convenience foods business with revenues of around £1.4bn and net assets of £788m. It has a strong presence in the food-to-go segment.

The problem is its UK focus. Greencore is big in the UK convenience foods sector but that is about it. Coveney will have the financial firepower for more acquisitions after this US deal, but what will he buy? He says he will buy in the UK. Now doesn't seem like the right time for that.

The British food category grew at 2pc compound per year between 2013 and 2018, but food-to-go has been growing at a compound rate of 5pc. The problem for Greencore is Brexit.

What happens if its wage bill rises due to a shortage of low-paid migrant labour, while sterling falls and decreases the real value and buying power of earnings in the UK? Just like in Ireland in 2009, everyone might start making the sandwiches at home again and bringing them to work.

The group will also lack the counterweight of being in other countries. At least Greencore knows the UK market inside out and has scale there.

But others will want to eat its lunch in that market too.

Sunday Indo Business

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