Cantillon

Inside the world of business

Glanbia breathe a sigh of relief for sitting tight

WHAT A difference a year makes. This time last year Glanbia’s 2009 results were overshadowed by the announcement that the company intended to sell its Irish dairy and agribusiness to its majority shareholder, the Glanbia co-op. Twelve months on, the idea is very much on the back-burner.

While the Plc and co-op can say the rejection of the deal by shareholders (albeit 27 per cent of them) precludes them from revisiting it in the near-term, co-op members must be secretly thanking their lucky stars that they decided to sit tight. Global dairy markets have rebounded, taking producers and shareholders by surprise.

As John Moloney reiterated yesterday the idea to dislodge the Irish dairy business from the PLC arose from the context of historically low milk prices in 2009. The cyclical upturn of dairy markets has now overtaken.

However, the decision not to revisit the disposal in the medium term does throw up questions about the long-term strategy of the company.

Comparison year on year not that simple

REMEMBER BUDGET 2011? Its taxation measures are already being felt in pay packets, but yesterday’s exchequer data now shows the credit side of the balance sheet.

Thanks to tax policies announced on budget day, including the Universal Social Charge, income tax revenues were 25 per cent higher than in the same month in 2010.

Having spent last year running behind 2009 on a year-on-year basis, income tax receipts at the end of February are now up year-on-year. They’re running 7.2 per cent ahead of the same period last year, to be precise.

But the year-on-year comparison is not a straightforward one, as the USC encompasses the health levy. Receipts from this levy previously went directly to the Department of Health and Children and so served to lower net current expenditure figures. Now that they are counted as part of tax revenue, net current expenditure has increased.

February also saw the continuation of a familiar trend by which income tax receipts fall shy of the Department of Finance’s expectations. A shortfall of €45 million for the first two months of the year is not that significant, but neither is it a sign of confidence in the labour market or economy in general.

The department has projected that it will collect €34.9 billion in total tax revenues in 2011. However, with economic recovery far from a done deal, the exchequer numbers will prove interesting reading over the next 10 months.

Year-on year, the VAT numbers are not exactly looking too hot, suggesting continued caution on the part of consumers.

The Construction Industry Federation is unhappy capital spending continues to fall behind target and will be watching the moves of the next Government.

Bank warehouse a possible answer

KNOCKING THE banks into shape will, by necessity, take time. If firesales are forced through and the banks have to dump assets, this will push the recapitalisation of the banks well beyond the current €60 billion bill and closer to Alan Dukes’s €100 billion estimate.

The State may yet have to dip into the €25 billion contingency fund for the banks within the over €85 billion EU-IMF package.

The EU-IMF plan stipulates that the banks have until the end of 2013 to dispose of “non-core” assets to downsize them to the point where they can fund themselves again.

Most “non-core” assets held by the Irish banks are deemed to be those which are surplus to the requirements of the economy.

In most cases, these are the UK loan books of AIB, Bank of Ireland and Irish Life and Permanent.

However, given the amount of bank assets dumped in the UK market, this is just about the worse time to be selling them.

Moving those assets out of the banks and into “a long-term warehouse”, as ILP boss Kevin Murphy put it yesterday, seems like a better option. But the thorny issue how to fund these assets, possibly as much as €60 billion, remains.

And that does not deal with the €60 billion or so of the loss-making tracker mortgages that are a heavy drag on the banks’ profitability. While borrowers may have no problem paying them, the banks are unlikely to make any money on them for years to come. Yet, if they sell them, the banks will incur a heavier, upfront loss.

This could end being one packed warehouse.

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