Hanging in there

Top 1000:Northern Ireland's economy has been hit hard by the global slowdown but there are some signs that the worst may be over, writes Francess McDonnell

NORTHERN IRELAND’S public sector-fuelled economy may have been left battered and bruised by recent global economic storms but new evidence suggests there are some companies who are still thriving in the North.

Latest end of year results for the regional economic development agency, Invest NI, show that for the first time its client companies made record investment commitments of more than £1 billion in a 12-month period. If all of these investment commitments come good it could mean an annual boost for the local economy of around £165 million in wages and salaries.

But there are no guarantees particularly in the current economic climate that companies will deliver on their pledges – particularly if their trading environment deteriorates.

Stephen Kingon, the chairman of Invest NI, readily concedes businesses everywhere are constantly re-evaluating their positions. Mr Kingon says this will translate on the ground into companies “adopting a more cautious outlook, seeking to cut costs and delaying ambitions for expansion”.

“We are already seeing this translate into a decline in early stage work in progress which will inevitably impact on the out-turns over the next two years,” he adds.

Mr Kingon believes that while Invest NI cannot influence global macro-economic issues it can maintain a “sharp focus” on the areas it can control. One of these is by delivering “tailored support” to help companies survive the downturn.

Schemes such as a new £15 million initiative launched in June which provide grants worth up £450,000 to companies to help pay salaries are just one of the ways Invest NI is supporting firms in difficulties. The Short Term Aid Scheme is aimed specifically at helping companies which operate in the manufacturing and tradable services sectors.

These are sectors which have been particularly hard hit by the global economic downturn.

Worldwide slumps in orders have translated into job losses on the ground in the North as illustrated by the recent series of redundancies at two of the top ten companies in Northern Ireland; FG Wilson (4) and Bombardier Aerospace (6).

The manufacturing heavyweights are two of the largest employers in this sector but in the last 12 months they have shed nearly 1,800 jobs.

Job losses are a reoccurring theme among Northern Ireland’s Top 50 companies this year and few if any of the leading firms in the North have completely escaped the full impact of the slowdown.

Heavy engineering companies such as Powerscreen (50), which has shed 160 jobs in the last 12 months, continue to struggle as its key markets show little signs of recovery.

American-owned Nacco Materials Handling (44) has also axed more than 170 jobs at its plant in Craigavon over the last 12 months as a direct result of a downturn in the global market for its products.

There are also serious concerns about the long-term future of some manufacturers in the North such as Nortel Networks (14) which axed 92 jobs at its plant in Monkstown and is currently in administration.

But it is not just manufacturing companies which are under pressure; companies operating in the construction, engineering and materials sector have also found themselves at the coalface of the economic downturn.

This year’s Top 50 companies features six of the North’s largest players.

The Belfast-based Lagan Group (10), which is privately owned by brothers; Kevin and Michael Lagan, had a turnover of £481 million in 2007 and is one of the most successful diversified construction companies in the North. But recent figures suggest it has not escaped the fallout from the economic downturn and the combined turnover of the Lagan Group is now estimated to be closer to £433 million.

THE OUTLOOK for firms operating in the construction related sector such as Northstone NI (23), the materials and contracting services company, remains bleak.

Latest research from the Royal Institution of Chartered Surveyors shows that during the first quarter of 2009 there was a steep decline in construction activity in the North; the institution expects this trend to continue throughout the next 12 months.

Richard Ramsey, Northern Ireland economist with Ulster Bank, believes the pace of the decline in the local property market is slowing – which is a welcome change in direction for companies such as the Patton Group (38), a key house builder in the North. Mr Ramsey is confident that the “very worst of the downturn” is now behind Northern Ireland but he also believes that overall the economy will contract by around four per cent this year.

He says it is clear that in this scenario some companies will be under greater pressure than others.

“Northern Ireland’s manufacturing sector recorded its steepest quarterly decline in output in Quarter 4, 2008, since Quarter 1, 2001. Relative to the same quarter one year previously this represented a 6.3 per cent decline, the steepest fall on record.

“Northern Ireland’s manufacturing sector fared better than the UK and this was due to the strong performance by the food and drink sectors. Northern Ireland’s food and drink industry has recorded growth for the last seven quarters in a row,” Mr Ramsey added.

This is underlined by the strong performance from two of the Top 10 companies in the North this year, the Brazilian-owned Moy Park (5) and Dunbia (8).

Mr Ramsey said the food and drink sector in the North is in a stronger position than most. “Clearly, this sector, alongside pharmaceuticals, is arguably the most recession-proof sector, and will outperform Northern Ireland’s other manufacturing sectors this year,” he added.

There is one consistent factor in this year’s Top 50 companies in the North and that is the performance of the three dominant British multiples Tesco (2), Asda (16) and Sainsbury (18) in Northern Ireland.

Sainsbury, Tesco and ASDA between them now employ more than 15,100 people in 70 stores across the North.

The three supermarket multiples traditionally deliver strong results in the North but in the last 12 months Asda and Sainsbury have enjoyed a major boost from the cross-Border retail boom. David Davidson, Sainsbury’s regional operations manager in NI, said the company has always attracted customers from the Republic. “As the recession has taken hold, the number of these cross-Border shoppers has climbed steadily thanks to the favourable exchange rate and the fact that customers are now prepared to travel further to purchase goods at low prices,” he added.

It is a similar picture for Asda, according to Dominic Burch, head of corporate communications at Asda. “We’ve definitely noticed significant changes in shopping patterns and customer profiles throughout our Northern Ireland store network – particularly over the last 12 months.

“More and more shoppers are travelling across the border to take advantage of our prices and ranges,” Burch said.

Mike Smith, head of the School of Economics at the University of Ulster, believes cross-Border shopping volumes will continue to grow in 2009 which, he says, will deliver further “windfall effects” for the retail sector in Northern Ireland.

THE COMPANIES that feature in Northern Ireland’s Top 50 this year reflect the diversity of local and internationally owned businesses that are now driving the North’s economy forward. But Northern Ireland’s public sector continues to play a key role in the local economy.

Business advisers PricewaterhouseCoopers estimates that public expenditure is equivalent to 62 per cent of GDP, while 34 per cent of total employment and 60 per cent of all female employment in the North is currently in the public sector.

Viridian, the energy group owned by the Bahrain-based investment group Arcapita tops the Irish Times Top 50 companies poll this year.

But in reality it is the British Chancellor of the Exchequer who holds the purse strings and is ultimately the largest plc operating in the North today.