Business Week: clamour for ‘stable government’ as Brexit vote looms
Week also dominated by a raft of company results and controversies over executive pay
Philip Lane: hinted at provision of emergency liquidity for banks. Photograph: Jason Clarke.
Another week has trundled by and still the corridors of Government buildings remain eerily quiet – but some cracks in the ice of the current impasse seem to be appearing.
With some suggesting a Fine Gael minority government could be in place in the coming days, finally the business of running the country can take centre stage again – and not before time.
The Department of Finance has warned in its stability programme update to Brussels that the dangers to the economy are more acute now than at any time since the height of the global crisis.
The Department is anxious that the woes of China and an assortment of other emerging markets could push the world economy towards recession.
“While it is not the central scenario, it is crucial from an Irish perspective to be cognisant of the risks posed by a sharper-than-assumed global slowdown,” it said.
So, time to form a government. When it does take office, it’s sure to be buoyed by the news that it may have an €200 million more than previously thought at its disposal for tax and spending measures in 2017.
The extra cash, from increased economic growth, tax returns and favourable rulings on EU fiscal guidelines, is unlikely to gather dust, with health service spending way over budget, and public services crying out for investment.
Among the more pressing issues for a government is the British referendum on EU membership on June 23rd. Peter Sutherland, recently retired chairman of Goldman Sachs International, said the poll was “the biggest political- economic event in 70 years of history”, and it was “disappointing to put it mildly” not to have a government in place yet.
In just the past couple of weeks, Fine Gael MEP Brian Hayes did not mince his words when he said the Government was not prepared for a Brexit and that work on a contingency plan must get under way.
For its part, the Government this week said it could not “fully develop” contingency plans for Brexit, as the terms of departure are unknown. The Government’s observations were set out in a note to TDs and Senators, which identified threats to trade and financial market stability if UK leaves.
If anyone was in any doubt as to the potential seriousness of the situation, they should take note of Central Bank governor Philip Lane, who hinted at the provision of emergency liquidity for banks if a Brexit was followed by financial market dislocation.
One of the chief concerns for Ireland is a devalued sterling – and the fact that it strengthened to a 10-week high against the dollar after US president Barack Obama intervened and urged Britons to stay would suggest that a vote to the contrary could mean trouble.
And it’s not just the Republic that would be affected. It could be much worse for the North. A Nevin Economic Research Institute report suggested it was likely to be the region “most affected” by a UK exit.
The institute also said areas of the local economy, particularly agrifood, would be vulnerable to a “disruption in EU trade”. It could also put “further strain” on the North’s public finances because it would lose access to EU funding and support.
Former northern secretary Peter Mandelson also warned the North’s economy would be “negatively affected” by a vote to leave. Dr Edgar Morgenroth, associate research professor at the ESRI, meanwhile warned that Northern Ireland’s hopes of attracting more companies to invest by introducing a new, lower rate of corporation tax in 2018 “would be reversed”.
Another issue the new Cabinet will have to deal with is the housing crisis. Property prices were up 7.4 per cent in the year to March, while Central Bank governor Philip Lane dismissed the notion of statutory limits on mortgage interest rates. He said a “high evidence threshold” will be set to justify any move to loosen mortgage loan caps.
These are challenging times for the agrifood sector. The Irish Farmers’ Association had its first agm on Wednesday following the departures of general secretary Pat Smith and president Eddie Downey over the former’s high pay and severance package.
Following yet more controversy last week – this time at Ornua, where it was revealed the nine top executives were paid €9.2 million in salaries and bonuses over the past two years – the IFA’s new president Joe Healy promised that transparency “will be maximised”.
It was revealed this week that nine executives at the Dairygold Co-operative Society shared approximately €2.68 million in pay, bonuses and pension contributions last year, while the company reported lower profits and revenues for 2015. Chief executive Jim Woulfe described it a “testing” year after the co-op reported a pretax profit that declined by 71 per cent from €32.2 million to €9.2 million.
Glanbia said its sales fell in the first quarter by 0.8 per cent on the year. Stripping out the benefits a weaker euro rate against the US dollar, the Kilkenny-based global nutritional group’s sales dropped 1.9 per cent. Still, the company said it to expected its full-year adjusted earnings per share to grow between 8 per cent and 10 per cent.
There was better news for food group Kerry, which reaffirmed its full-year earnings guidance after reporting a 2.9 per cent growth in business volumes in the first quarter. The company said it was confident of delivering between 6 to 10 per cent growth in adjusted earnings per share to a range of 320 to 332 cent per share in 2016.
There was plenty of moving and shaking elsewhere too. A shareholder uprising at CRH led to more than 40 per cent voting against a bonus package for the company’s top executives. The motion to pay chief executive Albert Manifold a maximum annual bonus payment of up to 225 per cent of his salary, as well as a share plan of up to 365 per cent of salary over the coming years, was passed at the company’s AGM with the approval of just over 59 per cent.
Addressing reporters afterwards, Mr Manifold said: “I recognise I’m well-paid.”
Elsewhere, Paul Coulson’s Ardagh Group revived plans to raise hundreds of millions of euro in equity after unveiling a $3.42 billion (€3 billion) debt- funded deal to become the world’s third-largest beverage can manufacturer.
Separately, food retailer and wholesaler Musgrave bounced back into profit, following losses of €9.6 million in 2014. The company, which operates retail brands SuperValu, Centra and Daybreak, posted revenues of €4.4 billion and a profit before tax of €67.5 million for 2015.
Listed Irish hotel group Dalata, which operates the Clayton and Maldron brands, said it would consider paying a first dividend to shareholders in 2017. Speaking after its agm in Dublin, chairman John Hennessy told The Irish Times the company was performing ahead of expectations and the issue would be addressed once it had invested the remaining €100 million in funds at its disposal for expansion.
Finally, the iconic O’Donoghue’s pub that was once a regular haunt of the Dubliners and Christy Moore, recorded a sharp rise in accumulated profits last year. Newly-filed abridged accounts show the family-run bar on Dublin’s Merrion Row saw accumulated profits increased from just €31,255 to €537,955 in the 12 months to the end of June 2015.