Inside the world of business
DCC probably happy to have left Manor Park behind
IF YOU really want to waste a snow-free Saturday morning, a quick trawl through the Manor Park Homebuilders/DCC archives will remind you of how things have changed.
The Moran family bought industrial holding company DCC out of Manor Park just over two years ago at a cost of €181 million, a high proportion of which was borrowed.
Manor Park is still carrying €138 million of that debt, and had an €8 million interest bill last year. Even at that, the price it paid was about half what DCC’s 49 per cent stake in the home builder would have fetched a few years earlier at the height of the boom.
At one stage, while Jim Flavin was still chief executive of DCC, the industrial holdings company looked like it might buy the Moran family stake. At the time, it was suggested that it could offer a price of over €200 million.
When the Morans bought out DCC, Joe Moran signalled that they were there for the long term. His son John and daughters Cara and Adrienne are directors and run the business on a day-to-day basis.
They will be there for the long haul. Even if they wanted to, it is unlikely that they could sell the company, or any stake in it.
Manor Park is selling homes, and is doing reasonably well in the circumstances, according to Moran himself. But there’s no getting away from the fact that it is selling something for which demand is still falling, with a consequent impact on prices, and it still has considerable debt to work through.
DCC is probably happy that it got out when it did, even though it got half what it might have made had the deal gone through just a few years earlier.
Modest rate cut is a start
There are signs that local authorities will cut the rates that they charge businesses this year. Given that these costs have been rising by up to 6 per cent a year for most of the decade, then the reductions are going to look modest, but they’re going the right way.
This week’s figures from the Central Statistics Office (CSO) show that the price of virtually everything fell last year. For example, food, which is apparently always in demand, was down 8.1 per cent.
But the State, which exhorts the rest of us to be more competitive, increased the cost of services such as health, education and public transport. A year ago, Dublin Bus defied logic and increased its charges while acknowledging there was less demand for its services. Those clichés about buses sum up the State’s approach: it’s never there when you need it, and then charges too much and takes too long.
These costs all make it unnecessarily expensive to do business here; ask the National Compeitiveness Council (NCC), which also reported this week.
Now that the Government has - with a lot of revving and exhaust fumes - ground its double decker into gear and cut wages, it looks like there will be at least some benefit for the economy as a whole.
However, that’s just the first step. State companies, which provide vital services like energy and public transport, have to follow the lead of their shareholder and cut their costs including wages as well. They must also ensure that customers, rather than their bottom line, get the benefit of this.
State borrowing cheaper
The National Treasury Management Agency (NTMA) wasted no time in kick-starting the Government’s borrowing drive for the year by raising €5 billion on a 10-year bond this week.
The Government’s debt management agency was following the same “early bird” strategy pursued last year by going out into the bond markets during the first fortnight of January.
The yield on the bond – the cost to the State - came in at 1.62 per cent above what German pays for 10-year debt. This is substantially better than the 2.44 per cent over Germany’s borrowing costs that the State paid for a 10-year bond last June and down from a worrying high of 2.84 per cent last March.
The reduced cost reflects a stronger appetite for Irish sovereign debt and comforting reassurance that investors believe the Government took the right decisions in the Budget to start the climb out of the deep financial hole.
Ireland has clearly managed to decouple itself from Greece, which is in a far deeper and ever deepening crevasse. Greek 10-year bonds matched a 10-month high at a yield of 2.77 per cent above Germany at one point yesterday as concerns grew over its mounting debt position.
Governments moved early to take advantage of January decisions by fund managers as some €24 billion of sovereign debt was sold to finance growing budget deficits across Europe.
Given that the Government needs to borrow €20 billion this year, the NTMA’s raising of €5 billion on a syndicated deal is a good start and it can now choose the cheaper auction route to borrow the remaining €15 billion.
Starting next Tuesday, the NTMA will raise €1 billion to €1.5 billion on a series of 11 monthly auctions ending in November. The auctions mean that the NTMA can avoid the costly fees charged through the syndicated sales.
The Government’s borrowing last year came by way of €23 billion from four syndicated deals and €10.8 billion through nine auctions. The debt mountain is not quite as high this year.
John Corrigan, the new chief executive of the NTMA, was right when he said this week that the agency was in “a very comfortable position” for the rest of the year.
MONDAY
Retail Sales data for November 2009 are due to be published by the CSO on Monday and will give the first indication of trading in the run up to Christmas.
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