Business digs in under the shadow of no-deal Brexit

Claire McAree: ‘There is a shortage of people on this island who know anything at all about tariffs. It’s a minefield. It could be problematic. But we’ll cope.’

Budget 2020, the Minister for Finance solemnly told a hushed Dáil on Tuesday, is “a budget that has been developed in the shadow of Brexit”.

For Ireland, there can be no such thing as a bright side of Brexit, although a no-deal scenario is clearly the State’s darkest fear. The possibility of a messy British exit from the European Union this month has cast a shadow over more than just Paschal Donohoe’s arithmetic. Its spectre also looms menacingly on the horizon for Ireland’s business community.

Hours after the budget speech, Heather Humphreys, the Minister for Business, held court at the Government press centre, fleshing out the details of a €110 million direct aid package for Irish enterprises to be “immediately” deployed if there is a no-deal outcome in coming weeks or months.

The cash will come from a pot of about €1 billion that the Government will borrow to help the economy cope.

Humphreys outlined measures including: a €42 million bailout fund for businesses whose very existence is threatened; a €45 million “transition fund” to help other companies adapt; and at least €10 million to help micro-enterprises.

If no-deal does come to pass, a separate €110 million tranche of funding will also be deployed by the Department of Agriculture, Food and the Marine. This will be targeted at farmers, food manufacturers and processors reliant on the UK market.

“Make no mistake, no-deal will be challenging,” said Donohoe earlier. “But it is a challenge Ireland has the measure of . . . We stand ready to act.”

But as the Government draws its budget battle lines, how are businesses on the Brexit front line prepared for what lies ahead?

***

Joe Dolan, owner Bush hotel, Carrick-on-Shannon, Co Leitrim

The hospitality and tourism industry is among those most in peril if Brexit turns into a horror show. A report for Government by the State agency Fáilte Ireland estimated a no-deal rupture could cost the industry €390 million and 19,000 jobs. Donohoe promised to deploy an extra €40 million to support the sector.

“A no-deal Brexit would have a catastrophic impact,” says Dolan, a former president of the Irish Hotels Federation.

He described his family-run premises – one of Ireland’s oldest hotels with 60 bedrooms and 65 staff in the heart of the town – as “the stereotype of what the hotel industry used to be”.

“I have a healthy mix of business. I do domestic leisure breaks, coach tours and a local business trade,” he says. The hotel is just 25 miles from the Border, well within ground zero where the effects of a messy Brexit would be keenest felt.

“We’re that close, I consider the North part of the domestic market. In terms of visitors from overseas, 60 per cent of ours are British. They have the deepest penetration into rural areas, and they have the best year-round spread.”

Dolan argues that last year’s budget move to restore tourism VAT to 13.5 per cent from 9 per cent was “catastrophic”. He had to absorb much of the increase, as he had already negotiated rates with coach tours 18 months ahead of time and couldn’t raise those rates.

He was disappointed that the VAT move was not revisited by Donohoe on Tuesday, in light of the no-deal threat. But he welcomed the promised extra funding.

“The budget was an opportunity lost. I take comfort in the fact that the Government says it is ready to help if there is a crash. But there will be no winners, especially here in the Border region. Tourism is the only vehicle for growth around here. They mustn’t starve that vehicle of fuel.”

So far, he says, the performance of his business in 2019 is “flat” compared with 2018, but it is slowing and he expects to finish the year down a few percentage points: “I’m concerned that next year will be tougher.”

BREXIT: The Facts

Read them here

***

Larry Murrin, founder and chief executive, Dawn Farms, headquartered in Naas, Co Kildare

Donohoe also highlighted the food industry as a sector potentially in need of defence, with an initial €5 million allocated in the budget to support food processors in the immediate aftermath of no-deal, with more to come.

Dawn Farms, one of the Irish sector’s standard bearers, runs two meat plants in Ireland and one in Britain, supplying food ingredients such as pepperoni and cooked bacon to other manufacturers. In recent weeks, it bought Haas, a similar company in Germany, bringing group staff numbers up to 1,300.

“We export 96 per cent of our products to 50 markets around the world,” said Murrin. “The UK is a huge market for us. If you’ve ever bought a BLT at a British filling station, chances are the crispy bacon was cooked by us.”

Murrin “generally supports” the Government’s no-deal strategy, which he expects to become more sophisticated as the situation requires.

“I understand the restraints on Government while normal market rules apply. But if there is a hard exit for the UK, lots of things will change. Then and only then will full details of the Government’s response be born.”

Murrin suspects Donohoe will come forward with an even bigger “envelope” to support the sector if a no-deal transpires.

The pizza toppings supplier, Haas, will help Dawn Farms diversify further into the European market, where it was already active. Murrin would have done the Haas deal anyway, regardless of Brexit, and had been on the lookout for a euro-zone plant outside of Ireland for four years.

“It’s a great fit for us and we’re delighted to get it,” he says.

Murrin remains on the lookout for other acquisitions. He has analysed the potential impact of Brexit on his sales into the UK, and concluded that Ireland remains the best location from which to supply that market, regardless of tariffs.

“In our industry, profit [margin] before tax is 2-5 per cent annually. So if there are tariffs, we will have no choice but to pass them on to customers.”

He has “no doubt” the food industry has the support of Government in the event of a no-deal.

“It will need it.”

***

Claire McAree, chief financial officer, McAree Engineering, Ballinode, Co Monaghan

The industrial manufacturing sector is among those eligible for help from the no-deal war chest announced on Tuesday. Businesses in the Border region will get extra help if they need it, Monaghan-based Humphreys stressed.

McAree, which employs 140 staff making sheet metal products for other manufacturers, as well as its own line of agricultural grain silos, ticks both boxes. It is just 15 minutes from the Border, in the middle of that sliver of Monaghan that drives into the North, surrounded on three sides by UK jurisdiction.

With her father as managing director of the family-run business, Claire McAree runs its finance department.

“About 45 per cent of our business is cross-Border to the North, so the weakened sterling is making us less competitive there,” she says. The company hedges somewhat by buying raw material in the North whenever it can.

Outsourcing sales have slowed in the last three months, which McAree says is “definitely down to Brexit”.

She says customers stockpiled products in the lead-up to the last Brexit deadline in March, but it is less apparent this time round: “It may be a cashflow thing for some of them. They can’t afford to stockpile twice in the same year.”

Although sales this year may be slower, McAree Engineering is still in good shape after a record 2018. It has expanded its offices into the adjacent local community centre – it is building a new community hall nearby – and recently expanded its production facilities.

The business would grapple with tariffs and truck delays on the Border in the event of a no-deal, McAree says, but she is confident it will cope. Her father started and grew the business at a time when there was a hard border previously.

Recognising the help promised for the region in the budget, she said any assistance would be welcome. Enterprise Ireland also sent a customs adviser to McAree to help it through the “jungle” of tariff codes, she says.

“There is a shortage of people on this island who know anything at all about tariffs. It’s a minefield. It could be problematic. But we’ll cope.”

***

Eugene Drennan, managing director, Spa Transport, Ennis, Co Clare

Donohoe has admitted that the prospect of a no-deal Brexit limited his scope to increase carbon tax. The levy was raised to €26 per tonne from €20, shy of the €30 mooted earlier in the budget process. Fuel-thirsty hauliers would still have been in the firing line, but the Minister promised in his speech to compensate them for the increased costs through the diesel rebate scheme that was introduced by his predecessor, Michael Noonan.

Clare haulier Drennan runs a third-generation family business, with about 20 trucks on the road, and at least one vehicle a day crossing to Britain.

“It’s very hard to prepare for Brexit,” he says. “We’re just waiting and waiting to see what happens.”

Drennan “fully appreciates” the support of the Government in the budget with the fuel rebates, but would have liked further assistance for the sector with more direct subsidies on fuel. Despite the threats from Brexit, he still accepts the need for extra carbon taxes generally and the move to a greener economy.

“There isn’t a person in the country who isn’t getting the message on the environment. Let’s have a plan to green, but let’s do it steady and not all at once.”

He would like the State to introduce a capital allowances scheme to give hauliers further tax breaks for investing in ever-more fuel efficient trucks. If there is a no-deal, however, he says his only option will be to halt all such investment.

“Everything will come to pass, but there is no doubt it would cause mayhem to businesses and the whole country. How will we do it? We’ll just batten down the hatches. We won’t purchase a single new vehicle. What else can we do?”

Borderlands

A special investigation on Brexit & the Border Read More