Inside the world of business
The perils of diversity in the time of recession
RESULTS IN the past fortnight from NTR and One51 call into question the wisdom of diversified investment groups in the current economic climate.
In the boom times, both companies were flying as the cash rolled in from activities relating to ports, toll roads, food, waste and energy. The recession, however, has punched a big hole in the business plans and balance sheets of all of these entities.
With so much of their activities skewed towards Ireland, the UK and America, all of which are in austerity mode, NTR and One51 have been whacked.
One51’s annual report this week showed a loss of €104.6 million, largely due to a €95 million writedown in its 23.8 per cent NTR shareholding.
To some, One51’s portfolio comprises a motley crew of investments. These range from the Irish Pride bakery, to stakes in ferry company Irish Continental, UK listed hazardous waste group Augean, and renewable energy.
Not to mention NTR, which has operations ranging from waste to water, and renewable energy to toll roads.
A quick glance through the One51 report shows that while Irish Continental performed well and netted the company a €3 million revaluation gain, it took a €5.3 million goodwill charge in relation to its 50 per cent stake in Greenore Port.
Irish Pride’s turnover fell by 4 per cent to €59.3 million but tidal turbine developer OpenHydro was valued at €175 million after securing new funding from a French company.
One51’s report flags the board’s concerns about some of these investments and talks about putting the group on a “firm growth trajectory”. It will be interesting to see how this plays out, given that it has no direct control over a lot of the investments – NTR being the most obvious case in point.
Philip Lynch’s successor at One51 will have their hands full.
Plus ça change . . .
IF THE focus wasn’t on countries that are “too big to bail” rather than banks that are “too big to fail”, it would be very easy to confuse the market turmoil of the last week with original banking crisis of 2008. The authorities have turned to measures such as banning short-selling of bank stocks last seen three years ago.
The similarities, however, simply underline how little progress has been made. That Danish lender Danske took its biggest writedown on loans at National Irish Bank in the second quarter – three years after the banking crisis started – should have alarm bells sounding.
This isn’t an Irish institution that has been wearing the “green jersey” so long that it’s incapable of seeing the bad loans on its books. Danske is the largest bank in Denmark, enjoys an AAA rating on its covered bonds and has a history dating back to the nineteenth century.
Meanwhile, the domestic banks, bar conducting firesales of their profitable overseas assets, seem to be making glacial progress at downsizing operations to make them appropriate to the Irish economy. The figures on the support they continue to receive from both the ECB and Central Bank of Ireland suggest they are a long way from returning to health.
It’s far from certain that concerns over sovereign debt and banks’ exposure to it will bounce western economies back into recession. But while the fundamental problems at Irish and European banks remain unresolved, that threat will not recede.
Home and away
THE PLIGHT of Irish food suppliers is something that has gained traction in the public consciousness, not least due to the controversy over the receivership of Superquinn and the treatment of small suppliers.
The decision by the Irish Prison Service to award two food contracts to Northern Irish companies, as highlighted in this paper yesterday, once more throws the question of Ireland’s public sector procurement policy into the spotlight.
The issue is a problematic one. Suppliers say they cannot compete on cost with businesses from the UK, while public bodies maintain they cannot discriminate in favour of any group of suppliers due to EU law.
The conundrum illustrates the interdependency between the political and economic realm. Irish private enterprises, whatever their efforts to operate as competitively as possible in the private sector, are inexorably bound by the legislative requirements of the jurisdiction in which they operate.
With public sector departments under budgetary pressure, it seems likely that more and more companies from outside the jurisdiction, which according to business groups have approximately 35 per cent less costs, will continue to win contracts in the Republic of Ireland. The Government pledged in the programme for government to “reform public procurement to become a tool to support innovative Irish firms and to allow greater access to Irish small and medium sized businesses”.
How they will do this will prove interesting. Whatever the case, the ball is in the public sector’s court – not the private sector’s.
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