Cantillon

Inside the world of business

Glimmer of hope for construction sector

THE BAD news from the construction sector has not stopped rolling since 2007. In the past 12 months, the industry has lost five big players and countless smaller operators as the funds needed for projects have simply dried up.

So it was refreshing to see two sets of figures this week, one from Sammon Contracting Group, the other from Siac, showing that both businesses are healthy.

There is no real secret to what either is doing. They have simply gone outside the country. Sammon has won a series of school-building contracts in the United Arab Emirates, and is in the hunt for more work there and in Saudi Arabia. Siac is building roads in Poland, revamping part of central London and chasing work in countries such as Belgium and Canada.

Building and civil engineering companies do not make things and sell them abroad, but they do have expertise – less tangible than an actual product, but saleable nonetheless, once you can find a place where there is a demand for it.

Sammon and Siac have looked at what they do best and gone to places where there is a need for those skills. In Sammon’s case it is building schools and social infrastructure; in Siac’s it is classic civil engineering: road building and big-ticket projects.

Both have also targeted public and state bodies – clients that can pay at the end of the day. It’s not risk-free, but it’s a lot more satisfactory than building an apartment block on spec for a developer, and then hoping he can flog the units quickly enough to pay the bank, and then you. There is little point in waiting for a turnaround, or for the Government to unleash a wave of infrastructure building. To survive, builders are going to have to look abroad.

That does not mean upping sticks. Siac and Sammon are still based here, which means some of the profits from overseas operations flow back here. In theory anyway, that’s good news for the rest of us as well.

Apple’s relentless rise

IT’S ALREADY one for the management textbooks. Struggling computer maker potentially facing bankruptcy is left with only one choice. It acquires its ousted founder’s rival company and reinstates him as chief executive. Finally given the power he always longed for, he remakes the company, stamping his vision on its products and culture. It goes on to revolutionise the consumer electronics business, taking over entire categories of products and charging a significant premium compared to the rivals left trailing in its wake.

However, it doesn’t seem like there will be a fairytale ending at, as you guessed, Apple. Certainly not for Steve Jobs, who last month stepped down as chief executive for health reasons.

But far from Jobs’s sudden departure hitting Apple stock, the share price has added almost 10 per cent since he quit. At the time of writing Apple shares are heading for $420, giving it a market capitalisation of almost $390 billion (€286 billion). That makes it the most valuable company in the world – surpassing Exxon’s $357 billion valuation. On current form, some time next week Apple will be worth more than Google and Microsoft combined.

Investors clearly feel Tim Cook, for years number two at the iPhone maker, is a safe pair of hands. Analysts fearful for Apple stock in the event of Jobs’s departure are now having to engage in a little revisionism. The theory now goes that the stock was marking time while uncertainty hung over his future; with the decision now made, the shares are benefiting from the increased certainty around the company.

Whatever the cause, investors who got into Apple any time in the last decade are sitting pretty. For the rest of us, it looks increasingly as if that train has left the station.

Counting the costs

A NEW posting on the Tasc progressive economy blog seeks to draw attention to the huge drag that payments on the Anglo Irish Bank/Irish Nationwide promissory note will have over the coming years.

While the full support to these institutions has already been placed on our general Government debt, this is just an accounting exercise.

The Department of Finance estimates that the €31 billion promissory note will create an annual bill of €4.2 billion over the next 14 years. As the blog’s authors point out, that cost exceeds the annual budget for the State’s primary school system. The total cost, when interest and other items are taken into account, will equal half of this year’s gross national product.

The authors, Tom McDonnell, Michael Burke and Michael Taft, review the possibility of expunging the debt, pointing out that the note is not part of the EU-IMF memorandum of understanding and arguing that as the two institutions are being wound down, the issue of contagion is limited. Bondholder debt makes up less than 10 per cent of the Anglo/Nationwide liabilities, they say, with the major liabilities comprising loans from central banks.

Because the liability to other central banks looks set to be covered by non-promissory note assets, the authors argue the issue comes down to a negotiation, in the first instance, with our own Central Bank.

ECB acceptance of any deal would be a substantial hurdle that would have to be crossed.

If at the end of the process a debt to the exchequer existed, it could be repaid over an extended period of time – 30 to 50 years – or the Government could seek to transfer the promissory note to the European Financial Stability Facility.

TODAY

The Central Statistics Office will publish the quarterly national accounts and balance of payments for the second three months of 2011

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