Inside The World Of Business
Building firms' cuts have measure of the market
CUTS AND savings are the name of the game in Ireland’s quoted construction companies these days.
Kingspan, CRH and Grafton all reported this week. As you’d expect with companies whose businesses are focused on the domestic, and more particularly, the global building industries, sales and profits are all well down.
To a greater or lesser extent, all of them said that there are signs of stability returning to their markets, although those signs are more evident in countries other than Ireland, where activity fell by anything between 33 and 50 per cent in 2009.
Another, more significant, theme running through their results was the manner in which all three began wielding the axe once it became clear that their industry was heading in one way. CRH took €643 million in costs out of the business last year, and is aiming to reduce day-to-day spending by a further €260 million in 2010. It now costs €1.6 billion less a year to run the overall group.
Kingspan’s operating working capital in 2009 was €99 million than a year earlier, while it cut debt by over €130 million to €164 million.
Reducing debt was also the order of the day at Grafton, which cut it by €113 million to €322 million. Grafton saved a total of €80 million in 2009.
The companies acted quickly once they saw which way the wind was blowing, as many of their debt and cost reduction programmes date back to 2008.
Their actions have also left them with cash reserves, and businesses that are ultimately adding to those reserves by generating cash. In the current environment, this means that they have the opportunity to pick up acquisitions at good value, something that they all said is likely to happen as the year goes on.
Presidential dressing-down
PRESIDENT MARY McAleese made a lengthy address on Thursday to a dinner attended by some of the most senior figures in Irish business. Business leadership in the Ireland of today was the theme of her address, given in a room on the top floor of the newish PricewaterhouseCoopers offices on Spencer Dock in the Dublin docklands.
She delivered her speech with her usual mix of informal tone and serious intent, and made no bones about placing the blame for the poor state of Ireland’s economy and reputation nearer to home than, say, the now closed doors of Lehman Brothers.
The mood of negativity that is abroad was understandable, she said, given the reckless business practices that existed in some areas during the boom years. “The invisible behaviour of leaders,” she said. “Mind you, not all of it was invisible.”
The President was anxious to stress that the generation that had created full employment, the end of emigration and peace on the island was a formidible group that should now be determined to define itself by “how we got out of this mess and not how we got into it”.
Among those at the well attended dinner were: Donal O’Connor, chairman of Anglo Irish Bank and former chairman of the Dublin Docklands Authority; Niamh Brennan, current chairman of the authority; David and Carl McCann, of Fyffes; Michael Buckley of DCC plc; Margaret Sweeney of Postbank; Bernard Byrne, the new CFO of AIB; Frank Daly, chairman of Nama; John Herlihy of Google; Eugene McCague of Arthur Cox; Padraig McManus of the ESB; Danny McCoy of Ibec; car dealer Bill Cullen; Mark FitzGerald of Sherry FitzGerald; Ann Riordan of the Institute of Directors; Deirdre Somers of the stock exchange; and a range of other notables.
Rival codes’ mixed messages
TIMING IS everything, or so the dictum says, so the decision by the Irish Stock Exchange (ISE) and the Irish Association of Investment Managers to publish their first report on company compliance with the Combined Code the same week as a similar report by Grant Thornton is bound to raise a few eyebrows.
A little over a year ago, the ISE surprised many when it published what can best be described as a lukewarm response to Grant Thornton’s annual report which claimed that half of Irish companies were not fully compliant with the corporate governance code.
At the time, the ISE said there was a regrettable “disconnect” between the detailed findings of the report and the accompanying summary by Grant Thornton’s Paul Raleigh while the exchange also pointed out that “the code specifically states that good governance can be achieved by means other than those outlined in the code”.
Evidently, the ISE decided to have the last word on the issue this year, and publish their own findings, but the exchange does have a point. The Combined Code on Corporate Governance is not a mandatory or comprehensive set of rules for corporate governance. Rather, it is a classic example of principle rather than rules-based regulation.
Companies are not required to adhere to the provisions, although they are required to provide explanations if they do not meet the requirements. The mixed messages coming from the reports this week are indicative of the inherent shortcomings of a code which, in attempting not to over-regulate or restrict independent corporates, ends up generating more questions than answers about Ireland’s corporate governance practices.
Next week
Aer Lingus’s industrial relations woes will play out as the airline produces full-year results on Tuesday. Glanbia reports on Wednesday, while the banks and their shareholders will await the first public address of new financial regulator, Matthew Elderfield, at the Leinster Society of Chartered Accountants on Thursday.
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