Inside the world of business
Eurostat’s figures make lie of land a tad more difficult
SO THE Government missed the deficit target set by the EU and IMF last year based on headline figures. That’s the view of Eurostat, the EU’s statistics office, which determines whether spending is government debt or not.
The EU statisticians have ruled that €5.8 billion of the €16.5 billion – or 3.7 per cent of GDP – used to recapitalise the banks last year has to be included in the deficit figure.
This has moved the headline deficit figure as a percentage of GDP from 9.4 per cent, on an “underlying” basis, to 13.1 per cent.
This is well in excess of the 10.6 per cent target set for 2011 in the EU-IMF bailout programme. It also widened the gap between Ireland’s deficit and that of Greece at 9.1 per cent. It is a throwback to 2010 when the deficit reached 31.2 per cent of GDP, or a total of €48.6 billion, on the back of €29.3 billion committed to Anglo Irish Bank but the focus was on an “underlying figure” of 11 per cent when the banking cost was stripped out.
The Department of Finance pointed out that the general government debt is “no worse off” and there is “no impact on our debt position” following the “statistical reclassification”.
Eurostat is, in effect, questioning whether part of last year’s bank bailouts are investments – writing off €5.8 billion of the recapitalisations as expenditure – and whether there will be return on all of the €12.7 billion and €2.7 billion injected into AIB and Irish Life Permanent respectively in 2011.
This is based on the fact that both lenders have yet to have their restructuring plans signed off so Eurostat is awaiting confirmation that the bailouts will be fill the black holes.
It is hard to see how the Government can recover anything like the total of€20 billion that the State has pumped into AIB and its subsidiary EBS in the short to medium term so Eurostat’s view is not that surprising.
Irish Life could well be sold for the €1.3 billion that the Government is paying Irish Life Permanent for it but as the failed sale last year showed the markets have to be more favourable to secure a deal and that price.
The views of the EU statisticians is well timed as it makes the troika’s work on the plan for Irish Life and Permanent all the more important during their review this week.
Eurostat also had a concern about the vehicle set up to “own” the National Asset Management Agency to keep its debts off the Government’s books given that one of its shareholders, Irish Life, is now State-owned.
Unnamed buyers have been lined up to buy Irish Life’s 17 per cent stake but the deal has not been completed quickly enough to avoid Eurostat publishing a “reservation”.
Nestlé deal puts Askeaton baby formula plant in the spotlight
The sale of Pfizer Nutritionals to Nestlé yesterday for $11. 9 billion (€9 billion) provides further evidence of the potential held by the burgeoning global nutritionals industry. The fact that Nestlé paid over the odds, reportedly beating an $11 billion bid by Danone, illustrates the global attraction of a business that is both high growth and high margin.
Nestlé said the deal would add to earnings per share from the first year, and would generate cost synergies of $160 million. But the sale also puts the Irish baby formula industry, and specifically Pfizer’s baby formula plant in Askeaton, in the spotlight.
While Nestlé stressed yesterday that the deal was “a strong growth story,” and “ not about downsizing”, as with any major ownership change, employees in Askeaton will naturally be nervous. Nestlé will almost certainly be required to divest of some businesses due to competition concerns, though any sales are likely to take place elsewhere.
Since opening in 1973, Pfizer’s Askeaton plant has epitomised the kind of innovation-led dairy-based manufacturing at which Ireland has excelled over the last few years. Overall, Ireland produces up to 15 per cent of the world’s infant formula, a high-growth sector, particularly in emerging markets such as Asia and Africa.
But there have been murmurs of concern from some in the industry about the competitiveness of the Irish operations, particularly in light of competition from other low cost economies. Pfizer already operates infant formula plants in countries such as China and Mexico, markets with much lower cost bases.
While the Askeaton plant is very strong on RD – and Ireland’s generous RD tax credits are a distinct advantage – competition from more low cost manufacturing plants is nonetheless a reality.
The infant formula business also has a significant knock-on effect for primary dairy producers in Ireland. Askeaton for example buys 21 per cent of all lactose and 8 per cent of skim milk powder produced in Ireland, with Glanbia and Lakeland Dairies among the suppliers to the Askeaton plant.
While the infant formula business in Ireland illustrates how the interests of indigenous industries and global multinationals can coalesce, ultimately the multinationals hold the cards, as last year’s Talk Talk and Aviva job losses have shown. It will be up to Ireland to prove that, in an increasingly globalised business, it plays a vital role.
United Coffee – the cup that che ers
Having been roasted in the recession with some of their investments, a number of NCB Stockbrokers’ private clients must have been toasting the sale yesterday of Switzerland-based United Coffee to Japan’s UCC.
The NCB clients were indirect investors in United Coffee via Séamus Fitzpatrick’s CapVest Equity Partners II fund, into which they placed €50 million in the boom years.
Other investments of this fund include Valeo Foods and the Mater Private hospital.
London-based CapVest never disclosed how much it paid for its majority stake in United Coffee (known at the time as Drie Mollen) in January 2008.
However, it is known to have grown the turnover of the business by 60 per cent in the intervening period to €422 million.
So it’s probably fair to assume that the NCB investors and Cavan-born Fitzpatrick bagged a sweet return on the sale of the business to UCC, who paid €480 million for United Coffee.
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Today
Bank of Ireland holds its annual general meeting this morning in the O’Reilly Hall at UCD
Quote of the Day
The Netherlands will retain its solid fiscal policy
– Jans Kees de Jager, finance minister in the Dutch government which fell yesterday
