mccann fitzgerald corporate outlook report for ireland 2014

An objective perspective on corporate prospects for 2014, based on a survey of Irish business leaders.

Corporate Outlook: Ireland 2014

Half full? Half empty?

Corporate Outlook: Ireland 2014

Contents

Foreword from John Cronin page 5

Key Findings page 6

Performance & Prospects page 8

Overseas Expansion page 14

Job Creation page 20

Capital Expenditure page 24

Mergers & Acquisitions page 28

Innovation & Digital Strategy page 33

The Business ViewChristoph Mueller, Chief Executive Officer of Aer Lingus plc page 13

Dr. Paul Duffy, Vice-President of Pfizer page 19

Rose Hynes, Chairman of Shannon Airport Authority plc, Bord Gáis Éireann and Irish Water page 23

David Duffy, Chief Executive Officer of AIB Group & President of the Irish Banking Federation page 26

Brian O’Cathain, Chief Executive Officer of Petroceltic International plc page 32

Gene Murtagh, Chief Executive Officer of Kingspan Group plc page 38

Conclusions page 39

About the Research page 40

| 5

Foreword from John Cronin Chairman, McCann FitzGerald

As advisors to Ireland’s leading companies and businesses, McCann FitzGerald commissioned Amárach Research to carry out a survey of some 250 senior Irish business leaders and decision makers at this time and to report their findings. We are pleased to share this report with you, our clients and contacts. The report is very frank about Irish businesses’ ambitions, prospects, risks and impediments. Of course, business people are naturally optimistic so a positive outlook is not unexpected or even unusual and there is, still, fragility in the Irish economy and the eurozone. However, it is very clear that business leaders do see real prospects for, and even have expectations of, recovery and growth and are planning accordingly. The creation of jobs is also something that many anticipate this year – building on a recovery in the labour market in 2013.

Encouragingly, and importantly, the growth momentum is not just from our large multi-national and export companies but Ireland’s own indigenous firms are also optimistic about their contribution to economic growth in 2014.

At the EU level, the eurozone area has emerged from recession and progress is being made towards a banking union. Our natural inclination for business with Britain and the USA means that we are better positioned than most to benefit from the strengthening of those economies.

We cannot take the recovery or growth for granted – nor do any of the business leaders surveyed or their businesses do so. However, the report does support the view that Irish businesses are entering a new growth phase, one that will in time bear fruit in terms of confidence, economic success and job creation over the remainder of this decade.

Thank you, and I hope that you will find this report of interest to you and your business.

The Irish economy is poised for recovery and growth, with signs of

increased activity and momentum from Irish businesses. A real sense

of hope and opportunity (based on economic realities) that has been

absent for the last five/six years now exists.

6 |

Key Findings

Ireland’s economy will experience relatively balanced

growth in 2014, with consumer spending, trade and

investment driving GDP and GNP growth in the year

ahead. Only public spending is expected to contract

further.

This McCann FitzGerald survey1 of 250 senior decision

makers in Irish business has found a genuine alignment

between the macro-economic outlook and the micro-

economic intentions of firms. Thus, businesses expect

to grow their sales overseas (driving trade), increase

their capital expenditure (driving investment) and

increase their staff levels (driving consumer spending).

Performance & Prospects

Poised for Growth

Overseas Expansion

The majority of businesses expect a better performance in 2014,

with 44% expecting their growth rate to be higher than in 2013.

One in five businesses didn’t experience any growth last year,

while the rest averaged 11% growth year-on-year. For 2014, just

13% expect no growth - the rest expect average turnover to rise by

just under 13%. Cost competitiveness still remains the number one

business priority for the year ahead. Over a third of firms expect

new products and services to drive their growth. The majority (63%)

foresee rising costs as the biggest threat to their growth ambitions,

while 58% worry about a lack of finance inhibiting growth.

Key Findings

44%expect growth rates

to be higher than in 2013

54%of exporters expect

further growth this year

29%

25%foresee

wage pressures

39%of firms anticipate increases in capital

expenditure budgets

40%of SMEs expect to

undertake M&A activity in the UK

63% expect social media

to be relevant to their business

59%

63% foresee rising costs

as a threat

of businesses expect to hire more

staff in 2014

of M&A deals are likely to be located in

Ireland in 2014

Key Findings





29%

25%foresee

wage pressures


expenditure budgets





59%


as a threat


staff in 2014


Ireland in 2014

One in five businesses in our survey expect to expand abroad in 2014.

60% of the companies surveyed already have overseas sales with 40%

of their total sales generated in export markets. The majority of those

exporters have seen sales grow in the past twelve months, and 54%

expect further export growth in 2014. The UK and USA have been the

source of much of the recent growth, though looking ahead the rest of

Europe is expected to provide more opportunities than previously.

Key Findings main stat

A survey of

250 senior decision

makers

1 See ‘About the Research’ (page 40) for further details on the research methodology

| 7

Job Creation

Mergers & Acquisitions

Innovation & Digital Strategy

Key Findings





29%

25%foresee

wage pressures


expenditure budgets





59%


as a threat


staff in 2014


Ireland in 2014Key Findings





29%

25%foresee

wage pressures


expenditure budgets





59%


as a threat


staff in 2014


Ireland in 2014

Key Findings





29%

25%foresee

wage pressures


expenditure budgets





59%


as a threat


staff in 2014


Ireland in 2014

Businesses have been cautious about hiring - roughly equal

proportions have increased their staff numbers as have reduced

them in the past year. However, all that is about to change - 29%

expect to hire more staff in the year ahead, only 10% anticipate

a reduction in headcount. However, staff retention and supply

problems are rapidly emerging - over a quarter of firms see wage

pressures (especially for skilled workers) making it harder to keep

their staff or too expensive to hire more.

Only 12% of the firms surveyed have bought or sold a business in

the past 3 years. Transactions were driven by changing competitor

landscape and opportunities for consolidation. Over the next 12

months, 16% of firms expect to buy or sell a business - just a small

uplift. However, they do anticipate large changes in the location of

M&A deals - with Ireland (some 59% up from 35%) accounting for

most, followed by the rest of Europe (outside the UK). Funding will

largely be via cash reserves, etc, however 27% expect to require bank

finance. Not all activities will take the form of traditional M&A and

joint ventures and partnerships are expected to play a bigger role in

delivering expansion.

Capital ExpenditureKey Findings





29%

25%foresee

wage pressures


expenditure budgets





59%


as a threat


staff in 2014


Ireland in 2014

A growing share (39%) of firms anticipate growth in the budget for

capital expenditure in 2014 with corporates and micro-firms more

likely to increase their budgets than SMEs. However, 19% expect a

reduction in capital expenditure.

Every business now has to have a digital strategy – even if it is not a

digital business. In 2013, nearly half the businesses surveyed didn’t

generate any sales online. In 2014, this number is expected to fall

dramatically to a little over a third. However, when asked about

the importance of social media, very few businesses expect this

to work as a sales channel but understand its role for managing

corporate reputation. In fact, 63% expect social media to be

relevant to their business in 2014 with business decision makers

already quite sophisticated users of these channels.

8 | Section Title

Performance & ProspectsWith the majority of those surveyed expecting a better performance

for their businesses in 2014 versus last year, the overall outlook

from this study is generally positive. Survey participants indicate

that growth momentum in 2014 will be more broadly based than

in recent years and so too the drivers of growth. However, after

more than five years of weak growth or even contraction, nobody

expects the path to recovery to be plain sailing with a number of

risks and impediments identified including those of rising costs

and access to finance. But the key difference going into 2014 is that

Ireland’s indigenous firms are optimistic about their contribution

to economic growth in the year ahead.

part one

| 9

This optimism carries through into the outlook for individual businesses. While optimists outnumber pessimists by 5 to 1, the ratio changes considerably across different sectors and categories:

• Corporates are more optimistic than SMEs (defined as employing between 11 and 100 staff in our study)

• Those in the hospitality and construction sectors are optimistic about their prospects on average

• Those in the manufacturing and professional services sectors tend to be less optimistic than average (though still optimists on balance)

• There is little difference between Irish and foreign-owned businesses, or between domestic-focused and export-focused

These findings are important because they indicate that growth momentum in 2014 will be more broadly based than in recent years (which tended to see growth led by exporters, larger corporates and foreign-owned businesses). Moreover, just as growth looks likely to be broadly based, so also the drivers of growth are expected to be quite diverse – and therefore more resilient than, say, a strategy based on just one or two initiatives.

A better outlook should mean more growth. Indeed, a large minority – 44% - of businesses in our survey expect their growth rate to be higher in 2014 than

in 2013. Only 13% expect a lower rate. Unsurprisingly, growth expectations are not evenly distributed – exporters are less optimistic about their growth prospects than those focused on the domestic market. The weakness in Ireland’s trade performance in the second half of 2013 is probably one reason for such caution.

Growth expectations are highest among larger corporates and micro-firms - otherwise there are few significant differences between exporters vs domestic focused businesses, or between Irish-owned vs foreign-owned.

Better thanit is today

51%

Ireland’sEconomyin 2014

Your Industryor Sectorin 2014

Your Businessor Organisationin 2014


41%


51%

The sameas it is today

36%


43%


37%

Worse thanit is today

12%

Worsethan today

16%

Worsethan today

10%

Don’t know

1%Don’t know

0%Don’t know

2%

growth momentum in 2014 will be more broadly based than in recent years

Expectations for Growth in 2014

% Higher than 2013

Total

% Same as 2013 % Lower than 2013

Expectation for growth in 2014

44 41 13Micro

46 42 10SME

37 43 18Corporate

46 39 12

Consensus Outlook for 2014

Ireland’s economy in 2014

“

“

10 | Performance & Prospects

We asked respondents to put a number on their growth performance and expectations. As the charts above show, most have experienced single digit growth in 2013 (and 21% experienced no growth), while the average was some 11%. Looking ahead, average growth is expected to be higher (13%), driven partly by fewer expecting no growth next year.

However, there is also a degree of continuity going into 2014. We see from the chart “Business Priorities in 2014” that the focus on costs that all businesses learned during the recession will remain dominant. Some will look to improve margins in an expanding market, but holding on to existing customers and market share will be just as important. Better prospects also look set to drive a renewed focus on marketing and branding – areas that suffered during the recession due to cutbacks and price competition. Another sure sign of improving prospects is the fact that staff retention is one of the top five priorities for 2014 – again boding well for the jobs market.

As for expansion overseas, 1 in 10 firms in our survey selling mostly to the domestic market intend to develop their overseas channels – recognising, perhaps, that export markets promise greater growth opportunities than a still flat domestic market.

21% 57% 12%Mean Score

11

13% 58% 17%Mean Score

13

Growth Rate O% 1-10% 11-20%

Growth Rate O% 1-10% 11-20%

%

%

Business Priorities in 2014

Margin Recovery / Cost Competitiveness / Cost Reduction

31%

Business Retention / Survival

29%

Expansion (Domestically)

29%

Marketing / Brand Building

25%

Staff Retention

21%

Expansion (Overseas)

18%

Online Strategy

17%

The focus on costs that all businesses learned during the recession will remain dominant

As for the key growth drivers themselves (see chart across), clearly innovation is expected to play a major part in the recovery. A third of businesses foresee new products and services as their top growth driver in 2014. Marketing and branding will also play an important role – and 1 in 7 anticipate the need for additional staff to deliver growth.

Not surprisingly, for different businesses and sectors, growth drivers change depending on their current circumstances and market expectations:

• Half of SMEs expect new products to deliver growth compared to just 15% of corporates

• Likewise, half of retailers and wholesalers are focused on new products and services, with a quarter expecting digital channels to also play a key part (more than any other sector)

• Domestic market expansion is still a preferred route to growth for micro-businesses and SMEs, while professionals also prioritise this route

Average Growth Rates in 2013

Business Priorities in 2014

Estimated Growth Rates in 2014

“

“

| 11

We believe that as recovery takes hold it will be ‘evenly distributed’ with a wide range of sectors and sizes of firms benefiting from growth. This is a very positive change for a number of reasons:

• For those selling to SMEs e.g. banks, utilities and telcos, the prospect of a more uniform recovery means that their B2B sales performance in 2014 should see a marked improvement;

• For banks in particular, improving growth prospects for SME customers should - other things being equal - reduce both the risk of lending as well as the pool of firms still struggling with debts and other boom time legacies.

However, while B2B opportunities will drive growth for larger firms selling to SMEs and others, we do not expect B2C opportunities to be quite as strong. Yes, the consensus among forecasters is that 2014 will see a return to growth in consumer spending. Even so, the rate of growth will lag that for B2B players in general, and for exporters in particular.

We should not, however, lose sight of the very real constraints that remain in place going into 2014. Rising costs, limited access to finance and intense competition all mean that businesses cannot take growth for granted simply because there is a pick-up in demand. This is especially true for those businesses that still need to put the right financial structures in place to fund growth and expansion during the recovery phase.

Firms will also need to focus on customer retention as well as recruitment through their marketing and loyalty strategies. This in turn will mean a greater focus on IT, CRM and data practices that are fit for purpose.

David Lydon, Partner - Head of Corporate

The McCann FitzGerald view

Growth Drivers in 2014

New Products / Services

36%

Marketing & Brand Positioning / Building

27%

Expansion (Domestically)

24%

Expansion (Overseas)

20%

Acquire Skills / Experienced Staff

14%

Improvement in Wider Economy

14%

Growth Drivers in 2014

12 | Performance & Prospects

How does your business plan to expand in 2014

Growth Within Existing Markets

60%

New Market Entry (Overseas)

32%

Diversify Current Product / Service Offerings

31%

Innovation

31%

Online

31%

Overseas Merger / Acquisition

19%

Other

1%

After more than five years of weak growth or even contraction, nobody expects the path to recovery to be plain sailing. And a number of risks and barriers lie ahead for the majority of businesses in our survey. The top barrier to growth is that of rising costs.

Seven in ten firms selling to consumers (B2C) identify rising costs as their main challenge, as do those operating in the hospitality and professional sectors. Access to finance is also a potential barrier for most – rising to two thirds of micro-firms in our survey.

Another way of exploring growth prospects is to examine the different ways in which businesses can expand – beyond top line

sales improvements. Indeed, more than half of the businesses in our survey do expect to expand in 2014, using a variety of means.

Top line sales growth will naturally dominate expansion in 2014. However, it is interesting to see the other means for expansion that significant minorities are planning for. New market entry overseas is an important driver of export performance. So also are new channels such as online, alongside innovation.

Furthermore, one in five firms are looking to overseas mergers and acquisitions as an effective way to secure expansion.

Our findings are consistent with the wider economic outlook for Ireland in 2014 and beyond. Most economic forecasters expect Ireland’s recovery to be driven by three of the four drivers of economic growth, i.e. continued export growth, capital investment, and a modest improvement in consumer spending. The fourth driver – government spending – is the only economic ‘engine’ not expected to contribute to growth.

Nevertheless, our survey suggests that the business sector will deliver a more balanced type of growth than heretofore. Larger corporates and foreign-owned firms will continue to grow as they have in recent years. But the key difference going into 2014 is that Ireland’s indigenous firms – micro and SMEs in particular – are also optimistic about their contribution to economic growth in the year ahead.

Main Risks & Barriers for business growth in 2014

Rising Costs

63%

Access to Finance

58%

Lack of Consumer / Client Demand

46%

Global Economic Shock

40%

Political Uncertainty e.g. Brexit

23%

Main Risks & Barriers for Business Growth in 2014

Business Expansion Plans in 2014

| 13

Business people across all sectors understand the importance of exports in a flat domestic market and are acting accordingly. SMEs can and must play a part in increasing exports since they create most of the jobs that provide the incomes and spending power that fuels the domestic market. However, with our banks still constrained this might prove a barrier to the contribution of international trade by our SMEs.

I believe that a danger of the post-Troika era is that confidence will give way to complacency. We no longer have a safety net, so we’ve got to make it work. A lot of tough decisions have been avoided or fudged. The cost of living in Ireland is still alarmingly high relative to many major economies.

Beyond the cost of living, there is an emerging mismatch between labour demand and labour supply. We also see a clear difference emerging between Dublin and the rest of the country. Indeed, one reason so many companies are recruiting abroad for workers to come to Ireland is the lack of certain skills in the domestic labour market. To address this we need more vocational training better fitted to the needs of indigenous

companies and particular industry sectors. As an example, Aer Lingus is piloting a training scheme that will certify mechanics in order to meet the needs of businesses in Ireland, as well as our own recruitment needs for the future.

Another issue is innovation. People confuse it with invention. Ireland is a small country so one of our advantages is that we are agile. That’s why we need to be bold about innovating new ways of solving old problems. It also means ensuring that we don’t govern ourselves in ways that are unnecessarily complex or slow.

Ireland faces risks in the years ahead. We still have to resolve the legacy of debt issues, including NAMA’s presence in the hotel sector and all that it means for tourism. Youth unemployment is a time bomb that should be addressed as a matter of urgency to avoid an entire generation being lost to society and to the economy.

But Ireland’s problems are not insurmountable. We need to put in a few more years of hard work, focusing on job creation to ensure domestic market expansion and a balance between Dublin and the rest of the country. Emigration is one of the negative side effects of the unemployment problem but we should use emigration as a tool for growth, for example in the form of ‘learn and return’ schemes so we send our best and brightest abroad to acquire the skills needed for the future, and train others back in Ireland as well.

We’ve achieved a lot but we need to regain the hunger and ambition we had early in the Celtic Tiger. So avoid false promises, and don’t say it will be easy.

The Business ViewChristoph Mueller, Chief Executive Officer of Aer Lingus plc

Most forecasts for 2014 assume a recovery in consumer spending and

investment which in turn will drive the domestic economy. That said,

exports will continue to play a significant role in driving growth in the

year ahead. At Aer Lingus we already sell the majority of our seats in

international markets, with domestic demand still some 30% below the

peak, despite some recent improvements.

“I believe that a danger of the post-Troika era is that confidence will give way to complacency. We no longer have a safety net, so we’ve got to make it work. ”

14 | Section Title

Overseas ExpansionWhile it appears we can look forward to an improving domestic

market trend in the years ahead, the reality is that exports in

general and the trade performance of Irish businesses in particular,

will play a fundamental part in the story of Ireland’s recovery. In

this section, we take a closer look at the nature and scale of exports

and overseas growth for Irish businesses.

part two

| 15

One in five businesses in our survey expect to expand abroad in 2014. The majority (60%) of the companies in our survey are already active in international markets. Among the exporters, overseas sales accounted for about 40% of turnover in 2013 (with strong polarisation between a minority with a very low share and those with a very high share).

Just as Ireland has enjoyed continued growth in its exports in recent years even as the domestic market suffered, businesses have enjoyed expanding overseas sales. Half of those selling abroad saw sales growth

between 2012 and 2013. Moreover, a larger majority (54%) expect their overseas sales in 2014 to be higher than in 2013.

Once again, our survey reveals a reassuring spread of optimism about overseas sales growth across different business types. Roughly similar proportions of exporting micro-firms and SMEs expect international sales growth in 2014 as do large corporates. The retail and hospitality sectors are especially optimistic about overseas sales, though foreign-owned exporters are somewhat more optimistic than Irish-owned exporters (60% vs 52%).

Change in Turnover Generated from Overseas Business

Anticipated Change in Turnover Generated from Overseas Business

Has your firm seen its turnover from overseas business in the last 12 months:

Increase

51%

Stayed the same

38%

Decrease

9%Don’tknow

2

Will your firm see its turnover from overseas business in 2014:

Increase

54%

Stay the same

38%

Decrease

6%1%

Don’tknow

%

Has your firm seen its turnover from overseas business in the last 12 months:

Increase

51%

Stayed the same

38%

Decrease

9%Don’tknow

2

Will your firm see its turnover from overseas business in 2014:

Increase

54%

Stay the same

38%

Decrease

6%1%

Don’tknow

%

2014

2013

16 | Overseas Expansion

In what overseas markets do you see expansion for your business in 2014

UK

50%

USA

20% Europe

36%Asia

22%Middle East

5%

China

9%

Brazil

2%

India

2%

Russia

3%

Overseas Markets for Irish Exporters

Despite fifteen years of the eurozone, Irish businesses are overwhelmingly reliant on trade with the UK for their export performance. Half of those in our survey have sold to the UK in the past year, followed by the rest of Europe and the United States. Looking ahead to 2014, expectations are not uniform:

• Manufacturers and construction companies anticipate a bigger role for China in their success in 2014

• Half of SMEs still expect the UK to be their dominant trade market

• A fifth of micro-firm exporters are looking to the USA for growth

In some respects these findings point to a continuing ‘flaw’ in Ireland’s trade performance. Although reliance on our largest neighbour is inevitable (inside or outside the eurozone), the low weight given to the BRIC economies and other fast growing parts of the world indicates a possible longer term problem if we fail to link Ireland’s economic prospects to the new global growth drivers.

Of course, we should not be too critical – the reality is that both the UK and the USA will enjoy a higher level of growth in 2014 than the eurozone as a whole, favouring Irish exporters (assuming a relatively weak euro).

2013

| 17

UK

37%

USA

17% Europe

46%

Asia

22%Middle East

10%

China

8%

Brazil

3%

India

2%

Russia

4%

Expected Overseas Markets for Irish Exporters

As we see overleaf, among those businesses expecting to expand overseas via mergers and acquisitions and/or entry into new export markets, it is clear that the UK will still be the dominant focus, followed by the rest of Europe.

There are quite significant differences between different sectors and size of firms in relation to their expansion/acquisition focus in 2014. The larger corporates are as likely to see Asia as a target market as the UK, while SMEs and micro-firms are skewed much more towards the latter.

When the story of Ireland’s recovery comes to be written, the success of Ireland’s exporters will play a key part in it. This report provides encouraging signs that our future export performance will be relatively broad based, and hopefully robust.

2014

18 | Overseas Expansion

In what overseas markets do you see expansion for your business in 2014

UK

51%USA

33%

Europe

40%

Asia

22%

Middle East

7%

China

13%

Brazil

5%

Russia

7%

Expected Markets for Overseas Expansion

If overseas trade is to play a key role in delivering growth in 2014 - and it must - then it is vital that those firms expanding abroad are equipped with the skills to manage the inevitable complexities that trade brings with it.

Financial management is perhaps the most obvious skill - for example, in relation to foreign exchange and creditor arrangements - but just as important is the management of intellectual property. Protecting and enforcing IP rights is increasingly important to service and digital companies which may not have any physical assets to protect or sell. In our experience, this is a potential vulnerability for Irish firms expanding outside of anglophone markets, and in particular, to Asia.

Likewise, linguistic and negotiating skills will become increasingly important as trade outside of the UK and USA grows in line with the projections in our survey. A significant minority of firms expect to expand via acquisitions and mergers, bringing with it many complexities in terms of cross-border tax treatment, legal jurisdiction and so on.

In our view, the rewards from successful expansion abroad can be substantial, for shareholders and customers alike. However, there is a risk that management can be spread ‘too thinly’ in an over-ambitious attempt to expand international sales. It may be better to focus and learn in just one or two overseas markets first, before widening the scope for trade-led growth.

Michael Ryan, Partner - Head of Tax and FDI


2014

| 19

A fundamental problem is that unemployment in some families is becoming multi-generational. Even with the Government’s commitment to halving the unemployment rate by the end of the decade - which I welcome - we may still have hundreds of thousands on the live register. The pharma sector in Ireland employs some 25,000 people. That looks likely to remain stable in future, but it also means that the creation of large numbers of new jobs will have to come from elsewhere.

Dublin is clearly enjoying an improvement to its economic fortunes. The new wave of multinationals are creating thousands of well paid jobs requiring office space and creating in turn demand for good quality accommodation. This extra spending power is helping lift Dublin out of recession ahead of the country, though the rest will follow.

It has been the multinationals who have kept the economy growing during the domestic market downturn. They will continue to do so. As an American company, we already see the bullish performance of the US economy. But Irish exporters need to lock on to emerging markets such as China, Brazil, India, Argentina and others in order to secure long-term growth. Some Western economies are ageing, and in some cases their populations are shrinking, so long run growth rates will be lower than was the case in previous decades.

The pharma sector is affected by some of these trends. We have seen a lot of consolidation in recent years as the growth provided by past innovations eases. These days, manufacturing – not R&D - is the biggest operating cost for many pharmaceutical businesses. Pfizer is very focused

on its manufacturing costs, hence the significant reduction in plant numbers worldwide. Our Irish operations are increasingly focused on the higher value-added products and processes where we can reliably deliver high quality outputs at competitive costs.

Indeed, in Ireland with the use of smart technology we can now manufacture certain types of products at the same price or less than traditional low-cost locations. Fortunately we are also seeing increased productivity from R&D with a number of the newer medicines being manufactured in Ireland. This helps to further improve the productivity and utilisation levels of our plants in the country. This bodes well for our manufacturing presence here and ongoing contribution to exports and to employment.

My advice for any Irish business looking to expand abroad is to have a presence on the ground in your target markets. For most this will mean local partners – you may have to divide the rewards for success but at least you’ll be more likely to enjoy some success. A DIY approach to overseas expansion can be time consuming and expensive.

The Business ViewDr. Paul Duffy, Vice-President of Pfizer

We are still experiencing a two-tier economy in Ireland. The multi-national sectorthat I work in is doing relatively well, especially those firms plugged into fastergrowing markets around the world. But looking at the situation from the viewpointof other sectors it is clear that the domestic economy is still under immense pres-sure. The large number of empty units in many shopping centres in Ireland are testimony to that.

“Irish exporters need to lock-on to emerging markets... in order to secure long-term growth.”

20 | Section Title

Job CreationMost people will only believe in recovery when it translates into

job creation and shrinking dole queues. Our survey found a mixed

performance with broadly similar proportions having increased

their staff numbers in 2013 as decreased them (though this doesn’t

necessarily equate to the same ‘number’ of jobs). However, all

that is about to change with 29% of firms expecting to hire more

staff in the year ahead. Despite this positive indicator a note of

caution is to be made with staff retention and supply problems

emerging as over a quarter of firms see wage pressures (especially

for skilled workers) making it more difficult to keep their staff or

too expensive to hire more.

part three

| 21

There is a reassuringly broad mix of firms seeking to hire more staff in the year ahead:

• 37% of SMEs expect to increase their staff numbers

• 46% of construction sector companies expect to increase staff

• Equal proportions of Irish-owned and foreign-owned firms expect to hire more staff in 2014

• 49% of those expecting their turnover to grow in 2014 expect to hire more staff

These are very encouraging findings. In recent years, the link between growth (especially export performance) and job creation has been relatively weak (not least because of large numbers of job losses in the domestic economy). But looking ahead we anticipate a closer alignment between business growth and job creation, especially because of the diverse nature of the growth and hiring trends.

However, despite our still high unemployment level, businesses are cautious about their abilities to recruit the right staff in the right numbers. In terms of their main recruitment challenges, some still feel constrained about their ability to afford more staff, while a similar proportion feel that pay levels are already becoming uncompetitive.

Such concerns are common across all types of businesses in our survey, though up to 40% of SMEs feel that they can’t compete with wages elsewhere even where they want to hire more staff. Nor are staffing issues confined to recruitment. Staff retention is also a growing challenge as recovery gathers momentum and certain skills are in increasing demand. Upward pressure on wages from competitors is the number one concern, followed by emigration of skilled employees seeking better prospects abroad. Both micro-businesses and SMEs feel under more pressure from wage competition than corporates (who may indeed be driving up wage levels in some sectors beyond

Staff numbers fluctuation

Increase

23%Remain Constant

56%Decrease

21%

2013

Increase

29%Remain Constant

61%Decrease

10%

2014

Staff numbers fluctuation

Increase

23%Remain Constant

56%Decrease

21%

2013

Increase

29%Remain Constant

61%Decrease

10%

2014

Main Hiring barriers

Cutbacks in Budget / No Recruiting Budget

Decreased Ability to Pay Competitive Wages

Difficulty Getting Right Graduate Recruits

26%

25%

20%

Unable to Match / Provide Benefits

Cutbacks in Budget / No Training Budget

Lack of Career Prospects Within the Sector

13%

13%

12%

Main Barriers to Recruitment

Staff Numbers Fluctuation

Looking ahead to 2014, the picture is more positive – for every firm in our survey expecting to reduce their staff numbers there are three expecting to increase numbers.

22 | Job Creation

levels that smaller firms can afford). Furthermore, retailers and professional service providers are among those sectors under the most pressure from wage trends. Meanwhile those in the hospitality sector believe they are the most vulnerable to having staff ‘poached’ by competitors.

Staff Retention IssuesStaff retention issues

Decreased Ability to Pay Competitive Wages

Employees Emigrating for Better Positions

Unable to Match / Provide Benefits

34%

26%

19%

No Current Issues in Retaining Staff

Cutbacks in Budget / Training Budget

Low Morale Due to Financial Uncertainty

14%

13%

13%

The alignment between recent employment forecasts and the plans of the firms in our survey is one of our most encouraging findings. For

much of the recession it was large firms that sustained and even grew employment in Ireland. Finally, Irish SMEs look set to do their part in creating jobs and reducing unemployment in the coming years.

Taking on new recruits is a welcome initiative by any company, large or small. It sends a signal to existing staff that the business is on a sound footing and set to benefit from recovery and growth. But it may also create tensions as wage levels start to rise in first some sectors and then in many others.

Now is the time to ensure that employment contracts, bonus structures and incentive schemes are all aligned with the new direction the business is taking. It may also mean re-structuring the business to maximise the potential for growth, which could mean redundancies or redeployment for some staff even as overall numbers rise.

In our experience, managing employment contracts, pensions, etc can be just as challenging when a firm is expanding as when a firm is contracting. Sometimes even more so.

Valerie Lawlor, Partner - Corporate


Nevertheless, these are certainly ‘nice problems’ to have after many years of simply not generating sufficient jobs to meet demand. It is inevitable that there will be a degree of ‘pent up’ labour market movement after such a long period of high and rising unemployment. Still, it is of concern it may harm Ireland’s growth prospects as a whole if Irish businesses are suddenly confronted with labour supply constraints after a prolonged supply glut. It is one thing for growth to translate more directly into job creation, but that doesn’t necessarily mean the jobs will be created if insufficient numbers of workers with the right skills – at the right wage levels – frustrates the hiring plans of Irish businesses.

| 23

Separation was a game changer for Shannon. The immediate priority was to arrest the de-cline in passenger numbers and then reverse this trend. There is no silver bullet here and we had to find innovative ways of addressing the problems. To start with, we significantly improved how we engage with stakeholders bringing some ‘joined-up thinking’ across the region. We have now reversed the decline in passenger numbers and are in growth mode.

The United States is a hugely important market for the region and, in addition to activities for The Gathering, we conducted an award-winning marketing campaign lead-ing to a 40% increase in transatlantic visitor numbers in 2013. Shannon has a strong brand internationally and it is important not to underestimate this.

The airport is part of the jigsaw but it’s not all of it. There is potential for Shannon to be not just a successful and sustainable airport

but also a major global aerospace industry cluster, attracting jobs which would other-wise not come to Ireland. Aircraft leasing is a global business, and Ireland punches well above its weight. But it’s also a very mobile business. Part of our mission is the develop-ment of a global aviation industry cluster, the International Aviation Services Centre at Shannon. An important part of the role of the International Aviation Services Centre is to give leasing companies further important business reasons to stay in Ireland, to make sure it remains easier for them to do business here than anywhere else.

We’re under no illusions. We have a lot of work in front of us, and the road is not all smooth, but we believe there is a real op-portunity to make Shannon successful and sustainable. I want to see a reinvigorated Shannon returning to a place in the forefront of global aviation, not just as an airport but as a broader centre of aviation excellence.

Exiting the bailout was a good thing and making a clean exit by not going for an extra credit line, sent out a clear and strong mes-sage. There are green shoots but there needs to be greater confidence. The long term un-employment rate is very slow to come down and this is having a bearing on confidence.

We need to encourage more innovation, new ways of doing things and we need to collabo-rate to achieve greater results. Working in partnership is key to success.

The Business ViewRose Hynes, Chairman of Shannon Airport Authority plc,Bord Gáis Éireann and Irish Water

The Government set a new strategic direction for Shannon by granting it independ-ence in January 2013 and giving it the freedom to determine its own future. The decision also involved the combination of the airport with a restructured Shannon Development.

“There are green shoots but there needs to be greater confidence… Working in partnership is key to success”

24 | Capital Expenditure

Capital ExpenditureMost firms have recurring needs for capital expenditure, whether

simply refurbishing existing capital infrastructure and/or

expanding their capital resources. Capital expenditure has been

hard hit by the recession. However, with investment expected

to contribute to growth in 2014, it is reassuring to see that the

balance of capital budget trends – in 2013 and 2014 – has been

positive, with those increasing expenditure numbering more than

those contracting spending.

part four

| 25

In particular we see:

• Micro-firms and corporates will be considerably more likely to increase their capital budgets in 2014 than SMEs

• Retailers and professional service providers are among the sectors with the highest percentages expecting to reduce their capital budgets

• Foreign-owned firms are significantly more likely to increase their capital expenditure in 2014 than Irish-owned firms (45% vs 36%)

Once again, our survey indicates a reassuring alignment between macro-economic forecasts and micro-economic firm level ambitions. The over-hang from over-investment in property during the boom is gradually being resolved. As the shadow of poor investment recedes, businesses will once again be prepared to invest in the capital equipment and resources necessary to sustain growth both at home and abroad.

Capital Expenditure Budget 2013


Increase

Stays the Same

Decrease

Don’t Know

40%

43%

16%

0%

39%

38%

19%

4%

Increase

Stays the Same

Decrease

Don’t Know



Increase

Stays the Same

Decrease

Don’t Know

40%

43%

16%

0%

39%

38%

19%

4%

Increase

Stays the Same

Decrease

Don’t Know

Circumstances require that corporates be open to new ways to fund capital expenditure. New equity, corporate bonds and even ‘vendor finance’ arrangements can all play a part in meeting pent-up demand for capital spending in relation to replacement, refurbishment and expansion.

In our experience, the right approach to significant capital investments can secure tax and other benefits that can multiply the standard ROI metrics used to evaluate investment decisions. Such benefits can and do arise in international initiatives and not just those concentrated in Ireland.

David Byers, Partner - Corporate




The Business View

David Duffy, Chief Executive Officer of AIB Group & President of the Irish Banking Federation

Ireland remains one of the most open economies in the world. Our fortunes are crucially dependent on Europe for growth. Therefore, we need to recognise what we can control - and what’s beyond our control. Where we do have control in areas such as domestic fiscal planning we must remain disciplined and in areas where we do not have direct control, especially at a policy-making level in Brussels and Frankfurt, then it is vital that we use our influence to support European policies that promote growth and that benefits us in Ireland as well as the rest of Europe.

Domestically we still have to tackle the legacy of debts accumulated during the boom years. Our debt/income ratio on some measures is still above acceptable long term sustainable levels so de-leveraging still has a way to go, especially in terms of the household balance sheet. What is happening in Ireland has happened elsewhere before, and we are following an historic pattern that will continue to play out over the next few years. The result is that we will continue to see net reductions in lending in Ireland because the amounts AIB and the other banks lend to borrowers will be exceeded by the nominal value of debt repayments by consumers and businesses for the foreseeable future.

Nevertheless, we are getting to a tipping point. The borrowing/repayment dynamic is influenced by a combination of factors such as house prices and unemployment levels. Stabilising prices and job numbers across the country will help confidence, which in turn will help the housing and job markets. I also expect to see a turnaround in consumer spending, which will be good news for SMEs serving the domestic market. Furthermore, 2014 will finally see a drop in arrears as real progress is achieved on resolutions for personal and business borrowers.

The SME sector is one of what I call the ‘three legs’ of the economy. Those SMEs that have survived the recession are, for the most part, well run businesses that have figured out how to diversify, cut costs and sustain growth. In many different sectors including troubled areas - such as hotels and pubs - the key is to re-structure legacy property debts in a manner that helps the successful survivors to grow and create jobs.

The other two legs of the economy are Foreign Direct Investment (FDI) and the export driven economy. My concern is that the model for FDI success in the past - affordable, well educated labour and a good telecoms infrastructure - has left us complacent about the future. We face real

26 | Capital Expenditure

“For the first time in years, the three vital elements of the economy, to which I refer, are all pointing in the right direction albeit developing at

different rates.”

| 27

skills shortages and the challenge is to equip our school leavers and graduates with the skills that will be demanded by a tech-based economy. We must continue to invest in our physical infrastructure.

It isn’t all about technology of course. Our export performance has seen real success for indigenous companies in sectors as diverse as agri, pharma, software and even industrial goods. Growth in Europe is a key driver, but economic recovery in the UK will also help Ireland’s exporters given its fundamental importance as a trading partner. Back home, the end of quotas for farming also represents an enormous opportunity for indigenous suppliers to grow and to secure higher levels of productivity - following the example of New Zealand - which in turn will drive export growth.

For the first time in years, the three vital elements of the economy, to which I refer, are all pointing in the right direction albeit developing at different rates. All three are creating a positive dynamic that was absent before.

These developments bode well for the financial sector in Ireland. We have just seen the State successfully borrow on the open market in the new, post-bailout environment. Likewise, AIB and Bank of Ireland have also benefited from the improved perceptions of Ireland and our financial sector. The main banks have recently raised unsecured funds on the open market at an interest rate lower than that for secured funds just a year ago.

The pillar banks in Ireland are expected to return to profitability during 2014-15, and should be adequately capitalised to meet ECB and other criteria unless there are changes to the rules at a European level. The issues of arrears, capital adequacy and profitability will all effectively be resolved for Ireland’s banking sector in the next two years.

It is vital that the business of banking is normalised sooner rather than later. Take mortgages, for example. At the peak, banks in Ireland were lending €40 billion a year. A normal market level is closer to €8-€10 billion. But right now due to limited demand, banks are lending about half that level. With the banks returning to health, we will see the share of cash buyers in the housing market decline and first time buyers have access to mortgages they need.

This in turn will support the construction sector. Again we need to get a more normalised market, which means building 12-18,000 houses a year in line with demographics and growth, as well as appropriate commercial property developments.

Looking around the country, we don’t see many big regional differences in terms of business customer performance, as each regional economy is built around its own strengths to a certain extent.

Nevertheless, it is important to avoid any worsening of regional imbalances. Dublin has become a European technology hub, which is to the country’s benefit. But we also need greater synergies between the universities, IDA , banks and other parties to build attractive propositions outside of Dublin for future investment.

To sum up, there’s a lot of goodwill towards Ireland as the first European country to exit a bailout. It is imperative that we keep that goodwill by maintaining our fiscal discipline. We must leverage that goodwill in Europe to systematically make our voice heard in relation to pan-European regulations and legislation that will increasingly shape all our futures, and not just in banking.

28 | Section Title

Mergers & AcquisitionsOur research points to a number of significant shifts in M&A

activities among Irish businesses. For most, the decision to

pursue M&A activity relates to economies of scale (changing the

competitive structure) and simple business expansion (via access to

new markets, locations, etc). Financial motivations (using surplus

cash and/or supporting share prices) are a distant third. However,

a growing proportion will seek to do M&A deals in the Irish market

where a key challenge will be to ensure that debt finance options

are sufficient to resource viable merger and acquisition activities

that promise to deliver growth and jobs over the rest of the decade.

part five

| 29

12% of all firms surveyed bought or sold a business in the past 3 years. Transactions were driven by changing competitor landscape and opportunities for consolidation. In 2014, just 16% of

firms plan to buy or sell a business – a small uplift. However, the pattern of M&A activity in terms of location is expected to shift significantly, as illustrated below.

M&A locations over the past 3 years

M&A locations over the next 12 months

Ireland

35%UK

26% USA

13%

Europe

16% Asia

6%

UK

20%USA

5%

Europe

22%Ireland

59%

M&A locations over the past 3 years

M&A locations over the next 12 months

Ireland

35%UK

26% USA

13%

Europe

16% Asia

6%

UK

20%USA

5%

Europe

22%Ireland

59%

M&A Locations Over the Past 3 Years

M&A Locations Over the Next 12 Months

30 | Mergers & Acquisitions

One sure sign of a positive outlook for the Irish economy is the fact that more than half those planning M&A activity over the next 12 months plan to do so in Ireland. Moreover:

• One in five SMEs expect to undertake M&A activity

• Three in ten of those in the hospitality sector anticipate M&A activity

• One in five of those expecting higher growth in 2014 will undertake M&A activity over the next 18 months

• Two fifths of SMEs expect to undertake M&A activity in the UK

• Three quarters of corporates will focus on Ireland

Given such a significant change in M&A plans, and the generally positive implications for business finance and expansion, a key question concerns the likely sources of funding for planned mergers and acquisitions. Crucially, the top resource is anticipated to be reserves or ‘own resources’, reflecting the significant ‘war chests’ accumulated by many businesses during the recession.

Funding future M&A activities

34%

27%

22%

17%

15%

Existing Resources

Bank Debt

Combination

Shares

Investor

The expected shift in the focus of M&A activity shown in our survey should not be surprising. After several years in which domestic

markets have been ‘frozen’, it is inevitable that improving growth prospects, stronger cash flows and (with some caveats) better access to funding should all combine to encourage greater interest in doing deals that make sense in the context of recovery.

We are seeing a growing number of innovative, more flexible arrangements between businesses that range from IP sharing to joint ventures to fully fledged acquisitions. With a growing number of overseas parties focused on Ireland due to more realistic valuations and cheaper funding abroad, we would expect both domestic and foreign-owned companies to be heavily involved in deal flows in the coming years.

Barry Devereux, Partner - Head of Corporate Finance


Funding for Future M&A Activities

...more than half those planning M&A activity over the next 12 months plan to do so in Ireland

“

“

| 31

Bank debt is also expected to play a key role while equity issues and new investors will be of subsidiary importance. Not surprisingly, there are major differences by company type in relation to M&A funding ambitions. Corporates overwhelmingly expect to fund activities from their own resources. Micro-firms and SMEs, on the other hand, will look for a greater role for bank debt. Therein lies a potential problem, of course, since a focus on M&A activity in Ireland funded by bank borrowings immediately raises the issue of the capacity and willingness of our indigenous banks to fund such efforts. One question unanswered is whether the new entrants to the Irish lending market e.g. private equity firms, will lend for coporate acquisition purposes.

However, not all activities will take the form of traditional M&A. Indeed, joint ventures and partnerships are expected to play a bigger role in delivering expansion over the next three years. This may in turn limit the need for finance, opening up more potential for those firms lacking endogenous resources to self-fund activities.

• A quarter of micro-firms and SMEs plan going down the joint venture route to secure their business deals

• One in five SMEs expects to take on a minority investor partner

• A quarter of construction sector firms are looking to joint ventures to deliver expansion

• A third of those anticipating expansion in 2014 will rely on joint ventures

Our research points to a number of significant shifts in M&A activity among Irish firms, and potential problems. Overall, more will look to M&A to deliver expansion and growth over the medium terms. However, a growing proportion will seek to do M&A deals in the Irish market. A key challenge will therefore be to ensure that debt finance options are sufficient to resource viable merger and acquisition activities that promise to deliver growth and jobs over the rest of the decade.

Changing Deal Structures Next Year

22%

14%

11%

54%

24%

16%

12%

49%

Joint Venture / Partnership

Traditional Merger & Acquisition

Minority Investment Partnership

None

Changing Deal Structures Next 3 Years




None



...not all activities will take the form of traditional M&A... joint ventures and partnerships are expected to play a bigger role

“

“


22%

14%

11%

54%

24%

16%

12%

49%




None





None

32 | Mergers & Acquisitions

In 2012, Petroceltic acquired Melrose Resources Plc in a share for share offer with a value of $200m. This was a huge fillip for our business. We focus on two main paths to growth, organic exploration and step-change acquisitions. In our industry, there is a continuous need for investment and growth as we may have twenty projects in progress and only one or two of these will work. We are not large enough to sustain the level of exploration project investment that is needed to guarantee growth so we also have to grow through acquisitions.

The outlook for 2014 is very positive. However, I believe more could be done to help Irish businesses expand overseas. We need ‘Team Ireland’ with a private sector focus and some ‘joined-up’ thinking that includes various State and private sector players working together to promote Irish companies in overseas markets.

The Business View

Brian O’Cathain, Chief Executive Officer of Petroceltic International plc

Our business is conducted overseas so we are very externally focused but our headquarters is based in Dublin and we use Irish based services such as McCann FitzGerald for legal services.

“We focus on two main paths to growth, exploration and acquisition”

McCann FitzGerald ¦ Corporate Outlook: Ireland 2014 | 33

Innovation & Digital StrategyAt the height of the boom in 2007, fewer than half of all Irish adults used

the internet. At the beginning of 2014, despite long years of domestic

market stagnation, more than 80% of adults are online. And now a

second revolution is underway: 2013 saw half the population of Ireland

own a smartphone for the first time. Over the next couple of years that

figure will likewise rise to 80% of the population – continuing higher

thereafter. Every business therefore has to have a digital strategy – even

if they are not a digital business.

part six

34 | Innovation & Digital Strategy

Our survey examined the share of online sales in total revenues for Irish businesses in 2013. Nearly half didn’t generate any sales online. Among those who did, over a quarter of their overall sales were digital. Looking ahead to 2014 the key message is that the share of ‘offline’ businesses (with no online sales) will fall dramatically to a little over a third by the end of the year. While those expecting a higher proportion of their sales to be online will grow significantly.

Will the digital revolution be evenly distributed among Irish businesses? It’s possibly too early to tell, but nevertheless there are some reassuring findings from our survey about the broad-based nature of the digital trajectory for Ireland:

• Both micro-firms and SMEs (already trading online) expect a larger share of

Percentage of Revenue from Online Sales in 2013

Expected Percentage of Revenue from Online Sales in 2014

sales to be online in 2014 than corporates

• A third of sales in the hospitality sector will be online

• Two fifths of sales by those selling mostly overseas will be online

• Broadly similar proportions of Irish-owned and foreign-owned sales will be online in 2014

Beyond eCommerce, social media has also revolutionised the ways businesses communicate with their customers and their staff. The vast majority of firms expect social media to be relevant to their business in 2014, especially to advertising and brand communications, and customer service generally.

Percentage of revenue from online sales in 2013? Expected percentage of revenue from online sales 2014?

0%1-10%11-20%21-30%31-40%41-50%51-60%61-70%71-100%

47% 22% 10%4% 5%4%2%3%4%

0%1-10%11-20%21-30%31-40%41-50%51-60%61-70%71-100%

35% 14% 13%6%6%6%2%2% 7%

Percentage of revenue from online sales in 2013? Expected percentage of revenue from online sales 2014?

0%1-10%11-20%21-30%31-40%41-50%51-60%61-70%71-100%

47% 22% 10%4% 5%4%2%3%4%

0%1-10%11-20%21-30%31-40%41-50%51-60%61-70%71-100%

35% 14% 13%6%6%6%2%2% 7%

| 35

Very few, however, expect social media to work as a sales channel per se – which tends to be the view of most commentators on the business impact of social media. However, corporate reputation in the digital world is a growing challenge for many businesses as customers – happy and unhappy – can freely share their views with others, for better or for worse.

Another related factor is that of staff access to social media. Two thirds of firms provide access, though with some restrictions.

Smaller firms are generally more ‘liberal’ about letting staff access social media in our survey. That said, as the issue of online reputation becomes more pressing,

Do you allow staff access social media?

Yes, atdesignated times

17%

Yes, for business use only

15%

Yes, all the time

18%

Yes, on personal devices

10%

Yes for certain staff only

5%No -

they are blocked

18%No rule in place

14%

Yes, atdesignated times

17%

Yes, for business use only

15%

Yes, all the time

18%Yes, on

personal devices

10%Yes, for

certain staff only

6%

No, theyare blocked

18% No rule in place

14%

If relevant, why?

Relevance of Social Media to Business

Employee Access to Social Media During Work Hours

Very relevant

25%

Somewhat relevant

38%

Neither/nor

17%Somewhatirrelevant

10%Very irrelevant

10%

Communicate with customers

24%

To advertise a brand/product

40%

It’s the way forward

20%

Networking

6%

Sales channel

13%

Very relevant

25%

Somewhat relevant

38%

Neither/nor

17%Somewhatirrelevant

10%Very irrelevant

10%

Communicate with customers

24%

To advertise a brand/product

40%

It’s the way forward

20%

Networking

6%

Sales channel

13%


We are only at the beginning of the digital revolution for businesses. Already, we have seen new opportunities emerge to sell, serve and retain customers that would have been impossible (or prohibitively expensive) even in the recent past.

But we should not be blind to the challenges that the digital future will bring. Whether in terms of managing intellectual property, adapting to innovative technologies, or implementing privacy by design, the businesses in our survey may not yet be fully prepared.

In our Technology & Innovation group, for example, we have seen data protection issues become a top priority for both private and public sector clients in the past few years. For some, unfortunately, this has been due to risks that have manifested themselves. Others have taken a more proactive stance in terms of installing the processes and procedures that protect customers, protect staff and protect corporate reputations at a time of unprecedented change.

Paul Lavery, Partner - Head of Technology & Innovation


the impression created by staff usage of social media – at work or otherwise – will become an important one for firms of all sizes in future.

Indeed, the business decision makers we surveyed are themselves quite sophisticated users of social media.

Which in turn suggests that they will be in a strong position to respond quickly and positively to the opportunities and challenges opened up by social media and digital technology generally.

How often do you use social media?

Weekly

19%Daily

37%Do not

have an account

26%Monthly

7%

Have account but not active

10%

Weekly

12%Daily

15%Do not

have an account

50%Monthly

10%


12%

Weekly

22%Daily

14%Do not

have an account

28%Monthly

18%


16%

Current Use of Different Social Media by Business Leaders

| 37

Looking ahead, all businesses need to future-proof themselves against new and emerging technological changes. We explored a number of potential changes in our survey that firms could make. Most haven’t yet made investments relating to technological change from among those we listed.

Nevertheless, a third have invested in data storage solutions such as cloud computing, while a quarter have hired staff with specific digital skills they deem necessary to respond to the new realities:

• 43% of corporates have hired specific digital skills

• A fifth of SMEs have invested in cloud computing solutions

• But six in ten micro-firms haven’t invested in any of the changes listed

Digital trends represent a structural rather than a cyclical source of change for Irish businesses. No matter what stage of the economic cycle we find ourselves at, the new realities of digital technology – and its rapid adoption by consumers in particular – require a clear, strategic business response. Our survey provides both grounds for optimism and for pessimism in relation to the digital revolution in the Irish business landscape. Realising the ambitions for growth, trade and recruitment noted in earlier sections will demand a credible and successful approach to the challenge of the digital future.

Have you made investments to future proof against changes?

Investing in Data Storagesuch as Cloud Computing

34%

Hiring DedicatedDigital Employees

25%

Infrastructure

29%

None

41%

Investments Made by Business to Future-Proof for Technological Change



34%


25%

Infrastructure

29%

None

41%

...the new realities of digital technology – and its rapid adoption by consumers in particular – require a clear, strategic business response

“

“Have you made investments to future proof against changes?


34%


25%

Infrastructure

29%

None

41%



34%


25%

Infrastructure

29%

None

41%



34%


25%

Infrastructure

29%

None

41%



34%


25%

Infrastructure

29%

None

41%



34%


25%

Infrastructure

29%

None

41%



34%


25%

Infrastructure

29%

None

41%


In our industry the only route to growth is through innovation. At Kingspan, we spend a significant amount on R&D so that we continue to develop products that differentiate us from our competitors. At a policy level, I believe more should be done to incentivise innovation and promote investment in education. We can sometimes find that there is a shortage of technical talent which is required to support innovation led businesses like ours.

Irish business (and supporting State agencies) need to increase their focus in Asia. Not only as a market for the goods and services that we produce but as a source of investment. This is particularly true of China.

A large part of Kingspan’s business is overseas but we don’t just export products, we export business ideas, for instance we try and replicate what we are doing in Ireland in overseas locations, from production to sales.

Ireland’s reputation has improved dramatically in recent months. We are positively perceived internationally for how we managed the recession and rebuilt our economy. In reality though, we have a lot more work to do and the main priorities should be to reduce unemployment and increase consumer confidence.

The Business View

Based in Kingscourt, Co. Cavan, Kingspan Group plc is a building materials company that is recognised throughout the construction industry for its commitment to innovation, design, quality and technical expertise. With approximately 700 employees in Ireland and 7,000 worldwide, Kingspan has manufacturing and distribution operations throughout Europe, the Far East and the United States.

Gene Murtagh, Chief Executive Officer of Kingspan Group plc

“At a policy level, I believe more should be done to incentivise innovation”

| 39

ConclusionsThe McCann FitzGerald Corporate Outlook: Ireland 2014 report

has captured a picture of corporate Ireland at a crucial stage

in our economic recovery. We have seen clear evidence for a

healthy alignment between the macro and micro dimensions of

Ireland’s economic and business performance. This bodes well

for Ireland’s economic growth in 2014 as businesses play a crucial

role in driving investment, trade and even consumer spending

through job creation.

We are seeing a strengthening relationship between Irish firms’ growth prospects and their hiring intentions. Moreover, growth itself is aligned with those economies – especially the UK – that look set to enjoy the best prospects, at least in the western hemisphere.

Our insights into plans for merger and acquisition activities indicate a growing willingness to invest in expansion and for the long term, to drive the overall contribution of investment in economic recovery. Finally, our overview of digital activities in Irish firms indicates that many have already benefited from the digital revolution, with more planning to do so in the near future.

It would be wrong, however, to simply paint a positive picture and leave it at that. Our survey also highlights a number of key obstacles in the way of growth and recovery – some old and some new. Perhaps the most important is the capacity of our banking sector to play its part in the growth ambitions of Irish firms, especially SMEs. More surprisingly, perhaps, is the finding that many businesses are already facing serious problems both recruiting staff with the right skills and holding on to those staff that will be essential to the delivery of their growth ambitions.

Nevertheless, the weight of expectations is clearly balanced towards a positive outlook, one comprised of more than mere business optimism. 2014 looks like being the year recovery finally gets underway for the majority of Irish businesses.

...the weight of expectations is clearly balanced towards a positive outlook, one comprised of more than mere business optimism

“

“

40 |

About the Research

Amárach Research conducted a national telephone survey of 250 senior business decision makers – responsible for planning and strategy in their organisations – in November/December 2013. The sample comprised a cross section of businesses by size (measured by number of employees and ranging from SMEs to corporates), location and sectors (excluding the public sector). Three quarters of the firms surveyed are Irish-owned, the rest are foreign-owned. The majority (70%) generate most of their revenues in Ireland, the balance overseas.

Most of the firms (63%) have been in business for over ten years, with more than a third in business for less than ten years. Broadly equal proportions of the sample sell mostly to businesses (B2B) and mostly to consumers (B2C).

Throughout this report we have referred to micro-firms (employing up to 10 employees), SMEs (employing 11-100) and corporates (employing more than 100 staff ). In our survey, the average micro-firm employs 3 staff and has a turnover of €277,000 per annum; the average SME employees 43 staff and has a turnover of €6.6mn; and the average corporate employees 548 staff and has a turnover of €117mn.

In some instances respondents were allowed to select more than one option hence some totals may add to more than 100%. Similarly, some findings may not add up to 100% as some smaller categories have been excluded from the report.

To supplement the survey, Amárach conducted a number of in-depth interviews with the following senior business figures in Ireland to capture their own views on the prospects for growth, and the key drivers:

• David Duffy, Chief Executive Officer of AIB Group and President of Irish Banking Federation

• Dr. Paul Duffy, Vice-President of Pfizer

• Rose Hynes, Chairman of Shannon Airport Authority plc, Bord Gáis Éireann and Irish Water

• Christoph Mueller, Chief Executive Officer of Aer Lingus plc

• Gene Murtagh, Chief Executive Officer of Kingspan Group plc

• Brian O’Cathain, Chief Executive Officer of Petroceltic International plc

We are very grateful to all the interviewees and survey participants for their valuable time and insights.

| 41

Amárach Research is an independent market research agency, providing a full range of research services to its Irish and international clients. Amárach specialises in turning information into insight; and insight into foresight. Amárach’s experienced team of directors and executives manage online, face-to-face and cati surveys (through its call centre); as well as qualitative research including focus groups, in-depths and ethnographic studies. The agency also delivers a world class field-only service to universities and international agencies.

About Amárach

For nearly 25 years, Amárach has pioneered innovative research techniques and reported on digital and technology trends since the earliest days of the Internet. Amárach invests heavily in understanding current Irish consumer and business trends, and shares numerous free reports and presentations via its blog, twitter and slideshare sites, linked via its main website: www.amarach.com

About McCann FitzGerald

With over 450 people, including over 300 lawyers, McCann FitzGerald is one of Ireland’s premier law firms. We are consistently recognised as being the market leader in many practice areas and our pre-eminence is endorsed by clients and market commentators alike.

We provide the highest quality legal advice and representation to Irish and overseas clients who are principally in the corporate, financial and business sectors. We also advise many clients in the State and semi-State sector.

McCann FitzGerald has extensive experience in advising on corporate and commercial transactions, often with a cross-border element. We have advised on many of the major corporate transactions in Ireland, including some of the most complex and innovative M&A transactions and equity offerings.

Within our Corporate Group our lawyers bring specific experience from a wide range of industry sectors, including energy, communications, technology, pharmaceuticals, life sciences, food/agri, and the public sector. These industry specialisms are supplemented with expertise in dedicated practice areas such as competition and regulation, pensions, employment, data protection and freedom of information.

John Cronin

Chairman

ddi +353-1-607 1284email john.cronin@ mccannfitzgerald.ie

For further information contact:

This document is for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.

2014 © McCann FitzGerald. All rights reserved.

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Email [email protected] www.mccannfitzgerald.ie© McCann FitzGerald, January 2014