In This Issue

- Tax briefs
- Falling property values
- Business briefs
- Are we really a knowledge economy?
- Legal briefs
- Feeing black with the big red book

View of Irish Economy – Upbeat

Last month, as part of its twice-yearly Economic Outlook, the Organisation for Economic Co-operation and Development became the latest forecaster to raise its forecast for the Irish economy.

The latest projection from the Paris-based policy advice body envisages that the Irish economy will contract by 0.7% on average this year in Gross Domestic Product terms, much less than the 2.3% decline projected in its previous forecast round in November. Moreover, its forecast for next year was revised up by even more. The economy is now expected to grow by 3% in 2011, up considerably from the 1% it was pencilling in, in November.

The forecasters at the OECD are far from alone in taking a more upbeat view on Irish growth dynamics. Other prominent international observers who have been busy marking up their Irish forecasts recently include the IMF and European Commission.

Indeed, the forecasts of such large international institutions tend to mirror, and often lag behind, the pattern of changes in the views of the Irish economics community. One recent poll of a panel of domestic financial sector forecasters revealed that the consensus, or average, forecast is for real GDP to be unchanged this year (i.e. zero growth), which compares with an expected decline of over 1% in the same poll at the end of last year. The average GDP growth forecast for next year has also been marked up and is now at 3.2%, up from about 2.7% some six months ago. So it’s clearly not just overseas analysts who have become somewhat more optimistic lately.

What’s behind this pattern of upward growth revisions?

Well, the simple fact is that a range of Irish economic indicators have provided evidence of earlier-than-expected recovery. The latest trade numbers, for example, show that following a very strong pick-up in the early months of the year, Irish goods exports surged by over 12% in the first quarter of this year compared with the final quarter of last year.

Timely data on the performance of the private services sector is thin on the ground, which is very unfortunate given that services account for more than half of total GDP (and over half of all Irish exports). But we do have the monthly Purchasing Managers’ Index that does provide a timely steer. Significantly, this signalled a return to expansion in the April survey after a period of contraction, which lasted for well over two years and showed a further pick-up in May.

Elsewhere, underlying retail sales (excluding cars) enjoyed their first positive quarter in Q1 since the end of 2007, while the unemployment rate was steady at 13.4% for the first four months of the year before rising to 13.7% last month. Such indicators point to some signs of stability in areas which had seen enormous weakness during the depths of the recession.

In the case of both manufacturing and services, the key driver of a more positive trend emerging is the clear improvement in the international environment. Ireland is a very open economy, with exports amounting to some 90% of our GDP, so the global growth dynamic plays a very important role in shaping the Irish outlook.

Broadly speaking, the incoming news on the performance of Ireland’s key trading partners, the euro zone, UK and US has confirmed that recovery is ongoing, especially in the US where the recovery has been gaining in strength. And the recent weakness of the euro is also helpful, with a 20% fall vs. the dollar and a 12% decline vs. sterling since late last year giving a timely boost to the competitiveness of the Irish export sector.

Overall, the upward revisions to Irish growth forecasts recently have had solid foundations in the form of a much improved international picture and some stronger than expected domestic economic news.

However, while the turn in the global cycle has boosted Ireland’s growth performance and outlook, our openness also leaves us vulnerable in the event that the global recovery falters. That is a risk which investors have been more worried about lately. Concerns about the implications of the sovereign debt crisis have begun to cast a shadow over global growth prospects. This has been reflected in downward pressure on global stock markets over the past couple of months for example, implying that the adjective ‘cautious’ is very much appropriate in describing the greater optimism among analysts of the Irish economy lately.

Simon Barry is Chief Economist, Republic of Ireland with Ulster Bank Capital Markets

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In This Issue

- tax briefs page
- grants mean good business for smes
- business briefs
- new national pensions framework
- legal briefs page
- setting your sites page

RECRUITMENT & EMPLOYMENT OUTLOOK FOR 2010

Most economic commentators agree that the next six to twelve months are going to be challenging for the economy as a whole, however, small ‘shoots’ of recovery are starting to appear. The fourth quarter of 2009 saw a 27% increase in the volume of recruitment conducted by recruitment consultancies in the Irish market, and the fi rst three months of 2010 have continued in a similar vein. While the impact on employment numbers continues to make worrisome headlines, people actively engaged in the market have a slightly more positive story to tell.

Employers have cautiously started hiring again. Why? Well, for a start, employer confi dence is starting to rise on the back of more positive economic indicators. We have seen positive growth return to a number of Ireland’s closest trading partners including the US and much of the Euro area. Consumer confi dence is also creeping upwards. The ESRI announced that the consumer sentiment index made an 11.3% leap in January 2010.

Two sectors have continued to perform above the average: IT and Sales & Marketing. The IT market has shown a 32% increase in the number of new positions handled by agencies since September 2009. Software Developers maintained their salary levels to a large degree in 2009, particularly developers skilled in .NET and Java technologies. The web industry has been particularly robust over the last year, therefore, people with strong web skills were largely immune from the recession in terms of pay.

Across most industry sectors the need for good sales people remains high. Companies realise that good sales people are integral to the future development of their business, particularly if they can help win new business, retain existing clients and ultimately aid the growth of revenue. In 2010, there will continue to be a demand for experienced sales professionals and new business developers. The demand has increased signifi cantly due to the restructuring of sales teams and increased demand for ‘hunter’ profi le personality types.

Accountants were not unaffected by the downturn: salaries, in practice, were reduced by around 10% across the board. Areas that have shown a considerable slowdown include Wealth Management, Transactions Services and Corporate Finance. However, every cloud does have a silver lining, and Corporate Restructuring/Insolvency remains an area of growth for most fi rms.

The broader banking market had an extremely tough year in 2009. The term ‘Recruitment Freeze’ has been widely associated with domestic banking markets since mid- 2008. This trend should continue into 2010, with some minor exceptions in business critical areas. Investment management and associated markets made a muted comeback toward the second quarter of 2009, with a return to a reasonable volume of recruitment towards the end of the year.

Within the Insurance sector, the fi rst quarter of 2009 was a low point for employment. The second half of 2009 saw steady improvement in the number of new and replacement positions created. This owed much to the decisions of some international insurance providers to relocate their head offi ce functions to Ireland from other off-shore locations. Whilst other markets are slowly returning to normal, the construction sector continues to fl ounder, and the recovery of service markets, such as Legal, Architectural and Retail Banking, has been delayed as a result. The outlook for these particular markets is dependent largely on the success or failure of NAMA along with the ability of employees within these markets to adjust their expectations regarding salary and scope of responsibilities.

The provision and subsequent demand for outplacement services to employers has increased by 21% during 2009. Employers see the value of a properly delivered outplacement and career transition service in terms of supporting an organisation and its employees through this diffi cult time. In particular, these services signifi cantly ‘soften’ the effect of redundancy on departing employees and leave a positive impression of the company. In order to aid the selection and hiring process employers are looking for more sophisticated ways of screening and sourcing candidates. Companies are also looking at ‘partnering’ with experienced recruitment consultancies that can provide ‘value-added’ services such as psychometric testing, interim and temporary solutions, talent identifi cation and acquisition, as well as executive search strategies.

One of the ironies of the current market is that it is still extremely difficult to find and hire ‘good people’. Skilled mid-to senior-level candidates who are currently employed are reluctant to move from the safety of their current positions. To this end, employers are finding that there is enormous value in partnering with recruitment consultancies that are skilled in sourcing ‘hard to find’ people. Consultancies that have the expertise and reach to identify ‘passive’ candidates that employers would not otherwise be able to source are enjoying significant growth in demand for their services.

GREAT PEOPLE MAKE GREAT COMPANIES

More and more employers and business leaders are realising that the single biggest difference that they can make to their business in 2010 is acquiring the most talented people in the market. Identifying, attracting and retaining talented individuals will be the name of the game in the Post-Celtic Tiger era.

Abrivia’s full Salary Survey for 2009/2010 is available online at www.abrivia.ie

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- Tax briefs
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- Business briefs
- Efficient business in 5 steps
- Legal briefs
- Debt enforcement

Investment Review and Outlook

Just over one year on from Lehman Brothers’ collapse, the world economy appears to be regaining its positive momentum and risk assets (i.e. equities, corporate credit, etc.) have performed remarkably strongly. The key equity market drivers have been risk and liquidity friendly economic policies, a robust corporate bond market, and the fact that many investors appear to be in underweight equities.

Yet, the story of the last quarter has not been entirely one of increasing risk. Government bond yields have fallen and gold has broken through the psychological $1000 levels – moves normally associated with increasing risk aversion. This suggests that some investors have not forgotten the events of the last year and are far from unanimous in embracing the ‘risk trade’.

The main problem that many investors face in their portfolios is that the asset class they chose to protect them against the ravages of the financial crisis – cash – does not earn enough of a return anymore, while the main reason for holding cash – uncertainty – is slowly fading away. Hence, the dominant capital ow in markets was the steady movement out of cash and into other better yielding assets.

THE NEAR TERM?

IT’S ALL ABOUT MOMENTUM,

WHICH CAN CHANGE QUICKLY!

All attention has now shifted to the shape of global earnings recovery. Predictions of a lacklustre economic recovery have raised fears that analysts’ consensus forecasts for 20–30% global earnings growth in both 2010 and 2011 are too ambitious.

The immediate macroeconomic backdrop is defined by strenghtening economic growth, very low in ation, ultra-low short-term interest rates, private sector deleveraging and extremely unorthodox monetary policies. Global interest rates remain at historically low levels and monetary authorities have clearly indicated that it is too early to shift towards tighter monetary policies. Investors are becoming less enamoured with cash returns and are being encouraged to move up the risk curve and into government bonds, corporate credit and, increasingly, equities.

Markets should also continue to benefit from a backdrop of earnings recovery determined by the moderation of inventory de-stocking, which will lead to some inventory re-stocking, a better (although subdued) employment environment, and the consumption benefits of some restored wealth via higher financial markets.

THE MEDIUM TERM?

IT’S ALL ABOUT THE HEADWINDS,

WHICH CAN CHANGE QUICKLY!

Despite gathering evidence of a recovering global economy, central bankers are sending a clear message that until they are convinced that further de-leveraging has taken place and unemployment is no longer a threat, the current stimulus will not be withdrawn. Therefore, today’s massive policy stimulus is likely to be maintained for longer than needed as insurance against an economic relapse.

Perhaps the greatest challenge to corporate profitability will be in late 2010/early 2011 when we should have already seen a cyclical recovery in profits, but when monetary and fiscal policy are likely to be tightened.

Of course, no market moves in a straight line (up or down!) and periodic reversals are highly likely, especially with potential confusion from upcoming economic data as upward momentum slows. When things become less supportive on the economic front, risk appetite could moderate and even turn adverse. It is anticipated that investors will become more defensively oriented. In addition, future investment returns may start to re-emphasise dividends/yield, given the substantive differential between cash returns and dividend yields. Private investors who cannot put up with any possible volatility should steer clear of equities no matter what their perception is of current market conditions.

SUMMARY

There is every reason to expect an uneven pattern of economic data releases to emerge because rates of growth clearly accelerated sharply around mid-year and are now expected to level off. It is also highly likely that the challenge from ongoing de-leveraging in the household and financial sectors will make future growth rates lower than we have been used to. A foundation for recovery is intact, although not all the pillars are in place, and the latest economic news (particularly unemployment) provides reason to recognise the downside risk.

While it is tempting to recommend an exclusively relation based strategy, in light of the scale and duration of the rally to date, the rise in asset valuations and the existence of some unique upside and downside risks, a broader, slightly conservative approach is going to be most appropriate for many private investors.

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- Tax briefs
- Finance bill 2009
- Inheritance tax / revenue penalties
- Business briefs
- Legal briefs
- Dow jones index 1900 – 2008

Succession issues in the family business

Quite often, in family businesses, the importance of careful planning for the passing of the control and ownership of a family business does not get the attention that it merits. In terms of planning, succession is not regarded as a business issue – indeed succession can often be regarded as a nonbusiness issue to be addressed by the owner entrepreneur at some point in the future “when the time is right”. In the current economic environment when most forms of property are at their lowest valuation in decades the time may just be right for optimum succession planning.

Owner entrepreneurs should appreciate that a proper succession plan, addressing legal and tax estate issues, can save them and their dependents money as well as ensuring a smooth and planned transition of their business to the next generation. Indeed, a properly delivered plan can ensure the preservation of family relationships after the owner entrepreneur has exited from the business, rather than the confusion and debate that might otherwise prevail. Taking on appropriate professional advice for each step of the process is crucial.

Planning for succession can be summarised as follows:

1. Plan to exit in the most financially beneficial and tax efficient manner both for the owner entrepreneur and the business.
2. Ensure that the business handover has been carefully planned.
3. Make sure that all legal aspects of the succession have been addressed.

Exiting the business

When passing on a business to the next generation the tax implications especially when it comes to Capital Acquisitions Tax and Capital Gains Tax require careful consideration. Both CAT and CGT can arise on the same transaction.

However advantageous tax reliefs are available in the form of CGT retirement relief and CAT business relief that can minimise both taxes.

Maximising pension opportunities in the years leading to exit or retirement are a further consideration in planning to exit the family business.

Planning ahead, sometimes many years ahead, is essential to ensure the best financial exit both for the owner entrepreneur and the family members taking on the business.

Planning the business handover

Choosing your successor is a long and intensive process and one that should be approached in a structured and impartial manner. Options include choosing from existing employees or family members or recruiting from outside. With either option it is advisable to ensure objectivity by involving a third party advisor or trusted business colleague in the selection process. Once a successor has been identified a timetable for the transfer of the reins and the retirement of the owner entrepreneur should be
agreed.

Legal aspects of succession

Making a Will is the most basic form of succession planning. However there may be tax advantages in arranging for transfer of assets to dependents prior to death. Equally taking into consideration the requirements of minor dependents or family members with special needs and providing for them in a Will is an important step.

A properly executed Contract of Employment detailing entitlements, options, remuneration etc, for whomever will succeed the owner entrepreneur will ensure that the planned structure for the business going into the future is bedded down.

Where there is a transfer of share ownership as part of a succession plan a properly executed legal agreement, to meet the needs and wishes of the owner entrepreneur, can be a crucial part of the process.

The development and implementation of a succession plan is a very important part of long term business planning. It can be a time consuming project that requires much consideration, professional guidance and advice, and it should encompass all aspects of the business.

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Plan to Survive and Succeed in These Turbulent Times

There is little doubt that 2009 will be more difficult than 2008 for all businesses. Owner managers feel under pressure like never before and in a lot of instances feel lonely and isolated and do not know where to look for assistance. Therefore now more than ever before is a time when all owner managers should be stepping back and taking a strategic overview of how their business is positioned. This is not the time to let yourself become totally embroiled in the operational issues of the business. Those who position themselves properly should be looking beyond the short term and taking a view as to how they can benefit out of the opportunities that will be there when the cycle of recession passes on.

Now is the time for you to document your strategic goals and plans for the future and commence working towards the implementation of your strategic plan.

Strategic planning includes targeted actions followed by the implementation of these actions, monitoring of results and comparing the results to the plans. Evidence suggests that individuals and businesses that plan and have clear written goals are much more likely to achieve success. Aim to have SMART goals in place which are:

SPECIFIC Clear and focused
MEASURABLE So you can track progress
ACTIONABLE Where your actions make a difference
REALISTIC Achievable by you not a dream
TIME BASED With a beginning and an end

When setting about the creation of your plan you should cover the following principle issues. Your objectives- personal, business, and strategic.

• Your objectives- personal, business, and strategic
• Your business-existing products and services
• Your business -potential products and services
• Your business- sales and marketing
• Management information systems
• Managements structures and roles
• Location
• Financial module
• An action plan
• A review process

If in the preparation of your strategic plan one of the key issues for you is survival in the climate which we find ourselves then some of the following points will need critical attention.

Thinking Cash and The Cash Flows Your Business Will Need

A detailed cash flow statement for the next twelve months should be drawnup and reviewed at least monthly to see if the targets are being achieved.

Banking Facilities

Know the levels which are going to be required and be open with your finance provider. If necessary look at alternative providers which can assist with certain areas of the business.

Cost Reduction Programme

Be willing to take decisive action and review all costs of the business. Have the right business model for the market condition you find yourself in.

Staff Knowledge

Keeping employees informed of the status of the business is crucial.

Managing Risk and Uncertainty

Do we know what the main risks to the business are and what is the likely impact of a sudden hit?

Look Ahead

Do not just focus on the here and now. There will be opportunities once survival has been achieved.

In other words you will have clarified where you are now, where you want to go, and how you might get there particularly in the climate we find ourselves today.

The preparation of a new strategic plan should give you the confidence about the future of your business and your personal targets – a confidence that will inspire and motivate you and others around you.

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