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Restructuring safety net for SMEs rises to €200m

Tuesday, March 5th, 2019

The European Commission has agreed to increase Ireland’s Rescue and Restructuring scheme budget to €200m from €20m.

The move follows consultation between the Department of Business and the European Commission about the need to safeguard the future of Irish SMEs most exposed to Brexit.

The scheme, first approved in 2017, aims to avoid situations where viable small businesses, with the potential to restore their competitiveness, experience difficulties because of an inability to access finance.

“By increasing the provision from €20m to €200m, the Government will be able to put in place a fund, should it be required, to offer both rescue aid and temporary restructuring aid to SMEs in financial difficulty or experiencing acute liquidity needs,” said Business Minister Heather Humphreys.

The minister added that the Government hopes to never have to use the scheme, “however, having the option there is prudent as part of our overall contingency plan for Brexit”.


New fund of €125m-plus to back SMEs

Thursday, February 14th, 2019

Irish private equity investor MML Growth Capital Partners is looking to raise a new fund, with a target to raise €125m or more.

The move will provide a fresh pot of money for Irish SMEs as non-bank finance becomes more prevalent here.

MML, which declined to comment, typically invests in established, profitable SMEs on the island of Ireland. It is led by Neil McGowan and Rory Quirke.

Individual commitments to companies tend to range from €5-€15m, and can be for minority or majority stakes.

It established a first fund a number of years ago, which it has used to invest in businesses ranging from courier firm Fastway Couriers, to bathroom products supplier Sonas Bathrooms.

Last year it exited investments in refrigeration business Lowe Refrigeration, and specialist engineers H&MV. MML has filed documents at the Companies Registration Office for an entity called ‘MML Growth Capital Partners Ireland II’.

The investors in the first MML fund were AIB, Enterprise Ireland, Goldpoint Partners (an investment arm of US insurance company New York Life), the European Investment Fund and the American health services giant Cigna Corporation.

That same cohort is likely to be approached again about investing in the new fund, with a second phase of fundraising with opportunities for new investors potentially to follow. A range of non-bank finance providers has sprung up here since the crash.

Private equity operators like MML, Carlyle Cardinal Ireland and Renatus Capital have set up, as have debt providers like Capitalflow or Finance Ireland, which is run by former Irish Permanent chief executive Billy Kane.

Equity funding is less risky for a business than debt because it doesn’t involve borrowing money that has to be repaid.

Instead equity investors take a percentage of the company’s shares, in the hope that they will be able to sell those shares at a later date for a higher price.

MML says on its website that it backs “ambitious managers of small and medium-sized private businesses located on the island of Ireland to reach the next stage of their evolution, maximising growth opportunities at home and abroad”.


Small businesses cautious as they enter 2019

Tuesday, January 8th, 2019

The mood amongst the small business community at the start of 2019 is cautious, according to the latest report from the Small Firms Association (SFA). Just under 60pc of SFA members feel that the business environment is improving, down slightly from 62pc a year ago.

The SFA’s ‘Business Sentiment Survey’ is based on responses by SFA member companies, each of which have less than 50 employees.  The firms operate across all sectors of the economy.

Difficulties in attracting staff, Brexit, and rising business costs have been identified as risks to small firms in the coming year. Despite the slight decline in confidence, two-thirds of survey respondents indicated their intention to recruit and invest in their businesses over the coming year.

“2018 has been a challenging year for small business,” Sven Spollen-Behrens, SFA director, said. “The confident mood of a year ago has eased a little on account of Brexit and the tightening labour market. Nevertheless, the Irish economy remains in a strong position and this is confirmed in our members’ feedback that domestic economic growth offers the biggest opportunity in 2019.”

Overall and 51pc of respondents said that their companies are growing. “The fundamentals of the Irish economy are strong and economic growth and job creation are forecast to continue in 2019,” Mr Spollen-Behrens added.

“However, Brexit poses one of the biggest challenges faced by small businesses in years and the SFA will remain focused on preparing members for the opportunities and risks to their businesses.”


Concern as productivity falls at Irish firms

Thursday, November 22nd, 2018

Most Irish firms are seeing their productivity shrink, the National Competitiveness Council has warned.

The council said good productivity performances from a small number of big companies, working in largely foreign-dominated sectors, is masking the underperformance of smaller companies which account for most of the employment in the State.

It said the gap threatens smaller firms’ competitiveness and means that “the large engine powered by a small number of multinational corporations will have to do more of the work to sustain the economy in the future,” adding there was a lack of technology spillover from the multinationals to indigenous firms.

“Fixing this is not easy – the National Competitiveness Council’s view is that a major effort is required to help indigenous firms to invest in innovation, obtain the necessary management talent and in-company training and ultimately grow and diversify into new markets,” the council said.

“Foreign direct investment will continue to play a key role in Ireland’s future.

“While we should not switch attention away from the attraction, support and development of multinational operations in Ireland – which are a critical pillar of the Irish economy – the focus should be on the continued diversification of the FDI base of industries and, equally important, further embedding their activities in the rest of the Irish economy.”


SMEs warned not to rely on UK partners to cope with Brexit

Wednesday, October 31st, 2018

Irish firms are being warned that their ability to cope with Brexit could be undermined because of their UK-based suppliers and customers’ lack of preparations.

New research shows six out of 10 UK businesses have not undertaken any risk assessment ahead of the UK exit from the European Union.

Irish exporters in particular have been targeted with initiatives from agencies including Enterprise Ireland, Bord Bia and the Department of Business, Enterprise and Innovation, including a voucher scheme for professional advice, a loan scheme and funds to support market diversification.

However, Mark O’Rourke, managing director of SME-focused lender Bibby Financial Services Ireland, says research commissioned by his firm’s UK-based parent highlights a major area of concern, in the lack of preparation among UK business that Irish firms rely on for cross-border trade.

“This research highlights a lack of preparedness amongst UK SMEs. This means that regardless of how organised Irish SMEs are, if their UK counterparts haven’t taken the necessary steps to prepare for Brexit, there will be challenges ahead,” he said.

“Irish SMEs need to take steps to insulate themselves from the potential ill-effects of the UK’s departure from the EU and ensure they are equipped, because despite the transition period, Brexit is going to happen and businesses need to prepare. Irish SMEs will need to be flexible enough to manage whatever scenario arises,” he said.

Bibby Financial Services, in partnership with the British Chambers of Commerce (BCC), conducted one of the biggest surveys of UK business opinion since the referendum, based on a survey of more than 2,500 firms from across the UK.

It found that 62pc of UK SMEs have yet to do a Brexit risk assessment, with under six months to go.

The UK government last week issued a new batch of papers on its preparations for a possible no-deal Brexit. The stark conclusions included warning companies to close cross-border mergers ahead of the February Brexit deadline, and a further call to drugs firms to stockpile supplies.

At home, drinks industry group the Alcohol Beverage Federation of Ireland (ABFI), said a no-deal Brexit would be disastrous for the industry, delaying and disrupting 23,000 cross-border truck movements, applying unnecessary tariffs on supply chains and putting €364m worth of trade between the UK and Ireland at risk. Director of ABFI Patricia Callan said the Irish drinks industry is a highly integrated all-island business.

“Brexit could be highly disruptive, particularly if there was to be a disastrous no-deal.”


SMEs warned not to rely on UK partners to cope with Brexit

Tuesday, October 16th, 2018

Irish firms are being warned that their ability to cope with Brexit could be undermined because of their UK-based suppliers and customers’ lack of preparations.

New research shows six out of 10 UK businesses have not undertaken any risk assessment ahead of the UK exit from the European Union.

Irish exporters in particular have been targeted with initiatives from agencies including Enterprise Ireland, Bord Bia and the Department of Business, Enterprise and Innovation, including a voucher scheme for professional advice, a loan scheme and funds to support market diversification.

However, Mark O’Rourke, managing director of SME-focused lender Bibby Financial Services Ireland, says research commissioned by his firm’s UK-based parent highlights a major area of concern, in the lack of preparation among UK business that Irish firms rely on for cross-border trade.

“This research highlights a lack of preparedness amongst UK SMEs. This means that regardless of how organised Irish SMEs are, if their UK counterparts haven’t taken the necessary steps to prepare for Brexit, there will be challenges ahead,” he said.

“Irish SMEs need to take steps to insulate themselves from the potential ill-effects of the UK’s departure from the EU and ensure they are equipped, because despite the transition period, Brexit is going to happen and businesses need to prepare. Irish SMEs will need to be flexible enough to manage whatever scenario arises,” he said.

Bibby Financial Services, in partnership with the British Chambers of Commerce (BCC), conducted one of the biggest surveys of UK business opinion since the referendum, based on a survey of more than 2,500 firms from across the UK.

It found that 62pc of UK SMEs have yet to do a Brexit risk assessment, with under six months to go.


Economy set to grow by 9% this year

Thursday, September 27th, 2018

The economy could grow by as much as 8.9% this year, according to the Economic and Social Research Institute — nearly double the level initially expected.

The forecast is a significant increase on the 4.7% rise the ESRI said it was expecting as recently as mid-June. The reason for the higher growth outlook, it said, is faster-than-expected domestic economy growth and multinational activity significantly impacting Ireland’s trade balance.

“Domestic consumption and modified investment have grown at a faster pace through the first half of 2018 than was previously expected,” the economic think-tank said in its latest outlook report.

“Secondly, considerable volatility in the trade balance, with imports registering negative growth over the same period, has also led us to revise our forecasts. This change is mainly due to a sizeable reduction in imports of research and technology-related services amongst certain multinational firms.”

Noting that the trade balance makes a significant contribution to economic growth, the think-tank said “significant risks” — mainly in the form of Brexit and US trade policy — are looming. It said global risks are likely to be “particularly elevated” in 2019.

The ESRI has also upped its outlook for 2019. It now expects 4.5% GDP growth instead of less than 4%. Exports should grow by 7.5% this year and by 5.2% next, it said, with consumption up by 2.9% in 2018 and 2.5% in 2019.

It expects the unemployment rate to be at 5.7% by the end of this year and to fall to 5.1% by the end of 2019.

“Our forecasts for 2019 are subject to the technical assumption that an agreement along the lines of the European Economic Area will exist between the UK and the EU after March 2019,” said the ESRI.

It warned against “an explicitly contractionary budget” next month, which, in the case of a no-deal Brexit, “may amplify the potential fallout from an economic downturn and reinforce the shock on the economy, rather than insulate it”.

Elsewhere in its outlook, the ESRI said it expects house build completions to total 18,550 this year and 24,500 new houses to be built next year. It also expects upward pressure to continue on both house prices and rental costs. Affordability difficulties are likely to be exacerbated as a result.

Noting new mortgage lending levels remaining in double-digit percentage growth and a rise in SME lending, the ESRI said “careful monitoring is required”, given the pace of acceleration in new lending.

“The Irish economy continues to perform significantly better than most OECD economies and is, once again, likely to register the fastest growth rate in the euro area in 2018,” it said.


Large numbers of SMEs yet to prepare for payroll shake-up

Friday, September 14th, 2018

Large numbers of smaller firms have admitted they are not prepared for changes in how payroll systems interact with Revenue that are due to come into force in January. An overhaul of the Pay As You Earn (PAYE) system is due to come into effect in five months.

But 40pc of firms are not prepared for the changes, according to a survey of 200 firms which was commissioned by Big Red Cloud, a firm that supplies payroll software. A majority of the firms surveyed said they were short of detail on how the new PAYE system will work.

From January, the new system will see employers submitting payroll data on a regular basis. This represents a fundamental shift from the present system where detailed payroll data is submitted annually in a P35 form.

Big Red Cloud said Revenue’s changes are warranted, given the fact that the existing PAYE system had been introduced in 1960, at a time when a job was typically for life and payroll was a manual process. Every aspect of how an employer fulfils their PAYE reporting obligations will change to a real-time electronic submission of the data.

That covers everything from commencing employment, statutory deductions (PAYE/PRSI/USC), as well as the cessation of employment. Well-known forms, such as the P45, P46, P30, P60 and P35, will disappear.

The survey found that 66pc of small and medium-sized firms are “short on detail” on the PAYE system overhaul. Just 5pc are “completely unaware” of the changes. But 40pc of SMEs said they are “not prepared at all” for the January 1 modernisation deadline. And just 15pc say they are confident they will be ready.

Big Red Cloud CEO Marc O’Dwyer said the Revenue changes represent a huge overhaul of the PAYE system, the first in 58 years. “As the year progresses, it is becoming increasingly apparent to us that, not only are many businesses not ready, many are simply unaware and/or uninformed of the changes and what they will mean for their business,” he said.

He added it was important that owner/managers take the necessary steps over the next few months to ensure their business is Revenue-compliant by January.

Revenue Commissioners chairman Niall Cody said recently the modernising of the system and move to real-time PAYE “represents an important step in the process of continuous improvement in service, compliance and efficiency in our administration of the tax system”. He said that improvements and efficiencies will be the end-goal but “businesses, particularly those at the smaller end of the scale, will need some help to get there”.


Central Bank warns economy at risk of crisis from overheating

Tuesday, July 31st, 2018

The Central Bank has been warning for some time that Ireland is vulnerable to an external shock, but the possibility of a home-grown crisis as a result of overheating is now moving to the fore.

Overheating occurs when the pace of growth overtakes the capacity to meet demand – for example when a shortage of available workers forces wages upwards to unsustainable levels.

Governor Lane indicated Government plans for public investment programmes, such as the planned roll-out of schools and roads, may mean activity elsewhere needs to be cooled. That could be achieved by ratcheting up taxes linked to some types of consumption and investment, such as property tax, to shift resources away from those areas.

The latest Central Bank report shows overall inflation in the economy remains very subdued, including for wages.

“Wage growth, though picking up somewhat, remains moderate, the prospect is for some further increase in the growth rate of average hourly earnings over this year and next, though on balance wage pressures are projected to remain largely contained,” it states.

However, as the economy moves towards full capacity over the next year or so, the risk remains that the continued strong expansion of the economy could give rise to overheating. There are economic risks facing Ireland from several fronts that cannot be ignored. A ‘hard’ or disruptive Brexit remains a material risk, while the threat of potential trade wars and changes to international taxation have not abated.

 


The Employment Incentive and Investment Scheme

Monday, July 2nd, 2018

Government plans to review the Employment Incentive and Investment Scheme (EIIS) provide a real opportunity to make improvements to a key official support scheme for SMEs.

The EIIS contains many features that are just what SMEs and investors are looking for. It is capable of delivering a positive impact for SMEs that access it; they get capital for crucial research and development and can employ more people, grow their customer base, create valuable intellectual property, target new markets and develop new leading-edge products and services.

The scheme also delivers a strong return for the State – it generated investments of €108m in Irish SMEs in 2016 on foot of an Exchequer investment of €33m, which means the State is getting more than €3 in private investment for every €1 it commits. Over 1,700 Irish SMEs benefited from it in 2016. But this number should be much higher.

The truth is that the EIIS needs reform. Investors, including venture capital funds, are moving away from the early-stage companies that the EIIS caters for and switching instead to later stage companies. But early-stage companies face a Catch 22-type situation. They cannot generate returns without capital, but they cannot get capital without proving they can generate returns.

Generally, they are not well equipped to offer higher returns in the short- to medium-term as they need every cent they can get to grow the business and higher returns tend to come later in their development.

That is why the State has to play a meaningful role in improving the attractiveness of investing in these companies.

The principle of the EIIS is sound – investors get tax incentives to deploy their capital in Irish SMEs instead of in property, bonds or equities and Irish SMEs get capital on better terms than they would in the absence of such a scheme.

Three key changes would transform the EIIS’s effectiveness and make life much easier for SMEs and investors.

Firstly, the process for getting EIIS approval is too complicated. It requires both pre-approval and approval, creating unnecessary uncertainty for investors who are making EIIS investments in advance of their chosen SMEs having final approval. This deters some investors. A simple switch to a one-stage approval process would eliminate this uncertainty. It should be possible to offer an online approval process that could be completed within four weeks from start to finish. It would give SME management teams and investors a concrete timeline and a clear path to plan their fundraising and capital deployment plans.

Secondly, the current scheme gives venture capital firms and some other shareholders preferential treatment ahead of EIIS investors in the event of liquidation.Eliminating this obstacle would result in a level playing field for EIIS investors and give them greater confidence to back SMEs.

Thirdly, the EIIS needs to be more competitive to attract investors that are currently favouring later-stage companies. To achieve this, the scheme should change the current timing restriction on receiving the tax benefits that arise from an EIIS investment. Investors should be able to access the full relief in the current tax year instead of the refund being split between the year of investment and the third anniversary of that investment.

A final enhancement worth considering is providing additional tax relief for investments that are directly aligned with the Government’s National Development Plan – in particular the goals relating to sustainability, carbon reduction, climate change and better use of natural resources.

(Irish Independent)