Magill Financial Diary - Feb 1978

Guinness, Irish Steel, the Sunday World and Tony O'Reilly, the IDA, and the stock exchange

GUiNNESS

For the first time the chairman of Guinne ss, Lord Iveagh (Ben to his friends), has made much of a point in his annual review of Guinness' intention to diiversify out of the brewing inndustry. 'This has been going on steadily over the years and last year as much as 25% of the group's £29Y2Il1 profit came from non-brewing activities.

Mark Hely Hutchinson, the chairman of Guinness Ireland Ltd., has been much more speciific about what this might mean, at least in the Irish context. Of the £100m to be invested in Ireland over the next five years, £30m is marked down for areas outside of brewing.

Guinness has been looking at some rather crazy schemes in a desperate effort to find outtlets in the country for its funds.

One of the more interesting is Guinness's attempt to move in to the Irish meat trade. The company recently bought Golden Vale's meat plant in Rathdowney and plans are afoot now to graadually move out of the crude carcass trade with the introducction of boning and vacuum packking facilities.

Rathdowney has so far cost £1 m and as it represen ts 3% of the total Irish meat trade, it could be one area for expansion.

The Irish Co-op movement is, however, unlikely to willingly sell meat plants, largely because North Connaught Farmers and Cork Marts are actively looking for a bidder for Donnellys but for some strange reason, Guinness has not taken advantage of this, as yet anyway. One thing is certain - Guinness watchers are likely to be in for a more exciting time than they have been in the past.

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IRISH STEEL

From the very word go, Irish Steel Holdings' £40m developpment programme looked like a non-starter.

The basic idea behind the plan was the preservation of 680 jobs in Haulbowline in Cork Harbour. The board of directors under Kevin McCourt no doubt have an obligation. to plan the company's future, but they have also a possibly stronger a bligaation to ensure that State' funds are not wasted.

Ignoring the millions of pounds already poured into the plant in recent years, the spending of another £40m, when there is already a world surplus steel capacity of one and a half times present production, has the esssence of madness.

But at a time when in plannning terms the State's prime objective is employment generaation, even then the efficacy of spending this £40m seems totally outrageous. Split up between the 680 men employed at Irish Steel's plant - the development plan will not generate any new jobs - this £40m works out at £60,000 per job. If the Irish Government was simply to invest this money in British Government Stock, it could hand these men £130 a week forever, without them working at all.

It is this kind of incompetent State investment that Ireland cannot afford, and by refusing to support the scheme, the EEC Commission has done Ireland a great favour. 1 only hope Jack Lynch will see the light and demand a more sensible solution to Irish Steel's dilemma.

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Sunday World

With some obligations still beelieved to be unsettled between the liquidator of the Creation Group and Hugh Mcl.aughlin, the latter must have been under some pressure over the last four years to sell out his 54% stake in the Sunday World.

With net after tax profits of £85,000 last year and assets of £0.2lm, the equity in the Sunday Newspapers Ltd., using the average industrial PIE, was worth £1/2m, double its net assets.

That Tony O'Reilly should now hand to Hugh McLaughlin £870,000 cash as well as 200,000

Indo shares for only 54% of the shares, shows just. how nerrvous the man has become. The real threa t of course was the Sunday World launching an eveening paper against the Evening Herald.

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IDA

One of the most unfortunate prospects of industrial developpment in Ireland' is the unbalanced approach that has been taken. Ever since the Industria! Developpment Authority was set up in 1956, it has concentrated almost exclusively on handing out money to foreign industriallists.

It was only in the late 'sixxties, when the Small Industries Division was formed in the IDA that any effort was made to deevelop industries owned and conntrolled in this country. To this has now been added the IDA's new Enterprise Development Proogramme.

This scheme is designed to help those budding industrialists for whom the existing IDA grant system is not sufficient. Even where grants reach 60%, it is clear that funds are required to cover the remaining 40%, as well as supplying sufficient funds for working capital.

For example, on fixed capital investment for a plant and maachinery worth £1 00,000, the IDA could have formerly supplied a grant for up to £60,000. The new scheme now allows it to organise and guarantee bank loans not only to recover the remainning £40,000, but also to supply working capital finance. .

One unfortunate element of the new scheme is its apparent exclusivity. The sort of people the IDA want to attract under the enterprise development proogramme are executives already in middle management or top jobs, with a good record of achievement behind them 'organisation men'.The sort of people which the scheme seems to exclude, despite the fact that they might often be the most successful, are those who simply cannot accept the bureaucratic rigidity found in most organisations.

At the moment, any grant applicant producing impressive documentation gets a royal wellcome from the IDA. The unforrtunate small man with a few figures squiggled on the back of a match box gets short Shift.

Perhaps the only solution is to take executive decisions away from the existing IDA structures and set up, instead, a deciding panel staffed by part-time executives from successsful Irish companies.

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Stock Exchange

The Irish Stock Exchange has always looked like no more than a flea bite on London. With all. the companies quoted in the lattter market capitalised together at £50 billion, this is none too surrprising. All the Irish companies taken together make up no more than 1 % of this figure.

A few of the more progresssive Irish companies have, howwever, been breaking out of this flea bite mould in recent years and have grown to sufficien t size to be now included for ranking among the large British quoted companies, that is those capitalised at over £50m each.

With only three industrial companies large enough to be included, it is quite extraordinnary that all three of these enjoyed a share performance last year sufficien t to rank them in the top twenty of all large British companies, a feat that has never before been achieved by even one.

Of these, Jefferson Smurfit is the best, corning in at tenth place in 1977 and since the end of the year has risen a further 15% on the Market to capitalise the company at just on £100 m. Waterford Glass followed in sixteenth place and Cement Roaddstone seventeenth, and these too, have continued to rise since the end of the year. At this rate they will all also be in the top twenty for 1978.