Latest Sector Updates

Welcome to Bank of Ireland’s new bi-monthly Sectors Update, where our team of Sector Specialists focus on the different trends, outlooks and market activity relevant to their individual sectors. Our sector specialists are recruited from their industries, giving Bank of Ireland a unique understanding of the individual sectors and the opportunities and challenges that businesses face. They work alongside our relationship managers and this combination of industry and bank expertise aims to deliver a real customer-centric focus and an added value proposition for our customers’ businesses. Click on the updates below.

  • Agriculture Sector

    Favourable spring weather conditions with excellent grazing conditions have positioned the Agri Sector for a strong performance in 2019

    Global supplies of Dairy & Pigmeat product have tightened and we are expecting to see increases in prices across each of these key sectors. Despite the potential threat of Brexit to our Beef sector there is also some short term positivity on price.

    Beef

    The euro/sterling exchange rate, averaging 87.5 pence to the euro for the period since the Brexit referendum, has contributed to an erosion of competitiveness on our main beef export market. This compares to an average rate of 81.4 pence in the three years prior to that. This exchange rate issue together with high slaughter numbers has contributed to an unprecedented flat lining of producer prices from October 2018 to the present. Supplies are beginning to tighten and recently there has been some increase in price as a result.

    Dairy

    Better weather, more cows and higher yields are driving volumes and Irish dairy farmers are on track to produce over 1bn litres of milk in May as processors reach peak processing capacity. Up to Mid May, Global Dairy Trade (GDT) auctions have seen eleven consecutive increases. The most recent sale on June 4th saw a fall in prices with butter down 10.3%. This is the second consecutive sale where this scenario occurs.

    While demand for dairy may be subdued in Europe, China’s appetite for dairy is showing no signs of waning. Chinese buyers are showing particularly strong appetite for infant formula, whole milk powder (WMP) and skimmed milk powder (SMP). Market signals are pointing towards a shift upwards on milk price. Global Supply is very weak, dairy stocks in storage are low and this is expected to bring higher milk prices.

    Pigs

    An outbreak of African Swine Fever in China/Asia in August 2018 is creating a major supply deficit on Global markets. The sheer scale of the problem for pigmeat production in China and across Asia will affect the global meat industry, not just pigmeat. While ASF doesn’t present any consumer risk, there is evidence that Chinese consumers are switching to other meats therefore driving demand for beef and poultry as well as pigmeat. A major supply deficit in global markets is welcome news to a major exporting country such as Ireland. With China being our second most important export market for pigmeat, there is clear opportunity in this market for the foreseeable future.

    Future Growth Loan Scheme

    Bank of Ireland will participate in the Future Growth Loan Scheme recently launched by Ministers Creed & Humphrey’s. The scheme will have a €60 million allocation to the Agri Sector and Bank of Ireland is expecting strong demand for loans under the scheme with particular emphasis on future farm infrastructural projects. For more information or to apply for eligibility farmers can log on to https://sbci.gov.ie/schemes/future-growth-loan-scheme1

    1You will be redirected to an external non Bank of Ireland site
    Bank of Ireland is regulated by the Central Bank of Ireland.
  • Healthcare Sector

    A positive outlook continues with a very active transaction market

    A positive outlook for the long term sector continues in 2019 with an active pharmacy and nursing home transaction market; greenfield nursing home development, refurbishment and extensions to homes.

    Market Outlook:

    • €16,050m in funding was provided to the HSE for the provision of health and social care services in 2019; an increase of €848m or 5.6% from 2018.
    • The 2018 public allocation of €16.2bn was the highest in the history of the State. This average annual increase of €560m represented a 338% increase in health spending over a twenty year period.
    • The number of people aged 65 years and over is projected to increase by a further 21,969 (3.3%) in 2019. Adults aged 85 years and over are projected to increase by 3,116 (4.3%) in 2019.
    • The projected growth in people aged >80 will have a profound impact on the demand for healthcare services with the Department of Health projecting demographic changes will increase health costs by between 1.4% and 1.6% annually. In addition, health spending will continue to be driven by our growing populations, clinical and technology innovation, and competitive labour market.

    Nursing Homes:

    • Currently long-term residential care services are provided by the private sector, the not for profit (NFP) sector and the public sector. In 2018 there were 578 public, private and NFP nursing homes with c. 30,757 beds, registered by HIQA in Ireland
    • 2018 Registered Nursing Home / Bed Census
      2018
      Public
      Private
      Voluntary
      Nursing Homes
      122
      384
      72
      Beds
      6,015
      21,350
      3,392
    • In 2018, 98 beds were closed and 696 new beds were added, a net increase of 598 beds.

    National Nursing Home Supply/Demand:

    • In order to understand the future bed requirements, Bank of Ireland analysed and projected future nursing home bed demand on a county by county basis up to 2026 – drawing from each county’s unique demographic profile, existing beds, those in planning, under construction and those that may be decommissioned.
    • This review projects a shortfall up to 7,500 nursing home beds by 2026. However, it should be noted that this is a dynamic review and is dependent on supply and demand in each county.

    Retail Community Pharmacy

    • Ireland’s population is living longer and increasingly there are more treatment options available. With this ageing population there will be an increased use of multiple medications by patients. As a result the medicines bill will increase each year and the State will seek to increase controls and drive value and reduce the per capita cost of health.
    • 2018 was a busy year in the pharmacy transactions market with 53 pharmacy acquisitions with pharmacies trading at an average of 5.13 x EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation). Pharmacies in large urban centres or those with significant turnover scale are achieving higher multiple. There were 36 greenfield pharmacies opened in 2018 with an average investment per unit of €227k.

    Market Activity

    • Nursing Homes: Strong pipeline of re-finance, extension and upgrade proposals will continue to develop in 2019. Quality ‘fit-for-purpose’ nursing homes will continue to achieve price multiples of 8-10 times adjusted EBITDA as international and domestic investor entrants increase their portfolio.
    • Retail Community Pharmacy: A busy transaction market with continued consolidation accompanied by extensive due diligence to establish the sustainability of EBITDA.

    References

    • Bank of Ireland / Fitzgerald Power: Pharmacy Watch: Shining a Light on the Pharmacy Transactions
    • HSE National Service Plan
    • HIQA

    Hilary-Coates.png

    Hilary Coates – Head of Health and Life Sciences
    Connect on LinkedIn

    Email:
    hilary.coates@boi.com
    Mobile: 087 255 3314

  • Hospitality Sector - Hotels

    Positive trading forecast for 2019 despite a slow start to the year; this is supported by the sustained growth in overseas visitor numbers (up 5% year on year at the end of April) and the ongoing decline in unemployment levels at 4.4% for May 2019.

    Positive trading forecast for 2019 despite a slow start to the year; this is supported by the sustained growth in overseas visitor numbers (up 5% at the end of April) and the ongoing decline in unemployment levels at 4.4% for May 2019. Slight year on year decline in average RevPAR reported by all regions to the end of May; operators remain optimistic about the summer trade.

    • Growing overseas demand – Central Statistics Office (CSO) figures to April 2019 show a 5.1% year on year increase in inbound overseas travel to Ireland (US and EU responsible for the bulk of the increased travel). The USA and EU reported the biggest jump in visitor numbers (a combined 73% of the total 144k increase).
      International tourist arrivals (overnight visitors) worldwide increased 6% in 2018 to 1.4 billion as per the World Tourism Organisation.
    • Room sales performance – Slow start for the year for all major cities including Dublin, Cork, Galway and Limerick all reporting a marginal year on year decline in RevPAR to the end of May. The drop has been driven by a decline in accommodation demand (lower occupancy reported across all regions)
    • Positive industry sentiment continues to drive hotel refurbishments, extensions and developments across the country. Red Carnation, owners of Ashford Castle, have announced plans for a new 5 star hotel in Dublin.
    • Headwinds – Difficulties in sourcing hotel staff particularly in regional locations has pushed hotels like the Europe and Ashford Castle to look for alternative solutions; (both hotels have recently developed staff accommodation to tackle the issue).
    • Hotel development activity – STR now reports c. 5,100 new hotel rooms for Dublin with a confirmed opening date in the pipeline, which represents a growth of c. 25% on current supply by 2021
    • Transaction Activity – A number of prominent assets in Dublin have been put on the market this year including the Conrad in Earlsfort Terrace (guide €115m) and the Temple Bar Inn (€45m). The Marker in Dublin 2 has also recently gone on the market (€125m).
    • Brexit – Sterling currency fluctuations are negatively impacting on the perceived value for money for the GB market.
    Source: Trending, STR

    Gerardo-Larios-Rizo.png

    Gerardo Larios Rizo – Head of Hospitality

    Connect on LinkedIn

    Email:
    gerardo.lariosrizo@boi.com
    Mobile: 087 795 1253

  • Hospitality Sector - Pubs

    Positive trading forecast for 2019 supported by the sustained growth in overseas visitor numbers and the ongoing decline in unemployment levels at 4.4% for May 2019. The LVA reports that 66% of Dublin Pubs expect to grow trade in 2019 and 40% plan to refurbish their premises this year

    Positive trading forecast for 2019 supported by ongoing decline in unemployment levels at 4.4% for May 2019 as well as the sustained growth in overseas visitor numbers which benefits some locations. Impact of soft GB market performance has been compensated by strong demand from Germany and the US.

    • Growing demand – Central Statistics Office (CSO) figures to April 2019 show a 5.1% year on year increase in inbound overseas travel to Ireland (US and Germany responsible for the bulk of the increased travel). Total alcohol consumption as measured by clearances increased by +1.8% in 2018 compared with 2017. Since its peak in 2001 the average per adult alcohol consumption has declined by -23.2%.
    • Sustained number of licensed premises – Pub registrations remained stable between 2017 and 2018; about 1,500 pubs have closed across Ireland since 2005, representing a drop of over 17%. Currently there are just over 7,000 pubs in Ireland.
    • Positive industry sentiment – Market confidence continues to drive refurbishment and extension projects in pubs and restaurants across the country.
    • Headwinds – Staffing, insurance costs as well as increased competition are considered the sector’s biggest challenges. Increase focus on food means pubs are competing more and more with hotels and restaurants for their customers.
    • Transaction Activity – A number of high profile pubs have hit the market this year in Dublin and regionally including: Copper Face Jacks, Dublin guiding €40m; The Admirals, Louth guiding €475k; Uncle Tom’s Cabin, Dublin guiding €3.75m; The Magic Carpet, Co. Dublin guiding €12m; Lenehan’s, Kilkenny; The Jar, Dublin. Bruxelles in Dublin transacted at the end of Q1 for a reported €10m & Davy Byrnes for an estimated €4.5m.
    • Brexit – The LVA recently reported that 55% of the Dublin pubs surveyed were concerned about Brexit. Bars and Restaurants were hit by declining levels of British visitors in 2018, but Americans have helped to offset this. The trend is expected to continue in 2019.

    In the News

    Amidst growing concerns of misinformation regarding the morning after checks The Vintners’ Federation of Ireland (VFI) launched a public awareness campaign about driving safely the morning after a night out.

    Gerardo-Larios-Rizo.png

    Gerardo Larios Rizo – Head of Hospitality

    Connect on LinkedIn

    Email:
    gerardo.lariosrizo@boi.com
    Mobile: 087 795 1253

  • Manufacturing Sector

    Manufacturing Sector continues to expand in 2019 with 71 consecutive months of growth

    A positive start to 2019 with the manufacturing sector now showing 71 months of consecutive growth. Manufacturing PMI (Purchasing Managers’ Index) well down to 50.4 in May, however this was well flagged in the past few months as some companies produced increased orders in anticipation of Brexit at the end of March.

    The AIB Ireland Manufacturing PMI fell to 50.4 in May 2019 from 52.5 in the previous month as the end of the Brexit stockpiling boost dragged the index to its lowest level since the aftermath of the UK’s EU referendum in July 2016. Both total and overseas new orders declined during May, with the former at the fastest pace in over six years.

    Finally, despite the anticipated deadline for Brexit at the end of March, business confidence improved to a three-month high, supported by increased sales forecasts, new product launches and hopes of greater overseas demand.

    Here in Bank of Ireland we are seeing a strong mix of funding for the sector with approval and drawdown activity significantly up on 2018 and predominantly relating to working capital which our customers are telling us relates to the purchase of raw materials and building of inventory as part of their Brexit planning. Despite the contractions in output and new orders in May business confidence improved to a 5 month high according to the AIB Manufacturing PMI.

    There continues to be uncertainty regarding the final outcome of Brexit however with 43% of indigenous manufacturers in Ireland exporting to the UK combined with our SME manufacturing base telling us that the skills gaps most apparent are in marketing, production and sales roles there are obvious challenges ahead for companies in developing new markets outside of the UK. Even though the date for Brexit has extended most of our clients are telling us that they understand the route to market and supply chain implications of Brexit and the need for development of new markets in Europe however some of our customers are not in a position to invest in Brexit action plans until they know the new trade arrangements with the UK. Some of our customers are already taking Irish market share from their UK competitors as UK manufacturers focus less on Irish market.

    With two in five of our manufacturing SMEs having a concern around ability to attract new staff our customers are initiating recruitment initiatives abroad in regions such as India, Malaysia and Eastern Europe. This lack of availability of staff combined with competitive pressures is increasing medium term and long term investments in efficiency and operational excellence within the sector.

    The average weekly wage in the Manufacturing sector has risen 8% in the past three years which is not impacting our competitiveness to a large extent. The availability and cost of industrial rental space will remain a challenge through 2019 despite an expected acceleration in construction of industrial units and we anticipate increasing costs for transport, environmental and waste management including monitoring, treatment, disposal and regulation.

    Sources: The AIB Manufacturing PMI, CSO, Enterprise Ireland, Bank Of Ireland Research

     

    Brian-Evans.png

    Brian Evans – Head of Manufacturing
    Connect on LinkedIn

    Email:
    brian.evans@boi.com
    Mobile: 087 091 1342

  • Motor Sector

    The outlook for 2019 remains cautious however the general economic environment remains positive and a number of positive macroeconomic factors will be supportive to the Motor Sector

    For more information on the new and used car sales, read our latest Motor Newsletter here.

    In the event of a no-Deal outcome from Brexit, a hard Brexit is likely to substantially reduce used car imports due to a WTO tariff of 10%, non-tariff border delays, plus 23% VAT on imports to EU which would offset any weakening in sterling. In addition new passenger car sales are expected to weaken further.

    In the event of a Deal, the value of sterling is likely to strengthen. This would reduce the inflow of used imports from the UK market where the average saving from 2015 to 2018 was ca. €3,5501. These savings explain the near twofold increase of imports in the same period. In the event of used car supply tightening, this could have a positive knock on effect for the new car market.

    1Source: Jim Power, Q3 2018 Motor Industry Review

    Brexit Impact: GBP versus Euro and Used Imports

    Diesel continues to be the most popular choice with Irish consumers in 2019, declining from a peak of 76.3% in 2014 and now representing 48.3% of all new cars sold, followed by petrol at 40.8%, Hybrid at 8.7% and Electric at 2.2%.

    Franchised dealers can and, in many cases, already have refocused business opportunities on Used Cars and Workshop Departments to counter the lost contribution from new vehicle sales.

    Changing Trends Engine Types

    Demand for SUV style vehicles has increased 2.5x since 2013. This trend is expected to continue as manufacturers release new SUV models in response to changing consumer demand. Demand for SUV vehicles in Ireland whether small, medium or large now stands at approximately 46% of overall new car demand in 2019.

    Segment Trends SUV Demand

    Outlook

    New vehicle sales are forecasted to decline by ca. 10% in 2019. Looking forward to 2020, the sector is expected to benefit from the ‘new decade effect’ by having a ’20’ number plate.

    Regulatory Changes

    In September 2017: A revised vehicle consumption and C02 emissions test, the Worldwide Harmonised Light Vehicles Test Procedure (WLTP) commenced for newly launched vehicles. WLTP values at this point were temporary with a calculation translating back to previous values for the purpose of tax calculation.

    September 2018: Real Driving Emissions (RDE) Step 1 and WLTP testing became compulsory for all vehicle manufacturers in the EU During RDE tests, emissions, such as NOx, are measured by testing vehicles directly on the road.

    By September 2019, all new vehicles sold will have to be tested under RDE Step 2 – a more stringent test.

    By January 2020 Full WLTP will be in place in Ireland and manufacturers must communicate WLTP values for all new vehicles sold. C02 values are expected to increase and be more realistic than New European Driving Cycle (NEDC) values and this will impact retail prices (and road tax) without the intervention of the Irish Government.

    SIMI is currently lobbying Revenue and the Department of Finance to adjust C02 tax bands to avoid significant price increases for Irish consumers when full WLTP is implemented in January 2020. In the interim, retesting of vehicles may affect stock availability and sales as distributor’s ramp up stock for the ‘192’ selling season.

    WLTP/RDE Timeline

    Growth forecasts will be dependent on the outcome of WLTP and its impact to VRT and vehicle retail prices.

    Sources: Vehicle stats – Society of the Irish Motor Industry, SIMI, WLTP/RDE – European Automobile Manufacturers’ Association, ACEA and www.wltpfacts.eu

    Stephen Healy Motor Sector

    Stephen Healy – Head of Motor

    Connect on LinkedIn

    Email:
    stephena.healy@boi.com
    Mobile: 085 289 8600

  • Retail Convenience Sector

    2019 sees the Irish grocery market continuing to grow with a strong performance.

    Market Activity

    • The latest grocery market share issued by Kantar for the 12 weeks ended 19th May outlined that Dunnes Stores retained its number 1 position in the market followed by Tesco and Supervalu. The Irish grocery market has grown by over 3% when compared with the same period in 2018 with all major retailers seeing an increase in average spend in-store.
    • Circle K, the Canadian owned forecourt retailer opened its largest service station globally on the M11 outside Gorey, Co Wexford. This site incorporating a McDonalds restaurant is part of an overall €35m investment by Circle K in 4 new sites in 2018/19: Kilcullen, Athlone, J7 Kill & Gorey.
    • Musgrave have announced that they will open 3 new Supervalu stores in 2019 (locations not disclosed but will monitor with interest). They also announced that c30 Supervalu stores will undergo a revamp in 2019 resulting in a total investment of c€30m in the Supervalu network nationwide.
    • Maxol CEO, Brian Donaldson has announced that the McMullan family owed business will invest c€100m in revamping their store network nationwide over 3 years. This will see their forecourt stores shift in focus from fuel to food/convenience.
    • The CSO retail Index issued on 30th April demonstrates a strong performance in the sector in Q1 2019. Sales Volumes are +6% and Sales values are +4% when compared with the same period in 2018.
    • The proposed merger of Sainsbury’s and Asda in the UK has been blocked by the UK competition authority. This would have created the largest supermarket group in the UK. Walmart, the owner of Asda are now reported to be fully reviewing their UK strategy.

    Owen-Clifford.jpg

    Owen Clifford – Head of Retail Convenience

    Connect on LinkedIn

    Email:
    owen.clifford@boi.com
    Mobile: 087 907 9002

  • Technology Sector

    Bank of Ireland is positive in its outlook for further growth of the Indigenous Tech Sector in 2019

    Bank of Ireland has seen a marked uplift in activity across various sub sectors such as Education Technology (EdTech), Telecoms and Media/Entertainment, testament to the buoyancy of the sector nationally.

    Market Activity

    Dedicated Technology Sector Team

    In January, Bank of Ireland announced the launch of a dedicated Technology Sector, Business Banking team. Paul Swift, Head of Technology Sector, leads this newly established relationship team, dedicated to working with technology customers nationwide, while also further developing and driving the technology sector strategy for the bank. This dedicated resource is a differentiator for the bank and over recent weeks we have seen a marked uplift in activity across various sub sectors such as EdTech, Telecoms and Media/Entertainment, pointing to not only awareness of the team among our new and established customers, but also to the buoyancy of the sector nationally.

    “Every company is a technology company”

    It was autumn 2013 when Peter Sondergaard (formerly EVP at Gartner) first uttered those words pointing to how we were entering a new digital industry economy where everyone would be a technology company. At the core of this statement were the convergence of four interdependent trends; social, mobile, cloud and big data; this meant digital transformation of every business and sector. Today we are continuing to see these trends now forming the bedrock of disruption and convergence, enabling digital first business creation across all industries. More recently we are seeing more evidence of this convergence across some of our sectors such as Healthcare and Manufacturing and this trend is likely to continue across all sectors over time as companies seek to deploy technology platforms and solutions to improve efficiency but most of all to improve the experience for their customers and clients.

    The year of everything as a service.

    Deloitte’s global technology, media and telecommunications industry leader and US global technology sector leader, Paul Sallomi says that 2019 will be the year of “everything as a service” (XaaS), enabling companies to speed up innovation and experimentation. XaaS now makes it cheaper and easier for users to access technologies and cutting-edge services they otherwise would not have access to acquire. Cloud-based solutions remove the need for traditional investment in servers, networking and storage and instead can enable companies to leverage the investments and expertise of some of the world’s biggest technology companies, without the associated risks and costs of acquiring scarce expertise.

    Jargon Buster: So what is Artificial Intelligence vs Machine Learning vs Deep Learning.

    Despite the fact that each of the above terms have become part of everyday language , there is still some confusion as to the understanding and differences between the three. So here goes…

    Artificial Intelligence (AI): is a division of computer science that stimulates the creation of intelligent technologies to work and react like humans, with use cases such as speech recognition, learning and problem solving.

    Machine Learning: is a subset of AI, focused on the technological development of human knowledge by providing systems with the ability to automatically learn and improve from experience without being explicitly programmed to do so, relying on patterns and inference instead. Some use cases include data security (malware), private security (screening at airports) and healthcare (computer assisted diagnosis).

    Deep Learning: is a subset of machine learning where artificial neural networks, algorithms inspired by the human brain, learn from large amounts of data. Similar to how humans learn by experience, the deployment of deep learning techniques repeatedly perform tasks and continuously tweak it a little to improve outcomes. Problems that require thought in order to be solved fit the profile for using deep learning. The process works on massive data sets and given the amount of data now being generated, makes deep learning possible. Use cases include autonomous vehicles, facial recognition and medicine.

    Paul Swift

    Paul Swift – Head of Technology

    Connect on LinkedIn

    Email:
    paul.swift@boi.com
    Mobile: 087 251 6681


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