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

    Milk and Beef supplies growing as autumn weather saves on fodder

    Favourable autumn weather conditions have allowed farmers reduce fodder deficits with excellent grazing conditions, late season silage and catch crops. A record supply of beef cattle for slaughter has seen prices fall while Dairy markets are also trending downwards in recent weeks.

    Dairy Market Activity

    • Dairy commodity prices have fallen in the most recent Global Dairy Trade (GDT) auction on 20th November. The GDT index fell by 3.5% influenced heavily by an almost 10% reduction in butter prices. Irish Co-Ops are responding differently to the changing markets with some holding milk prices for October while others have reduced prices payable to farmers to 31 cent per litre base price.
    • Following extensive negotiations, the merger of Lakeland Dairies with LacPatrick Dairies was agreed in November and will create a new Co-Op with over 3,000 milk suppliers north and south of the border with Northern Ireland collectively supplying 1.8 billion litres of milk.

    Changes to Payment Schemes

    • The 2019 Areas of Natural Constraints (ANC) scheme is set to change with 700 townlands set to be excluded from payments from 2019 onwards, while an additional 2,000 townlands will become eligible for payments for the first time next year. An additional €23m budget has been allocated to fund 2019 payments to farmers under the scheme.
    • The Organic Farming Scheme has also re-opened for applications until 19th December 2019. Farmers can receive annual payments of up to €220 per hectare during an initial conversion to organic period and up to €170 per hectare when full organic status is achieved.
    • Growing Beef Supplies

    • Over 1.55 million cattle have been slaughtered in Ireland year to date, an increase of over 3% from this time in 2017. Bull and heifer slaughterings are increasing while steer beef is on the decline. Recently announced payments of c. €40 per cow to Sucker Farmers are expected to have minimal impact on the downward trend in National Suckler cow numbers.
    • Fodder Support Fund:

    • Bank of Ireland introduced a €100m fodder support fund in September targeted at supporting cash flow for farmers who have had exceptional feed, fertiliser and other weather related expenses this year.
    • Customers can secure loan funding to cover these extra costs and spread the repayments over a three year period. The Fodder Support loan interest rate is 3.86% and applications will be accepted up to the end of March 2019.

    Contact the Direct Lending Team at 1890 365 222 or apply online at bankofireland.com/fodderloan

    Bank of Ireland is regulated by the Central Bank of Ireland.

     

    Sean Farrell

    Seán Farrell, – Head of Agriculture
    Connect on LinkedIn

    Email:
    sean.farrell@boi.com
    Mobile: 087 627 1044

    Bank of Ireland has a team of agri. qualified specialist managers to support our farmer customers.
  • Healthcare Sector

    A positive outlook continues with a very active transaction market

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

    Health Expenditure

    • From 1997 to 2017, total Government expenditure on healthcare rose from €3.6bn to €15.6bn.
    • 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.
    • During the 1997 to 2018 period, Ireland’s population increased by 38%
    • Health spending will continue to be driven by our growing and ageing populations, clinical and technology innovation, and competitive labour market.

    Nursing Homes:

    • Between 2003 and 2018, the private and NFP sector grew by 66% (14,946 beds in 2003 to 24,742 in 2018). However, since 2016 there has only been a net increase of 1,154 beds.
    • 321 (50%) of the private and NFP nursing home have less than 60 beds, with 33% of these with less than 40 beds.
    • Many of these homes with less than 40 beds are not purpose built and cannot be extended and may be at the end of their life cycle. Demand will also be driven by the quality of the accommodation in homes with consumers’ preferences for single ensuites bedrooms. Consequently, we estimate that up to c.2,313 beds may be decommissioned over the next 5 years
    • 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.
    • National Nursing Home Supply/Demand

       

    • 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.

    Market Activity

    Long Term Care

    Consolidation continues to be a feature of the long-term care sector with a very active transaction market.

    • Over the last 2 years, we have seen extensive consolidation in the market with 36% of private and voluntary homes now in groups of 2 or more up from 22% in 2016.
    • 25% of private nursing homes are in groups with seven groups operating 21% (4512) of the private beds.

    The investor interest and market consolidation together with the rising development costs has resulted in increased sale activity with quality future-proofed nursing homes with capacity to extend achieving price multiples of up to 10 times adjusted projected EBITDA.

    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

    Hospitality Industry continues to benefit from record levels of demand (domestic and overseas)

    Sustained growth reported by hospitality businesses across the country with some concern about next year following the 50% increase in the hospitality VAT rate which comes into effect next January

    • Growing demand – Overseas visitors up 7% YOY by the end of September; unemployment at 5.3%. US Visitor numbers are up 34% in the 9 months to Sept 2018 vs same period in 2016 while GB visitors are down 6% for the same comparable period.
    • Strong accommodation KPIS – Record occupancy and average room rate levels reported across major cities and tourism destinations.
    • Positive industry sentiment continues to drive refurbishment and extension projects in hotels, pubs and restaurants across the country.
    • Fáilte Ireland will benefit from budget increase in 2019; plans for the coming years have strong focus on Regional visitor distribution and Seasonality (driving demand year round)
    • Headwinds – Increase in VAT and national minimum wage likely to dent hotel profit margins in the coming year as not all hotel properties will be able to pass on the increase to the customer.
    • Hotel development activity ramping up with over 800 bedrooms opened so far in Dublin this year and c3,000 more under construction. Planning permissions in Galway and Cork and Limerick also rising but at a slower pace.
    • Transaction Activity – Limited amount of hotel assets offered in the open market, properties marketed this year include the K Club, Heritage Killenard, Central Hotel Dublin, Jacobs Hostel, Barnacles Hostels (sold for over €12m) and the Tifco hotel Portfolio acquired by US investment firm Apollo.

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    Gerardo Larios Rizo – Head of Hospitality

    Connect on LinkedIn

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

  • Hospitality Sector - Pubs

    Hospitality Industry continues to benefit from record levels of demand (domestic and overseas)

    Sustained growth reported by hospitality businesses across the country with some concern about next year following the 50% increase in the hospitality VAT rate which comes into effect next January

    Sector Explainer

    • After a number of years of continued decline in the number of on-trade licenses (2007 to 2015), numbers have finally stabilised for the last two years. A total of around 8,000 licensed trade premises (bars and nightclubs) currently trade across the country.
    • Over 50% of the Pubs in the country report sales of less than €200k per annum.
    • The Pub sector is a critical component of the Irish tourism offering; four-fifths of tourists consider a visit to an Irish pub is an important part of their trip.
    • Pub sector in Ireland remains largely under family ownership although a large majority of recent transactions have been completed by groups in expansion mode.
    • The heavily regulated sector has been impacted in the past the by smoking ban, stricter drink driving regulations and frequent increases in excise duty.

    Environment

    • Growing demand – Overseas visitors up 7% YOY by the end of September; unemployment at 5.3%. US Visitor numbers are up 34% in the 9 months to Sept 2018 vs same period in 2016 while GB visitors are down 6% for the same comparable period.
    • Sustained decline in unemployment register continues to boost spend in food and beverage services in urban, suburban and rural locations across the country.
    • Healthy Ireland framework (Health Bill) currently looking to introduce a large number of additional measures to an already heavily regulated sector: Minimum unit pricing; mandatory labelling / health notices and advertising restrictions amongst some of the initiatives being introduced. On May 1st Scotland introduced a minimum price of £0.50 per unit of alcohol, which is equivalent to roughly half a pint of beer or a small glass of wine.

    Opportunities

    • Pub acquisition by established pub groups
    • Market repositioning; particularly if the pub is dated or if food offering is not adequate for location.

    Transaction Activity

    • Low number of sizeable pub transactions recorded so far this year including Baker’s Corner, Stillorgan Orchard & The Old Stand. Davy Byrnes currently on the market guiding in excess of €5m.

    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 2018 with 65 consecutive months of growth.

    Manufacturing Sector continues to expand steadily through Q3 however output growth softens in October amid weaker increases in total new work and export sales with input price inflation increasing to eight-month high

    The Investec Manufacturing PMI Ireland decreased to 54.9 in October of 2018 from 56.3 in the previous month. The reading signalled a solid improvement in the health of the sector, albeit the weakest seen for seven months with both output and new orders increasing at a slower pace and backlogs of work declining for second straight month. The rate of job creation increased continuing a positive trend for 25 consecutive months. Prices changed as input cost inflation increased to an eight-month high amid higher raw materials prices and output costs increased to a five-month high.

    Confidence towards the business outlook remained strongly positive with expectations of additional orders driving Irish manufacturers to increase staffing levels during October. Investec reported that although new orders continued to rise during October, the rate of expansion slowed for the second month in a row. Volumes of new work from abroad also increased, albeit at the softest rate for three months.

    Bank of Ireland research report SKILL GAPS & HR CHALLENGES FACING IRISH MANUFACTURING SMEs 2018 developed in partnership with recruitment consultancy HRM provides the following highlights… /business-supports/sectors/manufacturing/latest-sector-updates/

    • More SMEs are hiring than those reducing headcount so Irish companies are managing to find staff however Acquisition of new staff is the largest future HR challenge among Manufacturing SMEs
    • Hiring a skilled workforce a key challenge for 4 out of 10 Irish Manufacturing SMEs
    • Skills gaps are most apparent in marketing, production and sales however as the size of the company grows to Medium SMEs the technical roles (R&D, Quality, Engineering & Maintenance) become the more significant skill gaps
    • Outside of Dublin, retention of production staff a real challenge for more than one in three
    • 41% do not regard investing in training as valuable.

    Property purchases and factory extensions continue to increase in quantity and investment value through Q3 of 2018 and we are also seeing increasing investments in business growth, new product development, acquisitions and supply chain redesign.

    According to CBRE’s Q3 report take-up in the Dublin industrial & logistics sector reached an impressive 101,321m2 in Q3 2018 – the highest volume of quarterly take-up achieved in this sector since Q4 2015. Availability and cost of industrial rental space remains a challenge in 2018 with CBRE research showing the following price changes in Industrial property from the start of the year to September 2018.

    Prime Headline Industrial Rents

    rent per SqM

    Jan-18 Jun-18 Sep-18
    Prime Dublin €99.50 €102.20 €102.20 No Change in Q3
    Secondary Dublin €61.87 €64.50 €65.50 No Change in Q3
    Prime Provincial €53.80 €60.00 €60.00 No Change in Q3
    Source: CBRE Research

    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 obviously challenges ahead for companies in developing new markets outside of the UK.

    Bank of Ireland is regulated by the Central Bank of Ireland

     

    Brian-Evans.png

    Brian Evans – Head of Manufacturing
    Connect on LinkedIn

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

  • Motor Sector

    Motor Dealers prepare for ramp up of 2019 pre orders

    The outlook for 2019 remains cautious following a 4.5% decline in new car sales in 2018, however demand for light commercial vehicles increased by 6% as economic indicators remain positive

    Latest Motor Sector Updates

    The new car market in Ireland enjoyed exceptional growth from 2013 to 2016, coming from a very low base, and nearly doubled in size in that period due to pent up demand.

    The market has, however, been in decline since 2017 as the industry has felt the impact of Brexit weakening by -10.3% in 2017 and again -4.5% by October 2018 YTD. Used car imports from the UK market have surged and this has impacted new car sales. Another factor in this decline is consumer’s uncertainty and confusion concerning which engine type to choose in their next new vehicle. This is following considerable EU-wide media reporting on Electric Vehicles and the future of the petrol and diesel engine. On a positive note, the trend in the recent decline in new car sales has slowed in 2018 and economic indicators remain robust in the short term.

    Reflecting strong levels of confidence and growth in Irish business, the Light Commercial Vehicle (LCV) market and Heavy Commercial vehicle market (HCV) have seen year-on-year growth of 6% and 3% respectively. Experiencing similar levels of growth to the new car market, the LCV market has grown from ca. 11,000 units in 2013 to ca. 24,800 units by October 2018 YTD. The HGV market has grown from ca. 1,600 units in 2013 to ca. 2,500 units by October 2018 YTD.

    New Car Market Development Infographic

     
    Motor Sector Regional Developments Infographic

    Used Car Imports

    Annual volumes of used vehicle imports from the UK market have almost doubled since the Brexit referendum. Imports increased by +51% 2016, +30% 2017, and +9% October 2018 YTD respectively. This has had a knock on impact to used vehicle residual values – particularly to 1-2 year old vehicles – and has affected sales in the new car market as consumers postpone their decision to buy new vehicles.

    Used Car Import Trend Infographic

    Market Trends

    There has been a significant increase in the share of new petrol vehicle registrations from 22% in 2014 to 39% October 2018 YTD. Used imported vehicles, however, remain predominately diesel (ca. 75%). The UK new car market is experiencing a similar uptake in petrol vehicles and, as residual values of diesel vehicles have fallen in the UK, these vehicles are seen as a value proposition and are being imported to Ireland.

    Motor Sector Shifting Demand for Engine Types Infographic

    In a continually evolving market, demand for SUV style vehicles has been steadily increasing in recent years. Manufacturers have reacted to this demand by developing, adding and expanding new SUV models to their range. Demand for SUV vehicles in Ireland whether small, medium or large now stands at ca. 41% of overall new car demand.

    Motor Sector SUV Segment Trends Infographic

    Outlook

    Looking ahead to 2019, with the backdrop of continuing Brexit negotiations, the outlook for new car sales remains cautious. The most optimistic view from industry is for flat growth in new cars sales. The Society of the Irish Motor Industry (SIMI) has compiled forecasts from Irish distributors of new vehicles and expects the market next year to decline to ca. 118,000 units. Used vehicle imports, however, from the UK market are expected to increase to ca. 105,000 units and is a key source of used car stock for Irish motor retailers.

    Bank of Ireland is regulated by the Central Bank of Ireland

    Stephen Healy Motor Sector

    Stephen Healy – Head of Motor

    Connect on LinkedIn

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

  • Retail Convenience Sector

    The sector continues to perform strongly in 2018 with consistent sales performance driving growth in grocery/convenience as evidenced by the CSO Retail Index issued on 30th October

    A positive outlook remains for the sector with strong sales performance underpinning this forecast and facilitating investment from progressive retailers in stores nationwide. Improvement in Irish employment levels and positive consumer sentiment are a catalyst for growth in the sector

    BOI in the Sector

    • Bank of Ireland sponsored the Life-time achievement award at the Irish Forecourt and Convenience awards in September. The worthy recipient was Chris O’Callaghan, MD of Inver energy. Owen Clifford also featured in the Irish Times in August linked to the release of the latest bi-annual review and outlook issued for the sector.

    Market Activity

    • The CSO Retail Index for September issued on the 30th October demonstrate that retail sales volume (excluding motor) for 2018 are +6.3% v 2017. Retail sales values are +5.8% v 2017. This highlights an excellent performance across the wider retail sector with all categories bar “Department stores” delivering growth in 2018. The convergence of sales volume and sales value growth highlights a move away from discounting and an improvement in consumer spending patterns.
    • BWG (the owner of the Spar, Eurospar, Londis and Mace brands in ROI) have received competition authority approval for the purchase of Corrib Foods – a Galway based food-service business owned and operated by the Lawless family. Spar Ireland have also outlined plans to open 45 new stores across the next 2 years with a real focus on high-density urban areas.
    • The Musgrave Group has agreed terms to purchase Donnybrook Fair from the Doyle family for an undisclosed sum. Donnybrook Fair operates 6 stores in Dublin/Wicklow and this purchase provides Musgrave with an increased presence in the capital.
    • The grocery sector remains competitive with the latest Kantar research outlining that Dunnes currently hold the no 1 position in terms of market share. This is driven by a particularly strong performance in Dublin & Leinster in 2018. The resurgence of Tesco continues linked to their investment in a price competitive, high quality, own-brand range. Tesco have announced Kari Daniels as their new Irish CEO and she has outlined extensive revamp plans for the Irish portfolio of stores.
    • One of the biggest issues facing the Irish retail sector at present is access to and retention of key staff. With unemployment at a ten year low – strategies on the acquisition and retention of staff are high on the radar of all retailers. Per Budget 2019, the minimum wage will also increase by 25c per hour on 1st January 2019 to €9.80.

    Owen-Clifford.jpg

    Owen Clifford – Head of Retail Convenience

    Connect on LinkedIn

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

  • Technology Sector

    Expect Irish technology sector to grow by 20% in 2018

    Recent Bank of Ireland transactions include Smarttech, Netwatch and SIM Local

    Market Activity

    Technology Ireland Innovation Forum: Technology Ireland’s Innovation Forum (TIIF) drives collaboration on commercial projects and enables networking events between both FDI & Irish tech firms and universities, to enable firms to scale and innovate. The Forum is part of Technology Ireland, the association within IBEC representing the software, digital and technology companies in Ireland. In May, Bank of Ireland became a leading sponsor of TIIF and encourages Irish tech companies to connect with them at http://www.isin.ie/

    Financing R&D: Having a market led and properly resourced Research and Development programme is a key driver for success in the tech sector. Analysis of leading software vendors suggests they typically invest between 10-15% of headline revenue in R&D. Bank of Ireland has financed a number of trading software companies’ R&D projects, including recently Smarttech, a cyber security firm based in Cork. In addition to bank funding, funding can also be obtained through Enterprise Ireland’s R&D grants.

    Changing Sales Focus: Tech companies historically have determined route to market by one of three ways; by product, geography or customer accounts. Account based selling is where a firm delivers ongoing, personalised outreach to specific accounts compared to broad mass market demand generation approach. Gartner estimate by 2019, 75% of B2B tech firms will adopt account-based marketing as their primary go-to-market model, up from 25% in 2017.

    Cloud / Software as a Service (SaaS) model is driving the account based approach. SaaS creates a high up-front cost of new customer acquisition for the provider with a longer term payback. SaaS, because it is internet hosted, makes it easy for engaged customers to purchase additional capacity and features but enables disengaged customers also to switch software provider. This places much higher value on customer retention or “success “, compared with old licence sale models where firms received most revenue up front and software once deployed was very hard to switch or upgrade.

    Bank of Ireland has seen increased focus by Irish tech firms on developing tools to track customer use / engagement with their product and aligning their sales structures and incentives to increase focus on customer retention and account growth.


Bank of Ireland is regulated by the Central Bank of Ireland

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