Irish Business News March 9, 1998

Hotel group to build new hotel in city

by Kyran Fitzgerald
THE Great Southern hotel chain intends to open a new hotel beside Cork Airport by the end of the next year while plans are also being hatched for a major investment in the group's Kerry and Galway operations.
"We are looking at Cork Airport. It is expanding fast with well over one million passengers a year now flying in and out. It is high on our list. We would hope to apply for planning permission before the Summer with work on the hotel commencing by the end of this year," according to the group's Chief Executive, Eamon McKeon, who was speaking at the opening of the group's new 147-bed hotel at Dublin airport.
The Cork project will be smaller, with roughly eighty bedrooms likely to be provided, though as the Great Southern boss stressed, "we have not bedded the project down in tablets of stone." It is likely when the complex is opened around sixty people will be employed full time with another twenty to twenty five people working there on a part time basis.
The group, which is not looking to expand overseas, is also looking at other expansion opportunities in Kerry and Galway. It operates two hotels in each location, the best known of which are the elegant old railway hotels in Killarney and at Galway's Eyre Square.
The emphasis would be on adding bedroom capacity at either of these locations.
At this stage, it has yet to be decided whether to concentrate first on Kerry or on Galway.
While the Galway market is booming, several projects are underway there. "As a result, we have to keep an eye over our shoulder", according to Mr McKeon, who points out that Kerry has one important drawback in that the trade there is more seasonal.
The Great Southern chief was upbeat about prospects for the current year.
"The early indications are that the Bord Failte target of 7% growth in numbers and between 8 and 9% growth in revenue will be achieved if not exceeded, though it is early days."
Mr McKeon also expressed confidence that the economy could continue to grow though at a slower rate than at present. "To get 3% to 4% growth each year off our current high base would be a very respectable performance."
However, he warned that people had not yet woken up to the potentially serious downstream impact on Irish tourism, of any decision to press ahead with plans to abolish duty free travel within the European Union.
A rise in air fares of between 10 and 15% "would certainly result" with incalculable effects on an air travel market which is highly competitive, according to Mr McKeon, whose company is a wholly-owned subsidiary of Aer Rianta.
Eighty people have been taken on to work at the new Dublin hotel and this figure is set to rise to 100 over the coming weeks.
According to the company, its recruitment drive has been "successful despite the well-documented difficulties in sourcing staff. Recruitment has been organised in association with CERT and the Ballymun Job centre. The company has also established a Staff Participation Scheme.

Accountancy firms predict success from merger deal

by Kyran Fitzgerald.
THE Limerick-based accountancy firm, Lane Daly & Partners, is to join forces with the Dublin office of Grant Thornton to create a firm with a combined fee income of £5m and a staff compliment of 110 people.
The merged entity will form part of the same network as Grant Thornton's Belfast operation which has 100 staff and annual fee income of around £4million.
Lane Daly is the largest independent accountancy firm in the Mid-West while Grant Thornton would appear to be in seventh place in the national accountancy firm league table.
Grant Thornton counts among its client list a number of Irish Plc's including Kingspan — along with a number of multi-national and also some of the large sporting organisations.
It is targeting export-led, Irish-owned businesses that have been demonstrating good growth prospects.
According to Sean Murray, Grant Thornton's managing partner — and the Chairman of the Irish Trade Board — the merger should give his firm a "strong national presence."
"The synergies between both firms and our clear focus on servicing growth-oriented businesses means we are in a perfect position to expand and develop our specialist services in the future," the Chairman said.
The merger is not being dictated by a need to cut down on costs, according to Paul Raleigh, another Grant Thornton partner.
The firm is currently hiring ten professionals and expects strong growth in the Republic with combined fee income there set to rise from £5million to £7million within the space of two to three years.
The current upheavals among the Big Six should help the merged firm to win more business:
"We are working with smaller firms of accountants whose clients have outgrown them," explains Mr Raleigh.
"There are a lot of synergies in the people. The Limerick office is particularly strong in the area of tax-based schemes while the Dublin office has a very strong international tax dimension because of its association with Grant Thornton International," he said.
Upward pressure on wage costs means that if anything, the level of fees charged may have to rise.
Labour shortages mean that wage inflation is running at between 10% and 20% a year.
Provided that the firm's investment in technology is correctly managed, "costs need not go up significantly, but there is no doubt that there is upward pressure," according to Mr Raleigh.
According to Brendan Lane, Lane Daly's managing partner, the merged firm would now be in a position to take on Information Technology specialists.
Lane Daly's clients would now have access to Grant Thornton's international connections. In the meantime, Lane Daly would be able to bring its large non-Dublin presence and client base to the table in exchange.

Tax plan the key to Indo UK takeover

by Kyran Fitzgerald.
TAX planning looks set to play a key role in Independent Newspaper Group's plans as it moves to take full control of Newspaper Publishing, the owners of the English Independent.
If the deal to buy out the Mirror Group goes ahead, Independent Newspapers should stand to have available to them around £70m in tax losses enabling them to shelter between £30m and £35m of profit from their British publishing interests which are currently netting between £5m and £10m per annum.
The group has indicated that it will be bringing the English Independent back up market to the place in the broadsheet market which it held with distinction during the first five years of its existence.
If a deal is clinched later this week - and this remains uncertain, though highly likely - Independent Newspapers will move straightaway to appoint a board with at least three prestige figures, while Andrew Marr looks set to assume a new role as an American-style Op Ed or Opinion and Comment editor working under, but largely independent of Rosie Boycott, the journalist who recently took over from him as editor.
Independent Newspapers reportedly have already received approaches from a number of journalists and writers in connection with various column slots which will be filled.
The Independent has racked up losses of over £100m since its inception and the news that Tony O'Reilly is preparing to take over the operation has been greeted negatively by the market.
However, some analysts are willing to accept that the Irish media mogul may not have taken leave of his senses in the search for a prestige prize.
In the view of Daniel Kerven, media analyst with Kleinwort Benson, "it is possible that a niche for another upmarket broadsheet newspaper does exist, particularly as both the Times and the Telegraph have been moving downmarket, beefing up their sports coverage and dumbing down."
In his view, an investment of £10m a year in rebuilding the paper over the next few years will certainly be required. The money, he adds, should be spent on extra staff, higher profile journalists, improved sports coverage, added pagination and certain price promotions.
To be profitable, a circulation of at least 300,000 will be required. However, the magnitude of the task can be gauged by the fact that the Times is only now beginning to approach profitability with a circulation of 800,000 though with a higher cost base.
Kerven, however, points to the success of the Mail Group which has enjoyed a steady rise in circulation against the tide on the back of a policy of continuing investment.
The fact that the cover price war appears to be over, replaced by a policy of selective price promotions, may be helpful to any new entrant though the big boys at the Times and the Telegraph will almost certainly be getting their knuckle dusters out to duff up the new kid on the block.

Bargain buyers buy Blue

IRISH stocks recovered from yesterday's slide today as bargain hunters bought back into many of the Blue Chip shares.
The market opened up and stayed up through out the day, the ISEQ, which is the index of Irish quoted stocks, fell 73.05 points closing just above the 5000 benchmark at 5006.80.
Bargain hunters focused mainly on the largest financial Blue Chips.
AIB gained 18p to close at 918p. Bank of Ireland also rose 15p at 1380p.
Irish Life, Ireland's largest insurer only partially recovered up 4p to closed at 539p. Irish Permanent jumped over the 1000p hurdle to close at 1010p up 30p. Hibernian regained yesterday's loss of 5p to close at 670p. Anglo Irish Bank stabled out at 174p.
The industrial stocks were well bid up also, CRH gained 38p to close at 983p and Smurfit Jefferson advanced 6p to close at 196p. Independent News gained 20p to close at 440p.
The food ingredients company, Kerry Group plc, went against the tide and fell 10p to close at 915p.
Whereas Fyffes, the Fruit and Vegetable distributor, continued its rally and rose 2p to 165p.

Hibernian health insured despite a possible UK sale

by Colette Keane
THE Hibernian Group's UK operation is likely to be sold next year and the expected sale could add 3% to Net Added Value (NAV) according to result's analyst Eamonn Hughes.
The UK operation has £12m in external debt and £11m in intergroup finance, although Mr Hughes said a disposal is unlikely to materially impact profit forecasts as the Group will have investment income on the proceeds.
The Hibernian Group, recently fully valued at IR615p, is to keep their Operating Pre-tax Profit forecasts unchanged following the 1997 Finals. Operating Pre-tax Profit is forecast to rise to £29·2m (+11%) in the current year and Operating EPS to 40·2p (+9%). The net dividend is expected to rise by 12% to 13·65p to provide gross dividend growth of 10%. NAV per share at end 1998 forecast at 363p, though capital gains are excluded (every £1m capital gain/loss impacts NAV per share by 1·4p).
"The improved Operating Profit outturn is driven by a better performance from the Ireland General business due to expected lower incidence of larger claims and higher premium rates. Investment Income is expected to be unchanged.
"The Investment Yield is expected to decline by 50 basis points to 6·2% in the anticipated lower interest rate environment post the expected announcement of Ireland's entry into EMU in May," said Mr Hughes.
Gross written premiums in Ireland increased by 2% to £172·8m mainly due to increased exposure. There was an increase in small commercial, home and motor premiums but a decline was recorded in commercial property and in Liability. Motor accounted for 42% of premiums and property for 36%.
Operating profit decreased from £14·4m to £9·9m but the underwriting loss increased from £17·2m to £22·3m due to a significant numbers of large claims. The Property account was impacted by £2m in storm damage claims and the Liability account recorded a high incidence of claims in the £0·5-075m range, below the £1m retention level.

Giving the April showers a silver lining when the tax man calls around

THIS is the time of year when those who don't like paying tax consider the alternatives available to reduce the tax bills.
Tax planning is essential with the year end April 5, rapidly approaching.
The main methods of reducing your tax bills include the Business Expansion Scheme, designated and seaside resort property, pension contributions, Deeds of Covenant, Section 23 property, capital gains tax and medical expenses.
Individuals paying tax at the top marginal rate of 48% can substantially reduce their tax bill by making a BES investment. Full tax relief is available for BES investments up to £25,000 per person in any one year. There is no life time cap and accordingly, individuals who have made previous investments are still entitled to make investments again this year.
Given the cap of £250,000 that companies can raise, investors should be careful to ensure that relief will be available. Further, as fewer funds will be raising capital this year, investors should consider direct investments in BES companies. Advice should be sought on the risk associated
Certain employees can obtain a tax deduction for pension contributions known as AVC's (Additional Voluntary Contributions). The maximum permitted is 15% of relevant remuneration. This includes not only salary but any cash bonuses and taxable benefits-in-kind.
Those wishing to increase these entitlements should make AVC's before April.
Self employed individuals can obtain tax relief for retirement annuity contributions of up to 15% of the net relevant earnings. (20% where the individual is 55 or over).
Pay the maximum premium before April 5 to secure relief. Individuals should note that it is possible to pay the premium in respect of 1997/'98 by January 1999.
Individuals can obtain a tax deduction for payments made to certain persons under a deed of covenant. Recent Finance Acts have dramatically curtailed the usefulness of Deeds of Covenant. However, for 1997/'98, it is still possible to obtain tax relief for payments to minors who are permanently incapacitated. Further, payments to parents have not been affected.
If applicable, draw up a Deed of Covenant and make the appropriate payment prior to April 5.
Tax relief is available on certain properties in designated areas. Changes introduced in the Budget limit the maximum relief against non rental income to £25,000. Some properties do not have these restrictions. These properties usually carry substantial capital allowances which when appropriately structured can be set against an individuals total income.
Investors considering acquiring properties in designated areas should obtain professional advice in order to ensure that the allowances are available, and whether the £25,000 restriction applies.
Tax relief is available against other rental income in respect of the purchase costs of qualifying Section 23 property.
If you are likely to have taxable rental income, you should consider purchasing the property before April 5.
Where an individual acquires or constructs a property in one of a list of selected seaside resorts and lets it out before 5th April then a deduction of up to 50% of the qualifying expenditure is available as a deduction against all sources of rental income in the current tax year.
• Tony Dalton, Tax Partner, Parfrey Murphy Chartered Accountants.