International
Tuesday Newspaper Review - Irish Business News and International Stories
By Finfacts Team
Jul 26, 2005, 06:25

The Irish Independent reports that Bord na Móna believes it has the perfect site for a new airport to serve the Dublin area located just 29 kilometres from the capital and just four kilometres from the new western motorway.

Speaking at the presentation of the group's annual report for 2004, Bord na Móna managing director John Hourican said the development of an airport on its lands was one of the potential uses for the valuable site - the existing Dublin Airport would fit into the Bord na Móna site six times over, he said.

Mr Hourican said the group was attempting to open a national discussion on the possibility of developing an airport on the lands.

The search for alternative uses for its huge estate - after Coillte, it is the second-largest landowner in the country - will grow in importance over coming years as the milling of peat winds down.

Uses already identified include the building of windfarms and the development of land for pasture, wetlands and forestry.

However, the development of an airport so close to the capital is by far the most lucrative venture suggested to date, and is sure to attract attention from potential partners.

The group yesterday reported annual results just ahead of 2003, with turnover up 2pc at €258m and profits before tax up 1.5pc at €17.8m.

Mr Hourican said the profit was €5m ahead of the budgeted outcome for the year, thanks to a better-than-expected performance from its new business units, including the waste, bio fuels and windfarm ventures.

The increase came despite lower-than-anticipated sales of milled peat to the ESB -the group sold 2 million tonnes, compared to 2.8 million in the previous year. During the year, two new power stations, totalling 250MW, were opened. These deliver power at a conversion rate of 38pc, compared to just 22pc for the old peat stations.

Mr Hourican said that in coming years greater efficiencies would be generated by using peat in combination with other bio fuels including timber, reducing the consumption of peat.

The same strategy is being used for growing mediums. Bord na Móna is the largest supplier of growing mediums to the giant B&Q chain, and has been developing products which use additives to reduce the amount of peat being used, a response to consumer demand for a 'green' alternative to 100pc milled peat.

The group ended the year with no sign that its share option scheme for employees (ESOP) is any nearer, after an impasse was reached in negotiations between the shareholder, the State, and the unions representing Bord na Móna staff.

The impasse is over the structure of the ESOP and whether the shares should be vested with the individual members or retained on their behalf.

Mr Hourican said he regretted the impasse on the implementation of the ESOP, which at current levels would be worth about €4,000 per head.

He said he believed the shares should be vested in the individual employees, rather than being held on their behalf by another party.

On the pension front, Bord na Móna has agreed a scheme to fund the deficit on its pension fund, with the company putting up 80pc and employees 20pc until the deficit is closed. After that, contributions will be on a 50/50 basis.

However, Mr Hourican said in the long term, the continuation of the defined benefit scheme for new employees was not viable, and the group would have to implement a defined contribution scheme.

The Irish Independent also reports that two major State-supported biopharmaceutical projects are in the pipeline.

The IDA has begun preparations to develop a new biopharmaceutical science campus on 67 acres in Oranmore, Co Galway.

At the same time, Enterprise Minister Mícheál Martin is about to bring to Cabinet a proposal to set up a new €70m-plus, inter-university biotech research centre.

A ten-year master plan for the Oranmore campus allows for 4,000 sq m of administrative/laboratory space, almost 5,000 sq m of production/packaging capacity, and 10,000 sq m of production facilities.

The site is being developed in advance to allow the IDA better attract major international biopharma research and manufacturing investments.

The Department of Enterprise's move to set up a new biopharmaceutical research centre will complement the IDA's efforts by producing high-quality graduates in the field.

The new centre will be called the National Institute of Bioprocessing Research and Training (NIBRT).

Last October UCD, TCD and Sligo IT successfully tendered for this project, which is being developed in conjunction with the IDA.

It will be located in the grounds of UCD, and will seek to develop relationships with private sector partners.

The IDA has already had considerable success in attracting biopharmaceutical investments, including Wyeth, Genzyme, Schering-Plough and Centocor.

To continue to attract more investment in competition with countries such as Singapore and Puerto Rico, however, the IDA has identified the need for more fundamental research in third-level institutions.

Last year, the IDA said it expected biopharmaceutical firms to pump up to €4bn into the Irish economy by 2007, creating several thousand high-quality jobs.

By far the largest investor in the sector to date has been Wyeth, which has invested almost €2bn so far.

The Irish Times reports that there were two elements of consensus in most analysis of Eircom's €420 million agreement to buy Meteor yesterday.

First, it was accepted that Eircom needed to do the deal so that it could tap into the fastest-growing and most lucrative part of the telecoms market. Second, many observers noted that the price tag was rather large.

Eircom's chairman, Sir Anthony O'Reilly, yesterday accepted the first point but rejected the second, particularly when it was suggested that Eircom could have paid less for Meteor by buying it earlier.

He said that while Eircom has wanted and needed to get back into mobile for some time, it had been unable to break a non-compete agreement with Vodafone which dated back to the sale of Eircell in 2001.

Rather than focusing on the price being paid, he instead outlined the ambitious plans Eircom has to turn loss-making Meteor around and double its market share.

Eircom is betting on Meteor adding to group earnings three years after the acquisition is completed.

Key to achieving this will be the firm's ability to win customers from the two dominant mobile operators, Vodafone and O2. Eircom chief executive, Dr Philip Nolan, yesterday explained how the company intended to go after this goal by tapping into its existing base of 1.4 million customers.

Crucially, prices will also be lowered by as much as 20 per cent, as Meteor spends about €50 million per year on strengthening its physical network.

"We will keep it low-cost and we will make it ubiquitous," said Sir Anthony O'Reilly yesterday.

Analysts at Davy noted last night that Eircom's target of winning a 20 per cent share of a €2 billion market would imply very significant lost profits for other players.

"This will undoubtedly be resisted aggressively," the analysts observed.

For investors, the most important short-term issue in the acquisition will be the one-for-two €420 million rights issue that will cover all of the purchase price.

The issue, which is being underwritten by Goodbody and Morgan Stanley, will be priced at a good discount.

The price will be finalised at the end of August, but the minimum level has been set at €1.10. On last Friday's closing price for Eircom, this would imply an ex-rights value (the price of shares which do not qualify for the rights issue) of €1.57.

The firm has said it will maintain its generous dividend yield of 6.1 per cent, but the actual dividend will be adjusted to reflect the "bonus element" of the rights issue.

Thus, last year's 11 cent dividend would be cut to 9.5 cent under last Friday's closing price.

This policy will have required Eircom to win the co-operation of its main shareholders.

Evidence of this came yesterday with the Eircom Employee Share Ownership trust stating that it would participate in the rights issue in respect of its 20.9 per cent stake.

Sir Anthony O'Reilly, who said he would buy a batch of shares yesterday, is also planning to take part.

The Irish Times also reports that a new "centre of expertise" within the National Development Finance Agency (NDFA) is to take over the initial planning for major public capital projects, including the €275 million radiotherapy project announced yesterday by the Government, and up to 18 secondary schools.

The Minister for Finance, Brian Cowen, is to announce plans today for the new centre within the NDFA, which will assess a series of projects from the Department of Health, Education and Justice, for their suitability in relation to public private partnerships (PPP).

A number of financial and legal experts are expected to be recruited by the NDFA to work on the projects, which they will manage from planning to completion.

The centre will first identify the projects that are suitable for the PPP process and what elements of the projects will designed, built and operated by the private companies.

Experts from the NDFA, a section of the National Treasury Management Agency, will then oversee the planning, design and construction in conjunction with the private partner. The management of the projects, once built and operational, will then be handed back to the relevant Government department.

The sole project to go through the process from the Department of Health will be the design and construction of the new radiotherapy facilities costing €275 million, as part of a nationwide plan announced yesterday. The centre will also examine proposed projects costing €555 million in the Department of Education.

It is believed that PPP schemes for primary schools are likely to be ruled out, and that the centre will concentrate on 20 second-level schools and a number of third-level projects.

The department has already run a pilot project relating to five second-level schools and a third-level maritime training college in Co Cork. The second-level school project was criticised by the Comptroller and Auditor General over the capital cost, which was nearly 20 per cent higher than the average for non-PPP projects.

It will also be examining and managing two major projects under the Department of Justice: the proposed prison at Thornton in North Dublin and the new courts complex in Kilmainham.

Mr Cowen said projects would have to be appraised not only on cost grounds but on the speed of delivery and future savings.

The Irish Examiner reports that Eircom is set to spark a price war in the mobile phone market after announcing its €420 million takeover of Meteor yesterday.

Eircom said it will be looking to double Meteor's customer base to more than 800,000, 20% of the overall market, in the next three to four years.

The company has set its sights on the lucrative bill pay customers of its rivals Vodafone and O2. Just 2% of Meteor's customers pay monthly bills compared to 27% at Vodafone.

Chairman Tony O'Reilly said Meteor's lower prices would be the key feature of its assault on the mobile market. Meteor customers pay €31 per month, some €17 less than those at its rivals.

It also plans to target the business sector and eventually offer customers bundled services of mobile, fixed-line and internet access to residential and corporate users. 

Eircom secured Meteor, the country's smallest operator, after two rival bidders Smart Telecom and Denis O'Brien pulled out of the race in recent weeks.

Meteor was put up for sale following the takeover of its American parent company, Western Wireless, earlier this year.

Dr O'Reilly told the Irish Examiner yesterday that the takeover price was fair despite criticism from some analysts that Eircom was splashing out too much for a loss-making company with just a 10% market share.

He said getting back into the mobile market was vital for Eircom as mobile operators were taking market share from fixed-line companies.

Eircom was paying just over €1,000 per Meteor customer, less than half of what Vodafone paid when it bought Eircell from Eircom in 2001, Dr O'Reilly added.

But brokers remained sceptical of the price tag and Eircom's share price suffered after the deal was announced, closing 7% lower on the day. Davy Stockbrokers analyst Jack Gorman said it was a "deal that had to be done, but at a price that will need to be justified quickly in financial and strategic terms," he added.

Though the price was high, it is acquiring a relatively new mobile network requiring less maintenance and should be able to squeeze some savings from the takeover, another analyst said.

Eircom said that Meteor, which lost €34.6m in 2004 on revenues of €93.9m, will be added to earnings this year. Dr O'Reilly said Meteor's "low cost" brand and cost structure would be maintained.

The takeover of Meteor will be funded through a two-for-one rights issue at a minimum price of €1.10 a share a 40% discount to Eircom's closing price last Friday.

The Eircom employee share ownership trust, which owns 21% of the company, plans to take up its rights in full, which will cost the ESOT more than €50m.

Eircom said the cost of paying out more dividends every year on the new shares would be offset by the earnings from Meteor in the coming years. 

The Irish Examiner also reports that Vodafone added almost 30,000 new customers to its mobile phone network in the three months to the end of June, new figures from the company show.

The mobile giant said its Irish subscriber base now stands at almost 2 million, making it the largest mobile operator in the country.

Irish users continue to pay the highest charges in the Vodafone group. The annual average revenue per user in Ireland for pre-paid customers was €379 a year. This compares to €115 a year in Germany and €174 in Britain. Vodafone’s post-pay customers forked out an average of €1,199 in Ireland compared to €479 in Germany and €794 a year in Britain.

Vodafone said a third of new subscribers had signed up for its third generation video mobile phones. Chief executive Arun Sarin said the 3G drive was building momentum and over one million more devices were registered for 3G across its markets in the quarter. The firm was the first to launch 3G services here and said sales exceeded expectations. 

The Financial Times reports that in an attempt to cut off funding for terrorist networks, the European Commission will propose on Tuesday that banks register the name, address and account number of everybody making a money transfer in the European Union.

The new requirement would apply to even the smallest amounts of money, and would include all transfers made from abroad into the EU and from the EU to accounts outside Europe. A simpler version of the regime will apply to money transfers within the EU, so as not to endanger the Union’s efforts to build a single market for payments.

The proposed new regulation forms part of the EU’s response to the global terrorist threat, and comes shortly after the most recent attacks in which suicide bombers killed 52 people in London. The attacks sparked renewed criticism of the EU’s performance in fighting terrorism, as well as fresh pledges to step up joint work on terrorism and meet missed commitments made after last year’s Madrid bombings.

Ministers from the EU’s 25 member states agreed earlier this month to increase their intelligence-sharing and bolster efforts to cut off terrorists’ financing networks. The Commission also threatened to expose those countries slow to put agreements in place.

Under the draft legislation due to be revealed in Brussels on Wednesday, the name, address and account number of the sender of a money transfer must always be transmitted together with the funds. The data may then be passed on to the relevant authorities, provided it is used for the prevention, detection or prosecution of money launderers and terrorist financiers.

Banks and other money remitters will ultimately be forced to reject any transfers which they cannot clearly identify or end their links with other financial institutions which fail to provide the information required by the regulation.

FT also reports that Russia could wreck the expansion of the eurozone in 2007 by exploiting its stranglehold on gas supplies in eastern Europe to force up inflation, according to central bankers in the region.

The Russian parliament this month called for Gazprom, the gas conglomerate, to end its practice of selling gas at heavily discounted rates to the Baltic states.

Some Russian nationalists want to punish Lithuania and Estonia whose presidents refused to attend events in Moscow in May to commemorate the 60th anniversary of the end of the second world war in Europe.

A sharp rise in gas prices could trigger a jump in inflation in Lithuania and Estonia, which hope to be in the first wave of new European Union members to join the single currency in 2007. Raimondas Kuodis, economics director at the Bank of Lithuania, told the Financial Times: “If Gazprom raised gas prices now that we have joined the EU, that could add a couple of points to our inflation and that would destroy our euro plans.

Mr Kuodis said Gazprom, the monopoly supplier of natural gas to Lithuania, sells at $80 per 1,000 cubic metres under an agreement to be reviewed next year, compared with $160 in Germany.

In Estonia, the central bank has warned that a rise in gas prices above the forecast 10 per cent could make it harder for the country to meet eurozone entry tests.

Zigmantas Balcytis, Lithuanian finance minister, said rising oil prices were already pushing up inflation but he played down fears of a sharp rise in Gazprom's prices.

Referring to the warnings from Russian politicians, he said: “We should hear them but not always take too much account of them.”

With inflation at just over 2 per cent (compared with 1,000 per cent a decade ago), Mr Balcytis has reason to be confident that Lithuania's 3.5m citizens should be able to join the eurozone in 2007.

Like most other eastern European countries, Lithuania would be a beacon of economic dynamism in a eurozone mired in low growth. Its economy is growing at more than 5 per cent a year.

Meanwhile, its national debt is about 20 per cent of gross domestic product compared with the eurozone target of 60 per cent and Italy's 106 per cent and its annual deficit is well below the EU's limit of 3 per cent of GDP.

The crucial decision on whether to admit Lithuania, Estonia and Slovenia is expected by EU finance ministers later next year. The European Commission, which monitors whether countries are ready to join the eurozone, says it will apply rigorously all the rules, including the inflation criteria.

The rules set a benchmark target likely to be more than 2 per cent based on the inflation rate in the three best-performing EU members, plus 1.5 per cent.

Lithuania, whose currency is pegged to the euro, has experienced some fall in public support for the single currency, based largely on public fears that retailers will use the switch as an excuse to raise prices, as happened in other eurozone countries.

The New York Times reports that to disguise a payoff to a radio programmer at KHTS in San Diego, Epic Records called a flat-screen television a "contest giveaway." Epic, part of Sony BMG Music Entertainment, used the same gambit in delivering a laptop computer to the program director of WRHT in Greenville, N.C. - who also received PlayStation 2 games and an out-of-town trip with his girlfriend.

The NYT also reports that in a sign that the regulatory scrutiny of the insurance industry is not abating, RenaissanceRe Holdings, a Bermuda-based reinsurer that recently restated three years of earnings, disclosed yesterday that the Securities and Exchange Commission has advised its chief executive, James N. Stanard, that he may soon face a civil complaint.

The company also said regulators had recommended the filing of enforcement proceedings against Michael W. Cash, a senior vice president in RenaissanceRe's specialty reinsurance unit who resigned on July 11. Mr. Cash left the company after refusing to accept a subpoena from the S.E.C. seeking his testimony about the company's restatement. Mr. Cash is a Bermudian citizen.

The threat of regulatory actions against the two men came in the form of so-called Wells notices from the S.E.C. Such notices alert their recipients to possible civil accusations and give them a chance to argue why a case should not be brought.

RenaissanceRe said it was cooperating with the S.E.C. "and other government agencies" in their investigations but declined to comment further. A company spokesman said yesterday that Mr. Stanard was declining requests for interviews.

Shares of RenaissanceRe fell $4.25, or 9 percent, to $42.98.

The S.E.C.'s action comes after RenaissanceRe's disclosure last February that an internal review had uncovered errors in its financial results for 2001 through 2003 and that its earnings for the period would have to be restated.

The restatement related to the company's use of nontraditional insurance contracts that can run afoul of accounting rules if they do not represent a true transfer of risk to another insurer. RenaissanceRe both buys and sells such reinsurance, which is often called finite or financial reinsurance.

This type of insurance has come under intense scrutiny by prosecutors recently. When used properly, these policies let insurers or corporations spread their risk of loss on an asset or business over time and also to other insurers willing to assume more risk in exchange for premiums.

But these arrangements become problematic if auditors conclude that they are not really insurance, which involves transferring risk from one party to another, but financing deals where premiums paid by the company buying the coverage resemble a deposit or a loan. In such a case, the beneficial accounting treatment given to the insurance premiums received disappears.

Prosecutors are interested in finite insurance because some companies may have used the deals to burnish their financial results or produce income that can be used to bolster earnings during tough times.

One such transaction helped bring about the ouster in March of the chief executive of the American International Group, Maurice R. Greenberg. In late 2000, Mr. Greenberg struck a $500 million deal with General Re, a unit of Berkshire Hathaway, that artificially bolstered A.I.G.'s reserves.

In RenaissanceRe's arrangement, however, accounting properly for the transactions resulted in an increase in earnings for two of the three years and a slight decline in profits in the remaining year. For example, in 2001, net income increased by $20.6 million as a result of the restatement, or 12.4 percent more than the company first reported. In the following year, net income rose by $21.9 million, or 6.6 percent more than was reported. Income fell in 2003, as a result of the restatement, by $1.3 million, which had only a nominal effect on the company's profits.

By far the biggest factors in the restatement were two insurance contracts RenaissanceRe struck in 2001 with Inter-Ocean Holdings, a Bermuda insurer in which it owned a 9.1 percent stake. Inter-Ocean, which is winding down its business, was owned by 11 foreign and United States insurers. Its owners included the American Re-Insurance Company, Hannover Re, Swiss Re, XL Capital and GMAC Insurance Holdings.

RenaissanceRe said this spring that, upon review, the transactions with Inter-Ocean did not represent true risk transfer and therefore did not qualify for favorable insurance accounting treatment.

"Stanard obviously is going to defend his position, and he may be successful in that," said Robert DeRose, a vice president at the A. M. Best Company, an insurance rating agency in Oldwick, N.J. "The real question is, will there be reputational damage to the company? Mr. Stanard has been a driving force in the RenRe culture. If he's forced to step down, you have to ask whether they have the management bench strength to pick up where he leaves off."

Some of that bench came under direct criticism by RenaissanceRe directors in an annual financial report filed with regulators last March. The report noted that after reviewing the factors surrounding the restatement, the independent members of RenaissanceRe's board had concluded that five executives "made mistakes and in some instances lacked due care in connection with the original accounting for the Inter-Ocean transactions that led to the restatement."

The executives cited by the directors were Mr. Stanard and Mr. Cash as well as William I. Riker, the company's president; John M. Lummis, its chief financial officer; and Martin J. Merritt, the controller. With the exception of Mr. Cash, all remain employed at RenaissanceRe.