‘We continue to see international interest in investment into Irish businesses’

This was, at best, a tumultuous year. From the war in Ukraine to the looming recession, rising energy costs, and increased interest rates alongside the return to normal in the wake of the pandemic, there have been many highs and lows. From a business perspective, there have also been ups and downs. We look at the standout sectors of the past year and what the coming year might hold.

The year in review

It is probably fair to say that 2022 turned out differently from what many expected at the beginning of the year, according to Tom O’Brien, managing partner, Mazars. “The conflict in Ukraine was clearly the initial factor that impacted the global economy and was a driving factor in the resulting supply chain and inflationary issues we are now seeing.

“From a business perspective, technology-enabled businesses that provide B2B solutions which drive business improvements and managed service providers performed well as they benefited from the continued focus across corporates to maximise efficiencies from digital transformation.”

Mark Jordan, chief strategy officer, Skillnet, says inflation and access to talent were most impacted in 2022. “Business owners and senior management teams are telling us that access to talent is a core challenge of doing business. As the business landscape is changing, companies need people with skills that help them thrive. However, global economic changes, rising consumer demands, demographic forces and skills gaps are all creating a shortage in talent.”

Bushmills Irish Whiskey explores new territory with “unmistakably different” 14-year-old Malaga cask single malt

---

Sustainability: A whole new set of reporting with potential to be transformative

---

Tools and applications, in common use elsewhere in life, are still not standard in healthcare settings

---

Futureproofing the health system requires a new prescription

---

O’Brien notes, “Critically, it’s the combination of the ending of some of the pandemic supports and cost-of-living issues which have impacted business and consumers the most”.

Technology shocks

The recent tech industry layoffs are naturally a cause for concern for those working in the sector, with the speed and scope of the layoffs surprising many, says Jonathan Sheehan, managing partner, Walkers Ireland LLP. “While the timing of any recovery is uncertain, the fundamental and ever-increasing importance of technology should ensure that the recent shocks will ultimately reverse.”

The recent layoffs in some of the larger technology companies are being attributed to a slowdown in marketing and advertising revenues, says O’Brien. “Traditionally advertising and marketing firms were always a decent barometer of business confidence and perhaps this is a sign of a wider slowdown over the coming months. Given the pressure for resources across all sectors of the economy, the current cycle of layoffs may present opportunities for smaller domestic companies that compete with the larger tech companies for resources.”

Energy and interest rates hikes

The conflict in Ukraine impacting the global economy has led to a substantial increase in interest rates in an attempt to dampen inflation, says O’Brien. “The combination of the cost-of-living increases and rising interest rates has the ability to impact consumer confidence and spending and it will be interesting to see how the retail and hospitality sectors fare over the coming months.

“Despite all the headwinds facing the economy since the start of 2022, the economy has performed reasonably well during the year albeit we are now beginning to see the impact of rising costs in the construction sector where there are signs of a slowdown in new project commencements and a number of contractors have entered insolvency arrangements over the past number of weeks.”

The contracting sector is likely to be under sustained pressure for some time, particularly where contracts are tied to fixed rates and in circumstances where contract disputes arise on variations that may impact cash flow, says O’Brien. “I expect to see more casualties in this sector in the new year.”

Higher interest rates and inflation and cautious consumer sentiment are impacting Irish businesses, agrees Alan Bromell, head of private enterprise at KPMG. “The €1.2 billion Temporary Business Energy Support Scheme (TBESS) was recently granted EU approval to help businesses cope with rising energy costs. To qualify, companies must demonstrate that their average monthly unit price for either electricity or gas has increased by at least 50 per cent, compared to the average unit price for the same month in the previous year. The scheme is welcome but is short-term and will run initially until February 28th although it may be extended until April 30th, 2023.

“While issues such as increased interest rates are impacting valuation in certain areas, as we reach the end of the year there continues to be a good pipeline of corporate transaction activity, and we continue to see international interest in investment into Irish businesses. The biggest challenge for most business has been the jump in the cost of energy and its eating into margins at a rate unimaginable only a year ago, and the effect is often more pronounced for smaller players in more energy dependent sectors.”

Sheehan says that European businesses and the market for financial services were generally impacted by a number of global economic and political factors including inflationary pressure and tightening of monetary policies, the energy crisis, continued supply chain disruption and the weakening of the euro and sterling against the US dollar.

Getting back to normal post-pandemic

Any view on the recovery from Covid-19 depends entirely on perspective, but, according to Sheehan, it is visible across the board that the return to in-person meetings, business travel and conferences have had a positive impact on activity in terms of mandates and deal flow.

Post-pandemic, the pace at which businesses readjusted was impressive, says Bromell: “From reinventing business models, using new technologies, realigning workforces, and untangling supply chains it was heartening to see just how quickly so many businesses readjusted.

“Our most recent Irish CEO Outlook showed that Irish business leaders were relatively more confident than their global peers. Only about one third (32 per cent) expect a recession next year – a more upbeat view than leaders worldwide where almost nine in 10 (86 per cent) expect a recession in their domestic market, and for those who expect a recession, a majority expect it to be short lived.”

Highs and lows

Exchequer tax receipts for November delivered a record-breaking €21 billion, representing the highest corporation tax yields ever recorded. Income tax receipts for November also increased by 16 per cent from last year, reflecting a significant increase in employment and wages, says Bromell.

Jordan agrees that recovery was impressive. “In Q2, we saw a return to pre-pandemic levels of economic output across many of the large industry sectors (technology, financial services, medtech, biopharma, retail, and manufacturing sectors), which for the most part has continued to perform with a growth trajectory.”

Sectors performing well

ICT, life sciences, financial services, engineering, and business services sectors continued to perform well this year and will continue to be hugely important, says Bromell. “Some businesses are more vulnerable to shifting economic trends and sectors like retail, leisure and hospitality, for example, are usually more exposed to changes in discretionary spending. That said, we are always impressed by their resilience and ingenuity because not unlike during Covid-19, they are having to quickly find solutions to the problems they face.”

Despite the headwinds facing the economy, corporate insolvencies are still at unusually low levels, says O’Brien. “While there is little doubt that various supports such as the extension of the Revenue warehousing scheme and other forbearance measures from banks and landlords are helping to keep business failures at record low levels, it will be interesting to see if the rate of insolvencies increase as supports unwind later in 2023 and the impact of the cost-of-living increases kick in to the indigenous economy.”

Looking to 2023

Jordan predicts that 2023 will start with businesses looking closely at costs and improved cost management while having a strong focus on customer retention: “The second half of 2023 should see more growth and business development opportunities as the global economy starts to recover.”

O’Brien expects the sectors that will continue to perform well over the coming year will include technology-enabled businesses, life science and medtech. “The healthcare sector is also well positioned to further grow in 2023 given the strong fundamentals and technological innovation solutions continuing to help the sector. I expect to see strong investment in this space next year.”