0 +100 brexit continues to weigh on …...irish smes towards brexit, summarised as a single number,...

fxcentre.aib.ie/brexit

BREXIT SENTIMENT INDEX

1 | February 2018 #backedbyAIB

SMEs in the Republic of Ireland

and Northern Ireland remain

negative about Brexit, while the

majority of them have no plans in

place to deal with it. In addition,

Brexit is negatively influencing their plans to

invest in and expand their business, although

23% of exporters in the ROI and 15% in NI are

already looking to expand into new European

markets, according to the latest AIB Brexit

Sentiment Index.

For Q4 of 2017, the Brexit Sentiment Index

registered a score of -36 for both the Republic

and North of Ireland. While this is a slight

improvement on -41 for the ROI that was

registered in Q3 of 2017 and -38 for NI, it is clear

that SMEs are still broadly negative about the

current impact of Brexit.

The research for the AIB Brexit Sentiment Index,

which was carried out by Ipsos MRBI, shows that

certain sectors are more negative than others.

In the ROI, for example, the Manufacturing (-49)

and Hospitality & Tourism (-40) sectors are the

most negative about Brexit. In NI, the Retail (-45)

and Hospitality & Tourism (-34) sectors continue

to be the most downbeat.

“As the reality of Brexit is landing with Irish SMEs,

the second wave of AIB’s Brexit Sentiment Index

indicates that while overall sentiment in the ROI

has improved by five points, more SMEs now feel

that Brexit will have a negative impact on their

business in the future. Across SMEs, most sectors

in this survey report that they are experiencing

With Brexit a little over a year away, AIB's Brexit Sentiment Index shows that SMEs in the Republic of Ireland and Northern Ireland still face considerable challenges.

BREXIT CONTINUES TO WEIGH ON BUSINESS SENTIMENT

*The Index reflects and measures the sentiment of Irish SMEs towards Brexit, summarised as a single number, with a potential range from +100 to -100. It takes the difference between the positive and negative responses across four key measures: Impact on business now, Impact on future business (next 5 years), Level of visibility and, finally, the Wider economic impact of Brexit.

-10

-20

Source: Ipsos MRBI

SMEs WITH INVESTMENT / EXPANSION PLANS (%)

UNDER REVIEW

51%

13%

24%

28%

POSTPONE / CANCEL

SMEs NOT PREPARED FOR BREXIT

ROI NI

Formal Plan6%

Investigations Started37%

Not Planning

Yet57%

Source: Ipsos MRBI

EXPORTERS LOOK TO NEW MARKETS

Source: Ipsos MRBI

+100-100

Most Optimistic /

Positive

Most Pessimistic /

Negative

0Neutral-36 (ROI)

-36 (NI)

AIB BREXIT SENTIMENT INDEX* (Q4 2017)

36%48% NO CHANGE TO PLANS

36%

Formal Plan2%


Not Planning

Yet62%

CURRENT IMPACT ON COST OF SALES

9%

10%

ROI

LOW

ER

Source: Ipsos MRBI

HIG

HER

1%

62%

NI

LOW

ER

HIG

HER

23%ROI exporters

considering new markets

BREXIT’S IMPACT ON SMEs NOW

NIROI

Source: Ipsos MRBI

AdverseCurrency

Fluctuations

Less Competitive

Consumer Con�dence

AdverseCurrency

Fluctuations

Less Competitive

Consumer Con�dence41%

Neutral 71%

IMPACT ON BUSINESS NOW

ROI NI

IMPACT ON FUTURE BUSINESS

ROI NI

21% 41% 59% 63%

Positive

Negative Negative

Positive Positive

Negative Negative

Positive

8% 22%Q4

9%Q4

10%Q4 Q4

Q4 Q4 Q4 Q4

8%Q3

9%Q3

11%Q3

18%Q3

26%Q3

41%Q3

54%Q3

50%Q3

15%NI exporters


TOP 3 MARKETS BEING EXPLORED


ROI SMEs had plans to invest

or expand pre-Brexit

44%NI SMEs

had plans to invest or expand pre-Brexit

IMPACT OF BREXITOn Investment & Expansion Plans

ROI NI

Source: Ipsos MRBI

Source: Ipsos MRBI -41 (ROI) -38 (NI)


Germany

France

Other Europe

Republic of Ireland

Other Europe

North America

Positive 8%

Other

Neutral50%

Other

Positive 9%21% Negative

Negative

-10

-20

Source: Ipsos MRBI


UNDER REVIEW

51%

13%

24%

28%

POSTPONE / CANCEL


ROI NI

Formal Plan6%


Not Planning

Yet57%

Source: Ipsos MRBI


Source: Ipsos MRBI

+100-100

Most Optimistic /

Positive

Most Pessimistic /

Negative

0Neutral-36 (ROI)

-36 (NI)



36%

Formal Plan2%


Not Planning

Yet62%


9%

10%

ROI

LOW

ER

Source: Ipsos MRBI

HIG

HER

1%

62%

NI

LOW

ER

HIG

HER

23%ROI exporters



NIROI

Source: Ipsos MRBI

AdverseCurrency

Fluctuations

Less Competitive


AdverseCurrency

Fluctuations

Less Competitive


Neutral 71%


ROI NI


ROI NI

21% 41% 59% 63%

Positive

Negative Negative

Positive Positive

Negative Negative

Positive

8% 22%Q4

9%Q4

10%Q4 Q4

Q4 Q4 Q4 Q4

8%Q3

9%Q3

11%Q3

18%Q3

26%Q3

41%Q3

54%Q3

50%Q3

15%NI exporters






44%NI SMEs



ROI NI

Source: Ipsos MRBI



Germany

France

Other Europe

Republic of Ireland

Other Europe

North America

Positive 8%

Other

Neutral50%

Other


Negative

2 | February 2018 #backedbyAIB

PASCHAL BOLGER,CULCITA,WEXFORDStarting out in 1971 as a manufacturer of lace

ethnic clothing and corporate wear, the New

Ross, Co. Wexford-based Culcita is now a leading

manufacturer, importer and distributor of

premium garden furniture and outdoor products

in Ireland and the U.K.. Customers in the U.K.

include Tesco, Sainsbury’s and Morrisons.

“We have diversified our business down through

the years to meet the demands of an ever-

changing market and we’ve been involved in the

outdoor garden business since 1980,” says the

company’s Managing Director, Paschal Bolger.

“As much as 88% of our business is exported

to the U.K. and Brexit has slammed us hard,

but we are trying to move as much as possible

away from sterling and into dollars”, he says.

“But we are not panicking just yet and business was

up last year and, hopefully, it will be up again this year.

We have been able to increase our prices while at the

same time we are getting a better price on raw materials

from our suppliers. At present we are supplying large

multiples in the U.K. but we would love to be able to

grow our business into the European market,” he says.

“Retailers like Carrefour and Leclerc in France would

be our target market, but we realise that this is not

easily done. European markets, especially in France,

require a different approach and there are cultural

aspects to consider. But we won’t go after these markets

until we are fully prepared and resourced to do so.”

With an office in China, Culcita sources new

product and raw materials from countries like China,

Malaysia, Vietnam and Pakistan. Back in Ireland, its

manufacturing plant employs 90 staff in the high

season, reducing to 20 during the winter months.

Nearly 50% of turnover is derived from products

manufactured in New Ross, according to Paschal.

“Brexit has compelled us to look at all our options

and to think more strategically. For example, one of

the opportunities might be to move our manufacturing

base to the U.K. which has lower costs to Ireland in

terms of labour, rent and rates. It would be unfortunate

to have to do this, but we have to at least consider all

our options and this is just one of them” says Paschal.

“The reality is that I do not know what the outcome

of Brexit will be and I believe nobody else does either.

In the past, we have weathered many storms and have

survived giving continuous employment for nearly

50 years in a small town and I feel confident that we

can survive through this one” he concludes. ■

CUSTOMER VIEW

a Brexit impact, albeit in

different ways and to different

degrees,” says Catherine

Moroney, Head of Business

Banking, AIB.

“Manufacturing and Tourism,

the sectors with the most

negative sentiment in this wave

of research, also report the most negative

impact on their business now. However,

sentiment in this wave has improved in the

Tourism sector, which is likely to have been

influenced by increased visitor numbers

overall in 2017, particularly from the USA,

Australia, developing markets and Mainland

Europe. Conversely, manufacturers in the

SME sector are more pessimistic about

Brexit as they report negative pressure on

costs and profit margins,” she says.

“The Index also shows that the Retail and

Food & Drink sectors are more likely than

others to be experiencing lower sales and are

most concerned about the outlook for their

sectors. While some retailers are feeling

the impact of increased UK online shopping

and cross-border shopping,

across all main categories, the

CSO reports that retail sales to

December 2017 are up year-on-

year,” says Catherine.

“In addition, transport

operators are central to the Irish

economy. With this in mind, all

sectors should consider that transporters report

a more negative impact than other sectors on

their business investment plans,” she adds.

The AIB Brexit Sentiment Index also shows

that sterling's weakness continues to have a

major impact on the cost of sales for SMEs.

This is particularly true for SMEs in NI with

62% of them reporting that it has already

impacted on their cost of sales. The sectors

particularly impacted are Retail and Tourism.

In the Republic of Ireland, meanwhile, just

10% of SMEs said that sterling's weakness

had impacted on their cost of sales with

as much as 82% saying that there was no

obvious impact. Manufacturers are the most

likely sector to have incurred higher costs,

according to the Index.


-10

-20

Source: Ipsos MRBI


UNDER REVIEW

51%

13%

24%

28%

POSTPONE / CANCEL


ROI NI

Formal Plan6%


Not Planning

Yet57%

Source: Ipsos MRBI


Source: Ipsos MRBI

+100-100

Most Optimistic /

Positive

Most Pessimistic /

Negative

0Neutral-36 (ROI)

-36 (NI)



36%

Formal Plan2%


Not Planning

Yet62%


9%

10%

ROI

LOW

ER

Source: Ipsos MRBI

HIG

HER

1%

62%

NI

LOW

ER

HIG

HER

23%ROI exporters



NIROI

Source: Ipsos MRBI

AdverseCurrency

Fluctuations

Less Competitive


AdverseCurrency

Fluctuations

Less Competitive


Neutral 71%


ROI NI


ROI NI

21% 41% 59% 63%

Positive

Negative Negative

Positive Positive

Negative Negative

Positive

8% 22%Q4

9%Q4

10%Q4 Q4

Q4 Q4 Q4 Q4

8%Q3

9%Q3

11%Q3

18%Q3

26%Q3

41%Q3

54%Q3

50%Q3

15%NI exporters






44%NI SMEs



ROI NI

Source: Ipsos MRBI



Germany

France

Other Europe

Republic of Ireland

Other Europe

North America

Positive 8%

Other

Neutral50%

Other


Negative

-10

-20

Source: Ipsos MRBI


UNDER REVIEW

51%

13%

24%

28%

POSTPONE / CANCEL


ROI NI

Formal Plan6%


Not Planning

Yet57%

Source: Ipsos MRBI


Source: Ipsos MRBI

+100-100

Most Optimistic /

Positive

Most Pessimistic /

Negative

0Neutral-36 (ROI)

-36 (NI)



36%

Formal Plan2%


Not Planning

Yet62%


9%

10%

ROI

LOW

ER

Source: Ipsos MRBI

HIG

HER

1%

62%

NI

LOW

ER

HIG

HER

23%ROI exporters



NIROI

Source: Ipsos MRBI

AdverseCurrency

Fluctuations

Less Competitive


AdverseCurrency

Fluctuations

Less Competitive


Neutral 71%


ROI NI


ROI NI

21% 41% 59% 63%

Positive

Negative Negative

Positive Positive

Negative Negative

Positive

8% 22%Q4

9%Q4

10%Q4 Q4

Q4 Q4 Q4 Q4

8%Q3

9%Q3

11%Q3

18%Q3

26%Q3

41%Q3

54%Q3

50%Q3

15%NI exporters






44%NI SMEs



ROI NI

Source: Ipsos MRBI



Germany

France

Other Europe

Republic of Ireland

Other Europe

North America

Positive 8%

Other

Neutral50%

Other


Negative

Catherine Moroney, Head of Business Banking, AIB

fxcentre.aib.ie/brexit | 3

According to Oliver Mangan,

AIB Chief Economist: “The sharp

depreciation of sterling over

the past two years continues

to be the main impact of Brexit

on businesses. It is particularly

acute in Northern Ireland,

where sterling's weakness has

increased the costs of sales for 62% of SMEs.

Higher inflation and import costs as a result of a

weak sterling are the main factors at work here. In

the Republic, adverse currency movements have

been identified as being by far the main negative

impact on business to date of Brexit, which is

hardly surprising given the reliance on the UK

market for those SME firms that do export.”

Adverse currency fluctuations aside, SMEs in

both the Republic of Ireland and Northern Ireland

are reporting that a dip in consumer

confidence and spending combined

with a degree of uncertainty is

one of the main impacts Brexit

is having on their businesses

now. This is particularly evident

amongst SMEs in Northern Ireland

where consumer sentiment and

uncertainty has overtaken currency fluctuations

as the single biggest factor, with 15% of SMEs

citing this as a major concern.

One of the most significant findings in

the Q4 Index for 2017 was the lack of prepared-

ness for Brexit amongst SMEs in both the ROI

and NI. In the ROI, 57% of SMEs have yet to start

planning for Brexit’s imminent implementation

in March 2019. This compares to 62% of SMEs

in NI.

CUSTOMER VIEW

NEIL BRADLEYKEYLITE ROOF WINDOWSCOOKSTOWN, CO. TYRONEOperating in a growing global market that is

estimated to be worth in the region of €3bn

a year, the Cookstown, Co. Tyrone-based

Keylite Roof Windows has been blazing a

trail in the markets where it operates.

With 420 staff working across three locations in

Swadlincote in England, Cookstown in Northern

Ireland and a manufacturing plant in Poland, the

company designs and manufactures a full range

of roof windows, flashings, electric operation

kits, loft ladders, blinds and other accessories.

Founded in 2001, it is a standalone company operating

within the Keystone Group, one of Northern Ireland’s

most successful companies. Like many companies

based in Northern Ireland, the recent fluctuations in

sterling, brought about by the uncertainty in the lead

up to Brexit, have had an impact on the bottom line.

“From a trading point of view it hasn't had

any impact on our company but from a financial

point of view it has impacted our bottom line, as a

high percentage of our turnover is in the form of

sterling receivables but a significant amount of our

payables are in euro, dollar or Polish zloty,” says

Neil Bradley, Financial Controller of the company.

“While the Republic of Ireland and the UK are still

big markets for us, we are also selling into other

European countries like Germany, France, Holland,

Denmark, Sweden, Russia, Turkey, Israel and of course

Poland where we manufacture. We see big potential

for sales growth in Europe, particularly in Germany

and France. Germany is the largest market in the

world for roof windows and is estimated to be worth

around €1bn a year, so there is huge potential there.

We are also expanding into other global markets and

are working with distributors as far off as Australia

and New Zealand, and are currently investigating

other opportunities across the globe,” says Neil.

“Our plan to mitigate the foreign exchange risks

is to increase our euro receivables by targeting new

markets in Europe, as well as growing our market

share in the existing countries. Historically, we’ve had

to convert a sizeable amount of sterling to Polish

zloty to cover manufacturing costs and the current

exchange rate has had a significant negative impact.

So, with a more stable euro to zloty exchange rate,

it’s important that we build up our euro receivables

to naturally hedge this risk,” he concludes. ■

Oliver Mangan, AIB Chief Economist

-10

-20

Source: Ipsos MRBI


UNDER REVIEW

51%

13%

24%

28%

POSTPONE / CANCEL


ROI NI

Formal Plan6%


Not Planning

Yet57%

Source: Ipsos MRBI


Source: Ipsos MRBI

+100-100

Most Optimistic /

Positive

Most Pessimistic /

Negative

0Neutral-36 (ROI)

-36 (NI)



36%

Formal Plan2%


Not Planning

Yet62%


9%

10%

ROI

LOW

ER

Source: Ipsos MRBI

HIG

HER

1%

62%

NI

LOW

ER

HIG

HER

23%ROI exporters



NIROI

Source: Ipsos MRBI

AdverseCurrency

Fluctuations

Less Competitive


AdverseCurrency

Fluctuations

Less Competitive


Neutral 71%


ROI NI


ROI NI

21% 41% 59% 63%

Positive

Negative Negative

Positive Positive

Negative Negative

Positive

8% 22%Q4

9%Q4

10%Q4 Q4

Q4 Q4 Q4 Q4

8%Q3

9%Q3

11%Q3

18%Q3

26%Q3

41%Q3

54%Q3

50%Q3

15%NI exporters






44%NI SMEs



ROI NI

Source: Ipsos MRBI



Germany

France

Other Europe

Republic of Ireland

Other Europe

North America

Positive 8%

Other

Neutral50%

Other


Negative

-10

-20

Source: Ipsos MRBI


UNDER REVIEW

51%

13%

24%

28%

POSTPONE / CANCEL


ROI NI

Formal Plan6%


Not Planning

Yet57%

Source: Ipsos MRBI


Source: Ipsos MRBI

+100-100

Most Optimistic /

Positive

Most Pessimistic /

Negative

0Neutral-36 (ROI)

-36 (NI)



36%

Formal Plan2%


Not Planning

Yet62%


9%

10%

ROI

LOW

ER

Source: Ipsos MRBI

HIG

HER

1%

62%

NI

LOW

ER

HIG

HER

23%ROI exporters



NIROI

Source: Ipsos MRBI

AdverseCurrency

Fluctuations

Less Competitive


AdverseCurrency

Fluctuations

Less Competitive


Neutral 71%


ROI NI


ROI NI

21% 41% 59% 63%

Positive

Negative Negative

Positive Positive

Negative Negative

Positive

8% 22%Q4

9%Q4

10%Q4 Q4

Q4 Q4 Q4 Q4

8%Q3

9%Q3

11%Q3

18%Q3

26%Q3

41%Q3

54%Q3

50%Q3

15%NI exporters






44%NI SMEs



ROI NI

Source: Ipsos MRBI



Germany

France

Other Europe

Republic of Ireland

Other Europe

North America

Positive 8%

Other

Neutral50%

Other


Negative

Many SMEs in Northern Ireland

are concerned about the decline

in consumer confidence and

spending as well as the impact

it is having on the cost of

sales, according to the Brexit

Sentiment Index.

“The general sense amongst

SMEs is that Brexit will have a

negative impact on both their

businesses and the wider economy. Its immediate

impact in NI continues to be hard felt, with 41%

having already experienced a negative impact as

compared to 21% in ROI,” says Brian Gillan, Head of

Business and Corporate Banking, First Trust Bank.

“The cost of sales stands out as

a real issue for NI businesses with

62% reporting a higher cost of

sales. Not surprisingly, consumer

confidence, spending and

uncertainty have replaced adverse

currency fluctuations and increased costs as the main

factor having a negative impact on NI businesses right

now, with the Retail sector standing out," he says.

“It is also concerning that 2 out of 3 businesses in

Northern Ireland that had pre-Brexit investment plans

have either reviewed, postponed or cancelled those

plans. While some of this is related to the increased

uncertainty that is prevailing, I’ve no doubt that the

absence of political leadership and a functioning NI

assembly has not helped. As the survey was completed

prior to commencement of UK EU Phase 2 negotiations

on trade, it will be interesting to see how the index

evolves through future waves,” Brian says.

“Given sterling's weakness, many will have expected

more NI businesses to be considering new export

markets. However, only 15% have considered this

versus 23% in ROI. Again, this may, at least in part, be

influenced by the uncertainty which exists,” he adds.

Brian says that it’s imperative that SMEs start taking

the time to plan and consider Brexit’s implications for

their businesses.

“Our guidance to our SME customers remains

consistent. Review and analyse your supply chains and

business operating model and prepare a Brexit plan.

Being better informed will allow SMEs to consider how

they can mitigate against the risks. Armed with a plan,

First Trust Bank can better discuss how we can support

customers' financial needs whether that relates to

working capital, capital expenditure or development of

new routes to market,” he concludes. ■

THE NORTHERN IRELAND PERSPECTIVE

Just 6% of SMEs in the ROI and 2%

in NI have a formal plan in place to deal

with Brexit. As the Brexit talks continue

to gather momentum, however, there are

signs that SMEs are stepping up their plans

for life post-Brexit with 37% of SMEs in the

ROI and 36% in NI already investigating a

Brexit strategy.

Brexit is also impacting on the investment

and expansion plans of SMEs on both

sides of the Border. Of the 36% of SMEs

in the ROI which have plans to invest in or

expand their businesses, 28% are currently

reviewing them while 24% have cancelled or

postponed them altogether.

The situation in NI, meanwhile, is somewhat

starker. Of the 44% of SMEs with plans to

invest or expand, some 51% have either

cancelled or postponed, while 13% are

currently reviewing these plans.

“This ties in with CSO National Accounts

data for Republic of Ireland showing a marked

weakening in business investment last year,”

says Oliver Mangan.

A noteworthy trend is that export-

focused SMEs, particularly in the ROI, are

also looking to other markets as they seek

to reduce their dependence on the UK

market post-Brexit according to the Index.

Although 77% of SMEs in the Republic don’t

yet know if they will expand into new export

markets, 23% of them are looking, with

Europe, particularly Germany and France,

cited as the most likely option.

By comparison, just 15% of SMEs in NI are

looking to expand their exporting horizons

with the ROI cited by more than half

of exporters.

“As no sector of Irish business stands

alone, we are starting to see a domino effect

emerging. It is no surprise that over 1 in 5

exporters in ROI are now considering new

markets, with France and Germany topping

the list of destinations,” says Catherine

Moroney, who adds that SMEs need to

start planning for Brexit now, if they haven’t

already done so.

“Small to medium enterprises are facing

challenging times when it comes to Brexit

and its potential impacts,” she says. “Our

advice is that it is critical to be proactive by

putting both specific and contingency plans

in place, as Brexit represents one of the

biggest challenges to face Irish business over

the next ten years.

“At AIB, we are encouraging SMEs to

make Brexit planning a top priority in 2018.

If you need support or would like to discuss

how Brexit will impact your business, our

Business Banking team or our nationwide

Brexit Advisors are here to help you,”

she concludes. ■

Brian Gillan, Head of Business and Corporate Banking,

First Trust Bank.

The AIB Brexit Sentiment Index is based on detailed telephone interviews conducted by Ipsos MRBI from its call centres in Dublin and Belfast amongst 500 SMEs in the Republic of Ireland and 200 in Northern Ireland, operating in a number of key defined sectors.


HOW CAN WE HELP?

AIB, Republic of Ireland Visit your local AIB branch or 1890 47 88 33

(8am - 9pm weekdays, 9am - 6pm Saturdays)

First Trust, Northern Ireland Brian Gillan, Head of Business Banking [email protected] 028 904 79206

fxcentre.aib.ie/brexit 4 | February 2018 #backedbyAIB Allied Irish Banks, p.l.c. is regulated by the Central Bank of Ireland

-10

-20

Source: Ipsos MRBI


UNDER REVIEW

51%

13%

24%

28%

POSTPONE / CANCEL


ROI NI

Formal Plan6%


Not Planning

Yet57%

Source: Ipsos MRBI


Source: Ipsos MRBI

+100-100

Most Optimistic /

Positive

Most Pessimistic /

Negative

0Neutral-36 (ROI)

-36 (NI)



36%

Formal Plan2%


Not Planning

Yet62%


9%

10%

ROI

LOW

ER

Source: Ipsos MRBI

HIG

HER

1%

62%

NI

LOW

ER

HIG

HER

23%ROI exporters



NIROI

Source: Ipsos MRBI

AdverseCurrency

Fluctuations

Less Competitive


AdverseCurrency

Fluctuations

Less Competitive


Neutral 71%


ROI NI


ROI NI

21% 41% 59% 63%

Positive

Negative Negative

Positive Positive

Negative Negative

Positive

8% 22%Q4

9%Q4

10%Q4 Q4

Q4 Q4 Q4 Q4

8%Q3

9%Q3

11%Q3

18%Q3

26%Q3

41%Q3

54%Q3

50%Q3

15%NI exporters






44%NI SMEs



ROI NI

Source: Ipsos MRBI



Germany

France

Other Europe

Republic of Ireland

Other Europe

North America

Positive 8%

Other

Neutral50%

Other


Negative

0 +100 brexit continues to weigh on …...irish smes towards brexit, summarised as a single number,...

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