AIB Brexit Sentiment Index - FXCentre

BREXIT SENTIMENT INDEX

BREXIT CONTINUES TO WEIGH ON BUSINESS SENTIMENT IMPACT ON FUTURE BUSINESS

IMPACT ON BUSINESS NOW

AIB SENTIMENT INDEX* (Q4 2017) Q4 BREXIT Q4 Q4 Positive

Positive

Q4

Positive

9% Most Q3 Q3 Pessimistic / 9% 8% Negative

8%

-100 Negative

Negative

Q4

Q4

21%

Q3

Most Optimistic / Positive

Q3

18%

11%

-36 (ROI) Neutral Negative

Q4

Q3

+100

0 63%

Negative

-36 (NI) 59%

-38

(ROI)

22%

Q3

41%

Source: Ipsos MRBI

Positive

10%

Q3 AIB BREXIT SENTIMENT INDEX* 26%(Q3 2017) 41%

-41

NI

ROI

NI

ROI

Q4

Q3

54%

50%

(NI) Source: Ipsos MRBI

EXPORTERS LOOK TO NEW MARKETS

23%

15%

ROI exporters considering new markets TOP 3 MARKETS BEING EXPLORED

Germany France

IMPACT ON BUSINESS NOW Other Europe

ROI

NI

Positive

Positive

Source: Ipsos MRBI

*The Index reflects and measures the sentiment of Irish SMEs towards Brexit, NI exporters summarised as a single considering new number, with a potential markets range from +100 to -100. TOP 3 MARKETS It takes the difference BEING EXPLORED between the positive and negative responses across Republic of Ireland four key measures: Impact on business now, Impact North America on future business (next 5 IMPACT ON FUTURE BUSINESS years), Level of visibility and, Other Europe finally, the Wider economic impact of Brexit.

ROI

NI

Positive

Positive

Q4 Q4 Q4 With Brexit a little Q4 over a yearPLANS away, SMEs WITH INVESTMENT / EXPANSION (%) AIB's Brexit Sentiment Index shows that SMEs 10% 22% in 8% the Republic of9% Ireland and Northern Ireland still face considerable challenges.

S

36% 8% ROI SMEs Q3

and

Northern

had plans to invest negative Brexit, while the or expandabout pre-Brexit

majority of them have no plans in Negative Negative place to deal with it. In addition, ROI

Q4

Q3 44%11%

Q3

9% Ireland remain

MEs in the Republic of Ireland

NIaSMEs registered score of -36 for both the Republic

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

andorNorth of pre-Brexit Ireland. While this is a slight expand

and Hospitality & Tourism (-34) sectors continue

had plans to invest

improvement on -41 for the ROI that was to be the most downbeat. Negative Negative registered in Q3 of 2017 and -38 for NI, it is clear

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

63%

the second wave of AIB’s Brexit Sentiment Index

Q4 Q4 OF BREXIT IMPACT that SMEs areQ4 still broadly negative about the NI

Brexit is negatively influencing their plans to

21%

41%

59%

Onbusiness, Investment & Expansion invest in and expand their although currentPlans impact of Brexit. 23% of exporters in the ROI and 15% in NI are

The research for the AIB Brexit Sentiment Index,

indicates that while overall sentiment in the ROI has improved by five points, more SMEs now feel

Q3 already lookingQ3 to expand into new European

Q3Ipsos MRBI, shows thatQ3that Brexit will have a negative impact on their which was carried out by

markets, according to the latest AIB Brexit

certain sectors are more negative than others.

Sentiment Index.

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

26% 28%

Source: Ipsos MRBI

1

Q3

and Hospitality & Tourism (-40) sectors are the 18%

For Q4 of 2017, the Brexit Sentiment Index

24%

| February 2018

UNDER REVIEW

41%

POSTPONE / CANCEL #backedbyAIB

54% 13%

51%

50% business in the future. Across SMEs, most sectors

in this survey report that they are experiencing 

fxcentre.aib.ie/brexit

On Investment & Expansion Plans

BREXIT SENTIMENT INDEX

UNDER REVIEW

28%

IMPACT ON FUTURE BUSINESS

IMPACT ON BUSINESS NOW

POSTPONE / CANCEL

24%

CUSTOMER VIEW

ROI

NI

ROI

Positive

Positive

Positive

48% 8%

9%

Q3

8%

Q4

21%

ROI

Q3

ethnic clothing and corporate wear, the New

57%

in Ireland and the U.K.. Customers in the U.K. include Tesco, Sainsbury’s and Morrisons.



degrees,”

Moroney, Head of Business Source: Ipsos MRBI

company’s Managing Director, Paschal Bolger.

Banking, AIB.

says

Not Planning Yet

62%

50%

2%

Investigations Started

36%

and

cross-border

shopping,

across all main categories, the

23%

15%

Catherine

CSO reports that retail sales to December 2017 are up year-on-

ROI exporters considering new “Manufacturing and Tourism, markets

“As much as 88% of our business is exported

Q3

54%

Formal Plan

a Brexit impact, albeit in

outdoor garden business since 1980,” says the

63%

Q3

37% EXPORTERS LOOK TO NEW MARKETS

changing market and we’ve been involved in the

Negative

Q4

59% NI


different ways and to different

NI exporters year,” says Catherine. considering new “In addition, markets

Catherine Moroney, Head of Business Banking, AIB

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

the sectors with the most

but we are trying to move as much as possible

negative sentiment in this wave

away from sterling and into dollars”, he says.

of research, also report the most negative BEING EXPLORED

“But we are not panicking just yet and business was

Negative

41%

the years to meet the demands of an ever-

18%

Q4

Q3

Source: Ipsos MRBI

premium garden furniture and outdoor products

Q3

Q3

41%

6%

Not Planning Yet

manufacturer, importer and distributor of

22% 36%

11%

Q4

26%Formal Plan

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

“We have diversified our business down through

Q3

Negative Negative SMEs NOT PREPARED FOR BREXIT

Starting out in 1971 as a manufacturer of lace

Positive

Q4

10%

9%

Source: Ipsos MRBI

51%

NI

PLANS Q4NO CHANGE TOQ4

Q4

PASCHAL BOLGER, CULCITA, WEXFORD

13%

TOP 3 MARKETS

transport

operators are central to the Irish economy. With this in mind, all

TOP 3 MARKETS

sectorsBEING should consider that transporters report EXPLORED

impactCURRENT on their business However, a more negative impact than other sectors on IMPACTnow. ON COST OF SALES

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

sentiment in this wave has improved in the

We have been able to increase our prices while at the

Tourism sector, which ROI is likely to have been

same time we are getting a better price on raw materials

influenced by increased visitor numbers

from our suppliers. At present we are supplying large

overall in 2017, particularly from the USA,

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

Australia, developing markets and Mainland

This is particularly true for SMEs in NI with

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

Europe. Conversely, manufacturers in the Other Europe

62% of them reporting that it has already Other Europe

“Retailers like Carrefour and Leclerc in France would

SME sector are more pessimistic about

impacted on their cost of sales. The sectors

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

Brexit as they report negative pressure on

particularly impacted are Retail and Tourism.

easily done. European markets, especially in France,

Source: Ipsos MRBI costs and profit margins,” she says.

Germany

HIGHER

HIGHER

NI The AIB Brexit Sentiment Index also shows

that sterling's weakness continues to have a

LOWER

North America impact on the cost of sales for SMEs. 62%major

LOWER

France 10%

their businessof investment Republic Irelandplans,” she adds.

In the Republic of Ireland, meanwhile, just

“The Index also shows that the Retail and

10% of SMEs said that sterling's weakness

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

Food & Drink sectors are more likely than

had impacted on their cost of sales with

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

WITH INVESTMENT EXPANSION PLANS othersSMEs to be experiencing lower sales/and are as much as (%) 82% saying that there was no

require a different approach and there are cultural

9%

Source: Ipsos MRBI

1%

most concerned about the outlook for their

obvious impact. Manufacturers are the most

product and raw materials from countries like China,

sectors.

likely sector to have incurred higher costs,

Malaysia, Vietnam and Pakistan. Back in Ireland, its

the impact of increased UK online shopping

With an office in China, Culcita sources new

36%

While some retailers are feeling

ROI SMEs

manufacturing plant employs 90 staff in the high

had plans to invest or expand pre-Brexit

season, reducing to 20 during the winter months.

BREXIT’S IMPACT ON SMEs NOW

Nearly 50% of turnover is derived from products manufactured in New Ross, according to Paschal.

ROI

“Brexit has compelled us to look at all our options and to think more strategically. For example, one of

ROI Other

the opportunities might be to move our manufacturing base to the U.K. which has lower costs to Ireland in

Positive

8% 28%

terms of labour, rent and rates. It would be unfortunate to have to do this, but we have to at least consider all

44%

according to the Index. 

NI SMEs


Adverse Currency Fluctuations

NIBREXIT IMPACT OF Other

Consumer On Investment & Expansion Plans Confidence

Negative

21%

Less Competitive

Positive

UNDER REVIEW 9%

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

Neutral

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

24% 71%

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

NI

Neutral POSTPONE / CANCEL

50%


Negative

41%

Consumer Confidence

13%

Less Competitive

51%

In the past, we have weathered many storms and have survived giving continuous employment for nearly

48%

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

Source: Ipsos MRBI

can survive through this one” he concludes. ■

2

Source: Ipsos MRBI

| February 2018

NO CHANGE TO PLANS

#backedbyAIB

36%

Other Europe

Other Europe

France

North America

Other Europe

Other Europe

Source: Ipsos MRBI

SMEs WITH INVESTMENT / EXPANSION PLANS (%) Source: Ipsos MRBI

36%

44%



CUSTOMER VIEW

SMEs WITH INVESTMENT / EXPANSIONNI PLANS (%) ROI SMEs SMEs

36%

ROI

44% NI

ROI SMEs OF BREXIT IMPACT had plans to invest

NI SMEs

had plans to invest On Investment & Expansion Plans or expand pre-Brexit or expand pre-Brexit

ROI

28%

UNDER REVIEW IMPACT OF BREXIT

On Investment & Expansion Plans

NEIL BRADLEY KEYLITE ROOF WINDOWS COOKSTOWN, CO. TYRONE

NI

13%

Operating in a growing global market that is

POSTPONE / CANCEL UNDER REVIEW

24% 28%

51% 13%

NO CHANGE TO PLANS POSTPONE / CANCEL

48% 24%

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.

36% 51%

With 420 staff working across three locations in Swadlincote in England, Cookstown in Northern Ireland and a manufacturing plant in Poland, the

Source: Ipsos MRBI

NO CHANGE TO PLANS

48%

SMEs NOT PREPARED FOR BREXIT

company designs and manufactures a full range

36%

 According to Oliver Mangan, ROI

NI

are reporting that a dip in consumer

AIB Chief Economist: “The sharp confidence and spending combined Formal Formal depreciation of sterling over with a degree of uncertainty is SMEs NOT PREPARED FOR BREXIT Plan Plan the past two years continues 2%one of the main impacts Brexit 6% Not Not to be the main Planning impact of Brexit ROI is NI having on their businesses Planning Yet Yet Investigations on businesses. It is particularly now. This is particularly evident Investigations Started Formal Formal Oliver Mangan, acute in Northern Ireland, Started amongst Plan SMEs in Northern Ireland Plan AIB Chief Economist 36% 37% 2%consumer sentiment and 6% where sterling's weaknessNot has where Not Planning Planning increased the costs of sales for 62% of SMEs. uncertainty has overtaken currency fluctuations Yet Yet Investigations Higher inflation and import costs asInvestigations a result of a as the single biggest factor, Startedwith 15% of SMEs Started 36% weak sterling are the main factors at work here. In citing this as a major concern.

62%

57%

62%

37%

Source: Ipsos MRBI

kits, loft ladders, blinds and other accessories. Founded in 2001, it is a standalone company operating

Source: Ipsos MRBI

57%

of roof windows, flashings, electric operation

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

the Republic, adverse currency movements have

One of the most significant findings in

been identified as being by far the main negative

the Q4 Index for 2017 was the lack of prepared-

impact on business to date of Brexit, which is

ness for Brexit amongst SMEs in both the ROI

big markets for us, we are also selling into other

hardly surprising given the reliance on the UK

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

European countries like Germany, France, Holland,

market for those SME firms that do export.”

planning for Brexit’s imminent implementation

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

in March 2019. This compares to 62% of SMEs

Poland where we manufacture. We see big potential

Source: Ipsos MRBI

Adverse currency fluctuations aside, SMEs in

CURRENT IMPACT ON COST OF SALES both the Republic of Ireland and Northern Ireland in NI. 

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.

COST OF SALES 10%CURRENT IMPACT ON62%

LOWER

LOWER

62%

are working with distributors as far off as Australia

9%

LOWER

1%

Source: Ipsos MRBI

and New Zealand, and are currently investigating other opportunities across the globe,” says Neil.

HIGHER

HIGHER

LOWER

9% HIGHER

HIGHER

We are also expanding into other global markets and

NI

ROI

10%

markets in Europe, as well as growing our market to convert a sizeable amount of sterling to Polish

1%

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. ■

BREXIT’S IMPACT ON SMEs NOW Other

“Our plan to mitigate the foreign exchange risks is to increase our euro receivables by targeting new share in the existing countries. Historically, we’ve had

Source: Ipsos MRBI

ROI

“While the Republic of Ireland and the UK are still

for sales growth in Europe, particularly in Germany

NI

ROI

Neil Bradley, Financial Controller of the company.


Consumer Confidence

NI

| 3 fxcentre.aib.ie/brexit Adverse Other

Currency Fluctuations

BREXITNOSENTIMENT INDEX CHANGE TO PLANS

48%

36%

THE NORTHERN IRELAND PERSPECTIVE

Source: Ipsos MRBI

SMEs NOT PREPARED FOR BREXIT

ROI 6%

57%

are concerned about the decline in consumer confidence and

Formal Plan

Formal Plan Not Planning Yet

Many SMEs in Northern Ireland

NI


37%

Not Planning Yet

62%

spending as well as the impact

2%

it is having on the cost of sales, according to the Brexit


Sentiment Index.

36%

Brian Gillan, Head of Business and Corporate Banking, First Trust Bank.

“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%

Source: Ipsos MRBI

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

Just 6% of SMEs in the ROI and 2%

markets, 23% of them are looking, with

a real issue for NI businesses with

in NI have a formal plan in place to deal

Europe, particularly Germany and France,

62% reporting a higher cost of



CURRENT IMPACT ON COST OF SALES cited as the most likely option.

with Brexit. As the Brexit talks continue

sales. Not surprisingly, consumer

to gather momentum, however, there are

By comparison, just 15% of SMEs in NI are

signs that SMEs are stepping up their plans

looking to expand their exporting horizons

uncertainty have replaced adverse

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

with the ROI cited by more than half

currency fluctuations and increased costs as the main

ROI and 36% in NI already investigating a

of exporters.

ROI

62%

spending

and

alone, we are starting to see a domino effect

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

and expansion plans of SMEs on both

emerging. It is no surprise that over 1 in 5

Northern Ireland that had pre-Brexit investment plans

sides of the Border. Of the 36% of SMEs

exporters in ROI are now considering new

have either reviewed, postponed or cancelled those

in the ROI which have plans to invest in or

markets, with France and Germany topping

plans. While some of this is related to the increased

HIGHER

Brexit strategy.

9%

“As no sector of Irish business stands

HIGHER

LOWER

factor having a negative impact on NI businesses right

Brexit is also impacting on the investment

LOWER

10%

confidence,

NI

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

1%

expand their businesses, 28% are currently

the list of destinations,” says Catherine

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

reviewing them while 24% have cancelled or

Moroney, who adds that SMEs need to

absence of political leadership and a functioning NI

postponed them altogether. Source: Ipsos MRBI

start planning for Brexit now, if they haven’t

assembly has not helped. As the survey was completed

already done so.

prior to commencement of UK EU Phase 2 negotiations

The situation in NI, meanwhile, is somewhat starker. Of the 44% of SMEs with plans to

“Small to medium enterprises are facing

invest or expand, some 51% have either

challenging times when it comes to Brexit

cancelled or postponed, while 13% are

and its potential impacts,” she says. “Our

“Given sterling's weakness, many will have expected

currently reviewing these plans.

advice is that it is critical to be proactive by

more NI businesses to be considering new export

“This ties in with CSO National Accounts

putting both specific and contingency plans

markets. However,

data for Republic of Ireland showing a marked Adverse

in place, as Brexit represents one of the

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

on trade, it will be interesting to see how the index evolves through future waves,” Brian says.

BREXIT’S IMPACT ON SMEs NOW

ROI

Currency

NI

Adverse

Currency over Other weakening in business investment last year,” biggest challenges to face IrishFluctuations business Other Fluctuations Consumer

says Oliver Mangan. A

noteworthy

trend

is

Confidence the next ten years. Less that export- Competitive “At AIB, we are Negative

focused SMEs, particularly in 21% the ROI, are Positive

8%

also looking to other markets as they seek

only 15% have considered this

influenced by the uncertainty which exists,” he adds. Brian says that it’s imperative that SMEs start taking

encouraging SMEs to

Positive

Consumer make Brexit planning priority in 2018. 9% a topNegative Confidence

41%

the time to plan and consider Brexit’s implications for their businesses.

If you need support or would like to discuss

“Our guidance to our SME customers remains

to reduce their dependence on the UK

how Brexit will impact your business, our

consistent. Review and analyse your supply chains and

market post-Brexit according to the Index.

Less Business Banking team or our nationwide

business operating model and prepare a Brexit plan.

Although 77% of SMEs in the Republic don’t

Brexit Advisors are here to help you,”

Being better informed will allow SMEs to consider how

yet know if they will expand into new export

she concludes. ■

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

Neutral

71%

Neutral

50%

Competitive

First Trust Bank can better discuss how we can support customers' financial needs whether that relates to

Source: Ipsos MRBI

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?

4

| February 2018

AIB, Republic of Ireland Visit your local AIB branch or 1890 47 88 33 (8am - 9pm weekdays, 9am - 6pm Saturdays)

#backedbyAIB

working capital, capital expenditure or development of new routes to market,” he concludes. ■

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

Allied Irish Banks, p.l.c. is regulated by the Central Bank of Ireland

fxcentre.aib.ie/brexit