Digital Hub battles cash flow problems

6 Mar 2003

In 2001 the Digital Hub was established to bring something in the region of 700 companies and 30,000 workers, students and residents to live and work Dublin’s Liberties area.

The aim was to create a digital cluster in the realm of digital media such as games, software, music and film that would aid and abet the efforts of the IDA and Enterprise Ireland as well as form the nucleus of a vibrant community or digital district. Some €130m has been spent on the project and the first six companies employing 100 people have moved into office accommodation in recent weeks.

Today the Digital Hub Development Agency Bill, 2002 goes before the Dail aiming to establish the Digital Hub’s holding company Digital Media Development Limited (DMDL) as a state agency and when enacted will give the company increased independence and a more confident footing, as well as greater powers to secure additional funding such as the ability to secure loans up to €10m. In addition, some 500,000sq ft of property, of which some €74m is currently in the hands of the Office of Public Works (OPW), will pass into the hands of the newly-established Digital Hub Development Agency.

Before Christmas, the Minister for Communications, Marine and Natural Resources, Dermot Ahern TD, addressing the Seanad on the proposed Bill said: “The agency, as a commercial body, will be obliged to obtain its revenue from its own activities.”

Since its inception in 2001, it is understood that DMDL was promised operational support of €2.5m for 2001, €2m for 2002 and €2.3m for 2003.

However, documents obtained under the Freedom of Information Act, 1997 show that the Digital Hub ran into considerable cash flow problems in September 2002. A letter from the Digital Hub’s executive services team director Eve-Anne Cullinan to Eamonn Molloy, an assistant secretary at the Department of Communications, Marine and Natural Resources, confirmed “that Digital Media Development has been experiencing significant cash flow difficulties over recent weeks and is now in breach of the Prompt Payments Act, 1997”. The communication claimed that the agency had not received a drawdown of its quarterly budget for July to September 2002 and requested more funds to pay suppliers, lawyers and equipment. It is understood that a process was put in train to provide DMDL with the drawdown of funds.
However, going into 2003, DMDL was warned that for its allocation of funds for 2003 it must not enter into contracts that would exceed its allocation.

In the subsequent weeks, the department pointed out that the DMDL had already overrun its annual operational spend sanctioned by the department for a three-year period. On 7 October, a communication by Molloy to William Burgess, former IBM Ireland general manager and chairman of DMDL, pointed out that DMDL had a €500k budget surplus that must be surrendered. It stated: “The Department of Finance takes the view that the surplus of €500k from last year plus the €1.5m already issued this year fully satisfies DMDL operational funding requirements for 2002. On this basis, the Department of Finance has advised that the remaining drawdown of €500k in respect of 2002 from this department to DMDL is not to be made.

“This means that the drawdown of €500k, which has recently been made, represents the final allocation of operational funding for DMDL for this year,” Molloy wrote.

A spokesman for DMDL described the issue as the typical wrangling that occurs between state-sponsored organisations and the Department of Finance in the run up to the State’s annual budget. He says that DMDL only received its 2001 allocation of €2.5m towards the end of that year and hadn’t spent all the money at the end of that particular year, but rolled it over into 2002. “It is usual for the department to request the return of surplus funds when the Budget is approaching,” he said. “The Digital Hub,” he stated, “has been within budget at all times and all expenditure has been agreed with the department.” Pointing to board minutes of 30 January, 2002, the expenditure of 2001 was delayed and had to be carried into early 2002. “This was clarified in correspondence later in 2002, leading to the final payment of the full budget of €2m as agreed for 2002,” he added.

DMDL’s CEO, Philip Flynn, stated: “The Digital Hub has operated within agreed budgets and with the full knowledge of the department at all times.” Flynn took the reins of running the Digital Hub in September last year following the departure of previous CEO Paddy Teahon amidst controversy surrounding Campus and Stadium Ireland as well as revelations that he sat on the board of a property firm – Insignia Richard Ellis Gunne – which was contracted by the OPW to purchase land in the Liberties area for the Digital Hub.

Flynn, who has a background in financial operations, has held senior positions locally and worldwide with Digital Equipment Corporation and was a vice-president and general manager of international operations for Visio Corporation prior to its acquisition by Microsoft. His previous role, before taking the €140k a year job at DMDL, was as chief operations officer of Irish e-payments company Orbiscom.

In an interview last week, he confirmed the issue surrounding cash flow for DMDL but dismissed it as “a misunderstanding”.

He went on: “The Government has pledged a certain level of funding for the project, with the provision that it be reviewed at the end of this calendar year, ending three years of operational support. This summer, we will be working out our operational support for the next three years and will be submitting a business plan for the Government’s Book of Estimates.”

Looking ahead over the coming year, Flynn said that a network operations centre to support the hub’s €2m broadband network will go live in the summer and that the 20,000sq ft Guinness Print Depot, a joint venture between the hub and Enterprise Ireland, will be ready to house 20 digital media firms.

As a state agency, he confirmed that the Digital Hub to a certain extent will be more in control of its own commercial destiny than originally was the case. “Our aim is to be as self-sufficient as possible,” he concluded.

By John Kennedy