Annual Report 2013

Chairman’s Statement

chairman picture

I am pleased to present the annual report of Bord na Móna plc, my first as Chairman.

The financial results showed turnover at a record level of €426 million for 2013, an increase of €42 million on 2012. Sales activity was strong across the Group as Feedstock, Powergen, Retail and Resource Recovery delivered sales growth. In Retail (which comprises Fuels and Horticulture) our fuels products were boosted by favourable trading conditions because of a prolonged winter season and Retail fuels sales were up 25% on the previous year. The supply of milled peat by Feedstock increased on the previous year as there was no prolonged forced outage at any power station, despite the impact of the poor harvest in 2012. Powergen delivered a steady performance, but the Retail horticulture range experienced reduced sales due to adverse weather conditions.

Resource Recovery increased its turnover through growth in the domestic business with the first full year impact of the acquisition of the collection businesses of Kildare and Wexford County Councils. End treatment sales also increased on last year enhanced by the commencement of operations of the newly commissioned composting plant. The commercial business increased its turnover but continues to experience the effects of a very competitive market and depressed gross margins.

Earnings before interest, taxation, depreciation and amortisation (EBITDA) at €61.2 million for 2013 were on a par with 2012. This is stated after an exceptional cost charge of €21.1 million (pre tax) in respect of the poor harvest out-turn in the financial year 2013.

The harvesting, transport and stockpiling of peat is a significant operational activity within the Feedstock business. Unprecedented adverse weather conditions during the peak harvesting period over the summer of 2012 resulted in a harvest of 1.4 million tonnes of peat, a shortfall of 63% against target. As a result, the Group implemented a mitigation plan which involved additional revenue enhancing measures and significant reductions in expenditure during the year. This included non payroll cost reduction and payroll reductions such as lay-off of employees, management salary cuts and introduction of short-time working across the Group. While the adverse impact on employees was significant, the measures were necessary and prudent given the severity of the harvest shortfall.

The EBITDA before exceptional costs was €82.3 million. The Group recorded an operating profit of €23.5 million and a profit before taxation of €12.5 million. The profit before tax in 2013 at €12.5 million was positive to 2012 by €25.3 million and the profit after tax in 2013 at €9.2 million compares with a loss after tax of €16.0 million in 2012. The previous year financials include an impairment charge of €23.7 million on tangible and intangible assets.

The current economic environment continues to present a difficult challenge to many businesses. Despite the challenges outlined, the Group made progress in implementing its strategic growth and development initiatives across all business areas. At the same time, building on lessons learned from the difficulties created by the harvest shortfall, we are focused on maximising the returns from all our businesses. We have commenced a business transformation process, including implementing both cost reduction programmes and taking initiatives to expand other non-peat related business areas, to improve the sustainability of the Group in the future.

In the year 2013, the Group continued to focus on implementing its strategic growth and development initiatives across all of its business areas. A number of the key significant steps taken in progressing our vision for the Group were:

  • commencing the construction of two major wind farms; 80 MW at Mount Lucas, Co. Offaly, and 40 MW at Bruckana on the borders of counties Kilkenny, Laois and Tipperary, involving an investment of €178 million;
  • progressing a joint venture with ESB to deliver the first phase of our 172MW wind farm project at Oweninny, Co. Mayo;
  • continued growth in our programme to use biomass to generate electricity with 223,000 tonnes of mixed biomass consumed in the year;
  • completing the procurement process for the construction of an electricity generation plant to harness the gas produced by our resource recovery facility at our site in Drehid, Co. Kildare;
  • obtaining planning approval from Kildare County Council for the construction of a facility at Drehid for the mechanical and biological treatment of waste;
  • obtaining planning approval from Offaly County Council for the development of our flagship site at Lough Boora Parklands to upgrade the environmental and cultural experience for visitors;
  • continuing with the participation of all our stakeholders the annual review of Bord na Móna’s Biodiversity Action Plan 2010-2015, again showing good progress in achieving various projects and activities which will enhance biodiversity on the Group’s peatlands, and
  • continuing to pursue a potential role for Bord na Móna in relation to the provision of an alternative water source for the Eastern Region, including Dublin, Meath, Kildare, Laois, Offaly and Westmeath.

In view of the significant challenges faced by our businesses, the Board decided that general increases in basic pay rates for employees would be inappropriate.

The Group paid a dividend of €2.5 million during the year, of which €2.4 million was paid to the State and €0.1 million was paid to the Employee Share Ownership Plan (ESOP).

In addition, the Group is continuing to evaluate the potential for the export of renewable energy utilising its landbank in the midlands arising from discussions between the Irish and UK Governments. The situation regarding the General Employee Superannuation Scheme, one of the defined benefit pension schemes currently operated by Bord na Móna, continues to be a matter of concern to the Board. During the past year the Company participated in a process with the scheme’s trustees to explore potential resolutions to the current deficit.

The Board continues to focus on corporate governance, based on best practice, emerging regulation and trends. Developments during the year included the adoption of a revised process for considering and reporting on the risks faced by the Group. We continue to assess all significant investments using rigorous methodologies to ensure we meet the Board’s responsibility to safeguard the Company’s assets. The Board is satisfied that the Group has an appropriate and responsive system of internal controls to mitigate significant risks, keep exposures at an acceptable level and ensure that Bord na Móna continues its effective approach to corporate governance. The Board agreed a process to evaluate its own performance.

It is with great sadness that I have to report the death of one of our long serving employees, Mr John O’Donnell, who tragically lost his life following an accident at the peat loading facility in Lough Ree Power Station. On behalf of the Group, I wish to express my condolences to Mr O’Donnell’s family and colleagues.

I would like to thank my Board colleagues for their commitment and support during the year. I would like to particularly acknowledge the contribution made by my predecessor as Chairman, Fergus McArdle, who stood down during the year. Fergus served as Chairman for over eight years and Bord na Móna made significant progress under his stewardship. Mr Rory Scanlan also stood down in June 2012 having served as a Director since 2002. I note also Rory’s valuable contributions to Bord na Móna during his term on the Board. Ms Elaine Treacy joined the Board in July 2012 and Mr Gerard O’Donoghue and Mr Barry Walsh were appointed as directors in September 2012.

I would also like to take this opportunity to express my sincere thanks to Mr Gabriel D’Arcy, the Group’s Managing Director, and to the management team he leads. I thank all our employees for their dedication and hard work in delivering another year of progress for the Group, despite the challenges which emerged.

I would like to thank the Minister for Communications, Energy and Natural Resources, Mr Pat Rabbitte T.D., for his ongoing support for Bord na Móna. I also express my appreciation to Mr Aidan Dunning, Secretary General of the Department, Mr Ken Spratt, Assistant Secretary General and the other officers of the Department for their interest and advice.

During the year, the Company interacted on a regular basis on governance matters with the NewERA Division of the National Treasury Management Agency (NTMA). I would like to thank Mr John Corrigan of NTMA and Ms Eileen Fitzpatrick and her colleagues in NewERA for their support during the year.

The Board undertook a detailed review of the strategy of Bord na Móna during the year. We are satisfied that the current strategy of developing our activities in renewable energy coupled with effectiveness across all our operations is appropriate and will deliver a sustainable future for the Group. I am pleased to report that the Group continues to show that we can successfully overcome the challenges we face and deliver sustainable returns to our shareholders. Bord na Móna is taking an increasingly significant role in Ireland’s sustainable future with environmentally friendly policies in energy, water, resource recovery and enhancement of biodiversity.

We are confident that the Group’s strategy, which is designed to build on our recognised strengths, will ensure a successful and vibrant future for the Group and enhance the interests of all our stakeholders.

The Board’s role is to provide the environment and resources which will enable the achievement of the strategy, and the Directors are fully committed to fulfilling this role.

John Horgan
CHAIRMAN
27 June 2013