Annual Report 2013

Directors’ Report

Introduction

The Directors present their annual report and the audited financial statements of Bord na Móna plc for the period from
29 March 2012 to 27 March 2013.

Principal Activities and Business Review

The Group supplies electricity generated from peat, oil and biomass at its generating stations and supplies peat as a fuel to other electricity generating stations. The Group develops wind farms and renewable energy projects. It also manufactures peat briquettes and horticultural products, supplies waste management services, coal and oil, wastewater treatment and odour emissions products, environmental consultancy and commercial laboratory services.

The Chairman’s Statement on this page, the Managing Director‘s Review on this page contain a review of the development of the Group’s business during the year, the state of affairs of the businesses at 27 March 2013, recent events and likely future developments.

Results for the period and dividends

 

’000

 

Profit for the financial year

9,232

Dividend paid

(2,500)

 

 

Profit retained for financial year

6,732

 

 

Details of the financial results of Bord na Móna plc for the period 29 March 2012 to 27 March 2013 are given here.

Directors

Policy in Bord na Móna is determined by a twelve member Board appointed by the Minister for Communications, Energy and Natural Resources. Seven of the Directors are normally appointed for a term of five years. Four of the Directors are appointed for a term of four years, in accordance with the Worker Participation (State Enterprises) Acts 1977 and 1988. The Managing Director is appointed to the Board on appointment to that position. The names of the persons who were Directors during the period are set out below.

John Horgan, Chairman
Gabriel D’Arcy, Managing Director
Paudge Bennett
Denise Cronin
Paddy Fox
Fergus McArdle - term of office expired on 26 September 2012
Pat McEvoy
Gerard O’Donoghue - appointed as a Director with effect from 2 October 2012
Colm Ó Gógáin
Rory Scanlan - term of office expired on 13 June 2012
David Taylor
Elaine Treacy - appointed as a Director with effect from 17 July 2012
Barry Walsh - appointed as a Director with effect from 16 October 2012
Peter Wyer - term of office expired on 1 May 2013

Corporate Governance

As part of its commitment to quality the Group has continued to implement best practice in relation to the conduct of its business and in relation to financial and general reporting. The Group complies with the provisions of the Department of Finance’s ‘Code of Practice for the Governance of State Bodies’ updated in 2009 (‘the Code’). The Code sets out the governance framework agreed by Government for the internal management and the internal and external reporting relationships of Commercial State Bodies. Bord na Móna has applied the principles of good corporate governance and conforms, as far as possible, and on a voluntary basis to the 2010 UK Corporate Governance Code and to the Irish Corporate Governance Annex.

The Board

The Board is responsible for overseeing and directing the Bord na Móna Group and ensuring its long-term success. Decisions are made after appropriate information has been made available to Board members and with due consideration of the risks identified through the risk management process.

The Board has reserved a schedule of matters for its decision, including:

The Board is provided with regular information on a timely basis which includes key performance indicators for all areas of the business. Reports and papers are circulated to the Directors in preparation for Board and Committee meetings.

All members of the Board have access to the advices and services of the Company Secretary who is responsible to the Board for ensuring that Board procedures are complied with. The Group’s professional advisers are available for consultation by Directors as required. Individual Directors may take independent professional advice in line with specified procedures.

Each Director received appropriate briefing on being appointed to the Board and access to training is provided by the Group during a Director’s term of office.

The Board has agreed and implemented a process for evaluating its performance.

The Board and Management maintain an ongoing dialogue with shareholders on strategic issues.

Remuneration of Directors

Fees for Directors are determined by the Government and set out in writing by the Minister for Communications, Energy and Natural Resources.

Board Meetings

The Board met 14 times during the financial year.

Committees of the Board

There are four standing Committees of the Board which operate under formal terms of reference.

The members of the Risk and Audit Committee as at 27 March 2013 were Peter Wyer (Chairman), Denise Cronin and Barry Walsh. Robert Dix acted as an adviser to the Committee until 31 January 2013. The Committee met six times during the financial year. The Committee meets periodically with the internal auditor and the external auditors to discuss the Group’s internal accounting controls, the internal audit function, the choice of accounting policies and estimation techniques, the external audit plan, the statutory audit report, financial reporting and other related matters. The internal auditor and external auditors have unrestricted access to the Risk and Audit Committee. The Chairman of the Committee reports to the Board on all significant issues considered by the Committee and the minutes of its meetings are circulated to all Directors.

The Remuneration Committee deals with the remuneration and expenses of the Managing Director and senior management within Government guidelines. The members as at 27 March 2013 were John Horgan (Chairman), Elaine Treacy and Gerard O’Donoghue. The Managing Director, Gabriel D’Arcy, attends the Committee except when his own position is being discussed. The Committee met four times during the financial year.

The Finance Committee considers the financial aspects of matters submitted to the Board and the procurement, disposal and leasing of land, buildings and facilities. The members as at 27 March 2013 were John Horgan (Chairman), Gabriel D’Arcy, Pat McEvoy, Colm Ó Gógáin and David Taylor. The Committee met twice during the financial year.

The Health and Safety Committee was established by the Board in February 2013 and advises the Board on health and safety matters within the Bord na Móna Group. The members as at May 2013 were Paddy Fox (Chairman), Paudge Bennett, Gabriel D’Arcy and Gerard O’Donoghue (appointed on 25 April 2013). The Committee met on 25 June 2013.

From time to time the Board also establishes temporary committees to deal with specific matters under defined terms of reference. There were no such committees established in the year ended 27 March 2013.

Attendance at Board and Committee Meetings

The table below summarises the attendance of Directors at Board and Committee meetings which they were eligible to attend during the year ended 27 March 2013.

Director

Board
Meetings
Attended/
Eligible

Committee
Meetings

Attended/
Eligible

 

 

 

F McArdle, Chairman (Note 1)

9/9

2/2

J Horgan, Chairman

12/12

6/6

G D’Arcy, Managing Director

14/14

2/2

P Bennett

14/14

N/A

D Cronin

11/14

6/6

P Fox

12/14

3/3

P McEvoy

13/14

5/5

G O’Donoghue

4/5

2/2

C Ó Gógáin

14/14

2/2

R Scanlan (Note 2)

4/4

N/A

D Taylor

13/14

2/2

E Treacy

9/9

3/3

B Walsh

4/5

4/4

P Wyer (Note 3)

13/14

6/6

Internal Controls

The Directors have overall responsibility for the Group’s systems of internal control and for reviewing their effectiveness. These systems are designed to manage risk and can give reasonable, but not absolute, assurance against material misstatement or loss. The Board confirms that it has reviewed the effectiveness of the system of internal control.

Management is responsible for the identification and evaluation of significant risks together with the design and operation of suitable internal control systems. The systems of internal control are designed to ensure that transactions are executed in accordance with Management’s authorisation that reasonable steps are taken to safeguard assets and to prevent fraud, and that proper financial records are maintained. Management report to the Board on material changes in the business and external environment which affect risk.

The principal procedures which have been put in place by the Board to provide effective internal control include:

Internal audit considers the Group’s control systems by examining financial reports, by testing the accuracy of transactions and by otherwise obtaining assurances that the systems are operating in accordance with the Group’s policies and control requirements. Internal audit report directly to the Risk and Audit Committee on the operation of internal controls and make recommendations on improvements to the control environment if appropriate.

The Group has a robust framework in place to review the adequacy and monitor the effectiveness of internal controls covering financial, operational, risk management and compliance controls. The Board is satisfied that the system of internal control in place is appropriate for the business.

The Board has reviewed the effectiveness of the system of internal control up to the date of approval of the financial statements. The Risk and Audit Committee performed a detailed review and reported its findings back to the main Board. The process used to review the effectiveness of the system of internal controls includes:

Risk Management

The Board of Bord na Móna has overall responsibility for risk management including determining the nature and extent of significant risks it is willing to accept in pursuit of its strategic and operational objectives.

To address this, the Board has established a risk management system that provides for the continuous identification, assessment, monitoring and reporting of significant risks within Bord na Móna.

The Risk and Audit Committee is the forum for risk governance within Bord na Móna acting under delegated authority from the Board.

The Risk and Audit Committee is responsible for assisting the Board in fulfilling its oversight activities with regard to assessing, reviewing and monitoring the risks inherent in the business and the control processes with respect to such risks. The Risk and Audit Committee is supported on a day to day basis by an appointed Risk Management Officer.

The Risk Management Officer is responsible for overseeing the day to day risk management activities and has responsibility for ensuring that an effective risk management system, proportionate to the nature, scale and complexity of Bord na Móna is developed and maintained.

The risk management system provides appropriate governance structures to support sound risk management practices, formal assignment of risk responsibilities throughout Bord na Móna as well as the procedures to be used in the identification, assessment, monitoring and reporting of risks, including relevant mitigation actions and controls.

The key concepts of this risk management system include:

Risk Mgt Process

Principal risk type

Business Continuity

The Group’s operations are subject to operational risks, weather disruption and other unforeseen risk events such as IT system failure, mechanical plant failure and environmental disruption. The weather has a significant impact on the Group’s ability to harvest peat and have sufficient peat stocks available to meet the sales demand for electricity generation, briquette manufacturing and growing media manufacturing. The sales demand for growing media, briquettes, coal and oil is also weather related. Long term disruptions could result in a significant financial and or reputational impact on the Group. The Group have specific mitigation plans to address business disruption if such events were to occur.

Pensions

The majority of the Group’s employees are members of one of the three defined benefit pension plans. The schemes are managed separately and are multi-employer. There are pension deficits on all three schemes at the balance sheet date. One particular scheme, the General Employees Superannuation Scheme (GESS) has a material deficit. The Group are in negotiations with the various stakeholders seeking an agreement on a funding proposal to address the deficit and also changes to the benefits of two of the schemes.

Regulatory

The company operates a number of diverse businesses which are increasingly affected by regulatory change. The Group has to continually monitor and manage evolving legislation and regulatory matters. Some of the regulatory risks affecting our businesses are:

Health and Safety and Environmental regulations

The Group’s operations are subject to an increasingly stringent range of environmental regulations, health and safety law and other regulations and standards. A breach of any such law or regulation could result in the imposition of material sanctions on the Group and could have a material adverse effect on the Group’s businesses. The Group employ special expertise to ensure full compliance, together with continuous staff training and robust monitoring procedures designed to prevent a material breach of statutory or other regulatory obligations.

Financial Risk Management

The Group’s operations expose it to a variety of financial risks that include the effects of changes in foreign exchange risk, credit risk, liquidity and interest rate risk. The Group has in place a risk management programme that seeks to manage the financial exposures of the Group by monitoring foreign exchange exposure together with debt finance and the related finance costs.

The Group’s treasury operations are managed in accordance with policies approved by the Board. These policies provide principles for overall financial risk management and cover specific areas such as interest rate, credit, liquidity and foreign exchange risk.

Price risk

The Group is exposed to commodity price risk as a result of its operations. However, given the size of the Group’s operations, the costs of managing exposure to commodity price risk exceed any potential benefits. The Directors will revisit the appropriateness of this policy should the Group’s operations change in size or nature. The Group has no exposure to equity securities price risk as it holds no listed or other equity investments.

Foreign exchange risk

Bord na Móna’s reporting currency is in Euro. The Group policy is to minimise the impact of material variations due to foreign exchange movements. The Group is exposed to foreign exchange risks in the normal course of business, principally on the sale and purchase of both sterling and US dollar. Certain natural economic hedges exist within the Group and the Group policy is to match and hedge the currencies across different divisions. At the year end, the Group had $355,000,000 fixed rate debt which was hedged by swap arrangements.

Credit risk

The Group continually examines its credit policies in light of changing economic conditions that the Group operates in. Management, with the approval of the Board, has an ongoing programme of mitigating actions to reduce identified credit risks which include improved exception reporting and automated use of credit limits to manage risk. In addition, credit insurance is in place for the larger customers of the Group.

Counterparty risk

The Group is exposed to credit risk from the counterparties with whom it holds its bank accounts and transacts within financial markets. Bord na Móna policy is to continually manage counterparty risk taking account of among other relevant factors, published credit ratings. Bord na Móna closely monitors and measures its counterparty limits particularly with all financial institutions that cash deposits are placed with. This item is regularly reviewed and discussed at Board meetings.

Liquidity risk

The Group’s operations are cash generative. The Group has historically utilised this cash to retire medium and long term debt and to fund capital expenditure. The Group is now primarily financed by short and medium term debt with this debt maturing on dates between 2013 and 2019. The Directors are satisfied that the Group currently has sufficient sources of funding available to enable it to fund both existing operations and planned capital expenditure.

Interest rate and cash flow risk

In order to ensure stability of cash outflows and hence manage interest rate risk, the Group has a policy of maintaining at least 50 per cent of its debt at fixed rate. Through a series of interest rate swaps, the Group has fixed the interest rates on all its debt. At March 2013, the Group had fixed 100% (2012: 100%) of its private placement debt. Further to this the Group seeks to minimise the risk of uncertain funding in its operations by borrowing within a spread of maturity periods. Financial instruments are used to manage interest rate and financial risk. The Group does not engage in speculative activity and the treasury operating policy is risk averse.

Directors’ and Secretary’s Shareholdings

The Bord na Móna Employee Share Ownership Plan (ESOP) continues to hold 5% of the total ordinary shares in Bord na Móna plc on behalf of 2,102 eligible participants (serving and retired employees) in the Bord na Móna Employee Share Ownership Trust or the Bord na Móna Approved Profit Sharing Scheme (APSS).

Mr P Bennett, Mr P Fox, Mr P McEvoy and Mr C Ó Gógáin and the Secretary are participants in the Bord na Móna Employee Share Ownership Plan and each has a notional allocation of 1,771 ordinary shares in Bord na Móna plc which are held in the Bord na Móna Approved Profit Sharing Scheme. The other Directors and their families had no interests in the shares of Bord na Móna plc or any other Group company during the year ended 27 March 2013.

Codes of Conduct

The Code of Conduct for Employees continued in place during the 2013 financial year. A Code of Conduct for Directors was adopted in April 2002 and remains in place.

Human Resources

Bord na Móna implements its Human Resources policies in a consultative and collaborative way that respects the importance of our people and their performance. The Group pursues strong commercial results through a professional, performance driven approach.

As always, Bord na Móna maintained its partnership based relationship with employees and their union representatives recognising this as an effective way of meeting our business challenges.

Bord na Móna continued its pursuit of improved health and safety at work through rigorous attention to safe work processes, training and a constant focus on responsible personal behaviours. The Group continued its Health and Wellness programme, which is designed to enhance individual employee well-being. During the year the Board established a sub-committee of the Board to review and oversee health and safety.

Quality and Customer Service

The Board has adopted a policy that Bord na Móna will voluntarily obtain the relevant ISO accreditation and/or other relevant accreditation for all its activities.

The Group has adopted the Code of Practice for the Delivery of Services to Customers of Commercial State Companies.

Going Concern

The directors, having made enquiries, believe that Bord na Móna plc has adequate resources to continue in operation for the foreseeable future and that it is appropriate to continue to adopt the going concern basis in preparing the financial statements.

Post Balance Sheet Events

There were no post balance sheet events that would require adjustment to, or disclosure in, the 2013 financial statements.

Accounting Records

The directors believe that they have complied with the requirements of Section 202 of the Companies Act, 1990, with regard to books of account by employing accounting personnel with appropriate expertise and by providing adequate resources to the finance function. The books of account are kept at the Group’s registered office, Main Street, Newbridge, Co Kildare.

Prompt Payment of Accounts

The Directors acknowledge their responsibility for ensuring compliance, in all material respects, with the provisions of the European Communities (Late Payment in Commercial Transactions) Regulations 2002 (S.I. No. 388 of 2002) ("the Regulations"). Procedures have been implemented to identify the dates upon which invoices fall due for payment and to ensure that payments are made by such dates. Such procedures provide reasonable assurance against material non-compliance with the Regulations. The payment policy during the year under review was to comply with the requirements of the Regulations.

Electoral Act, 1997

The Board made no political donations during the year.

Auditors

KPMG, Chartered Accountants, were appointed as auditor to the Group in December 2012. In accordance with Section 160(2) of the Companies Act, 1963, KPMG will continue in office.

On behalf of the Board:

Signed:

John Horgan Gabriel D’Arcy
Chairman Managing Director

27 June 2013