ANNUAL REPORT 2012

Chairman’s Statement

Meeting the Challenge

I am pleased to once again present my annual report as Chairman of Bord na Móna plc. The financial results showed turnover at €383.8 million for 2011/2012, an increase of €1.7 million on 2010/2011. Sales activity was mixed for the Group as Powergen, Horticulture and Resource Recovery delivered sales growth and Feedstock and Fuels had reduced sales activity.

Fergus McArdle

Resource Recovery increased its turnover through growth in the domestic business but it continues to experience the effects of the general downturn in economic activity, particularly in the construction and retail sectors. Feedstock had reduced sales of milled peat with a five month planned outage at the West Offaly power plant. In Retail (which comprises Fuels and Horticulture) our fuels products encountered difficult trading conditions impacted by the mildest winter season for many years, a substantial increase in privately harvested turf, timber, low cost imports and the effect of the economic downturn on disposable income. Powergen delivered an excellent performance, as did our Retail horticulture range.

Earnings before interest, taxation, depreciation and amortisation (EBITDA) at €61.1 million was down €11.6 million on 2010/2011. The current economic environment continues to present a difficult challenge to all business organisations. The EBITDA decline is due to fire related peat stock losses, a slight shortfall on the annual production harvest, a planned five month outage at the West Offaly power plant and reduced demand for fuels products over a mild, dry winter season. A series of major fires on our peatlands in May 2011 resulted in peat stock losses, to the value of 21.9 million, being written off. Due to the efforts of our staff and local fire services, these fires did not cause any significant injury to employees or members of the public.

The Group recorded an operating loss of €2.9 million and a loss before taxation of €12.7 million. The key issues that contributed to the loss were an impairment charge of €23.1 million within the Resource Recovery business in addition to the matters mentioned previously.

The waste management sector in Ireland has experienced challenging conditions in recent times. The Irish economy continues to be impacted by the global downturn which has resulted in a reduction in waste volumes in the market place. Recent regulatory changes, including the increased landfill levy, have increased the operational cost of end treatment processes and, together with competitive pricing, have resulted in lower margins. Based on our current assessment of the outlook for the waste sector, an impairment charge of €23.1 million has been recorded in respect of the Group’s investment in tangible and intangible assets in the Resource Recovery business.

The loss before tax in 2011/2012 at €12.7 million was adverse to Fiscal Year 2011 by €29.4 million and the loss after tax in 2011/2012 at €16.3 million compares with a profit after tax of €12.9 million in 2010/2011. Despite the challenging trading conditions, the Group made further progress in implementing its strategic growth and development initiatives across all our business areas. At the same time, we continued to focus on maximising returns from traditional businesses and have commenced a number of cost reduction programmes to maintain and sustain these businesses. In addition we are implementing initiatives to expand other business areas.

The Group paid a dividend of €4.3 million during the year, of which €4.1 million was paid to the State and €0.2 million was paid to the Employee Share Ownership Plan (ESOP).

In the year ended March 2012, the Group continued to focus on implementing its strategic growth and development initiatives across all our business areas. A number of the key significant steps taken in progressing our vision for the Group, were:

  • Progressing the procurement process for the construction of two major wind farms; 80 MW at Mount Lucas, Co. Offaly, and 40 MW at Bruckana on the borders of Laois, Tipperary and Kilkenny. This procurement contract when finalised will be the largest contract ever placed by Bord na Móna;
  • Securing grid connection offers for the first phase of our 172MW wind farm project at Oweninny, Co. Mayo, to be developed jointly with ESB;
  • Continued growth in our programme to use biomass to generate electricity with 156,000 tonnes of mixed biomass consumed in the year;
  • Expanding the footprint of our Resource Recovery business by acquiring the domestic collection services formerly operated by Kildare and Wexford County Councils;
  • Constructing a composting facility at our site in Drehid, Co. Kildare to treat 25,000 tonnes of organic waste as reusable compost each year;
  • Establishment of the Retail business unit which involves the merger of the former Fuels and Horticulture businesses;
  • Opening new headquarters for our environmental business in the UK;
  • Progressing the development of our flagship site at Lough Boora Parklands to upgrade the environmental and cultural experience for visitors;
  • Completing with the participation of all our stakeholders the first review of Bord na Móna’s Biodiversity Action Plan 2010-2015, showing good progress in achieving various projects and activities which will enhance biodiversity on the Company’s peatlands, and
  • Securing a contract to deposit surplus peat from the Shell Corrib project on our peatlands in Co. Mayo.

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. Following a Labour Court recommendation that the Company and employees enter into discussions with a view to reaching agreement, the Company agreed a proposal with the Bord na Móna Group of Unions for non-pensionable allowances to be paid to employees over each of the next four years. The total amount paid would be related to Company performance each year. The Group of Unions recommended that the proposal be accepted but the members voted against acceptance in a ballot in May 2012.

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. The Company is participating in a process with the scheme’s trustees to explore potential resolutions to the current deficit. The Board is committed to seeking a funding proposal which balances the interests of the Company, the employees and the pensioners.

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 the most up-to date 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, which keeps exposures at an acceptable level and ensures that Bord na Móna continues its effective approach to corporate governance.

I would like to thank my Board colleagues for their commitment and support during the year. Dr Conor Skehan and Ms Rose McHugh stood down as directors during the year. The terms of office of Mr Gabriel Cribbin and Mr Rory Scanlan expired on 21 October 2011 and 13 June 2012 respectively. All of these directors made valuable contributions to Bord na Móna during their terms on the Board. Ms Denise Cronin joined the Board in September 2011 and Mr John Horgan was appointed as a director in April 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 Gabriel and his colleagues and 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, Ms Sara White, Deputy Secretary General and the other officers of the Department for their interest and advice.

During the year, in line with new governance arrangements put in place by the Government, the Company interacted on a regular basis 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.

During the year, Bord na Móna was invited to submit a case for undertaking the establishment of Irish Water. The Company made a strong case in relation to this matter and this was acknowledged by the selection panel appointed by the Government and by the Ministers involved. This project was awarded to Bord Gáis Energy. I would like to congratulate them on their achievement and to wish them every success in implementing this important initiative. For our part, we will support them in any way possible and in particular by continuing to develop the proposed Shannon/Eastern Region water supply project.

The Board is pleased to report continuing implementation of the Group’s strategy. The Group has shown and will continue to demonstrate that we can meet the challenges we face and will deliver change to maintain a sustainable business into the future. Bord na Móna is increasingly playing its part 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 proven diversification strategy, combined with 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.

Fergus McArdle
Chairman

6 July 2012