ANNUAL REPORT 2012

Managing Director’s Review

Business Review - Retail

Retail products include solid fuel, oil and convenience fuel, as well as professional and retail growing media, for the domestic and international markets. The establishment of our new Retail business, which is the result of merging our Fuels and Horticulture business units, underlines the longterm commitment to growth despite the challenges that the economic and legislative environments pose to the overall business.

Retail

Challenges

Mild Winter
2011/2012 was dominated by an unseasonably mild Winter with some areas of the country experiencing their mildest Winter in over 20 years. This impacted heavily on sales of all home heating products resulting in an 9.7% annual revenue decline. Despite the growth in the horticulture category, this did not compensate for the weather-induced reduction in fuels sales. As a result, combined total sales of €171.6 million resulted in a year on year decline of 5.9%.

Consumer Behaviour and Disposable Income
The business was also affected by the decline in disposable income and a shift in consumer purchasing behaviour for home heating products. Consumers focused on value fuel options, including briquettes, coal, privately harvested turf and timber, in place of oil. 2011 also saw a bumper harvest in privately cut turf which competes directly with our coal and briquette products. In the multiple retail market, new private label products were introduced during the season, consistent with the general trend of major retailers providing consumers with a value offering.

Freight Costs
The horticulture business is largely concentrated outside Ireland, where the year’s principal challenges were the contraction in freight availability and the significant increases in freight costs resulting from a reduction in UK inbound freight volume into Ireland.

Peat Dilution
As a result of the continued drive towards peat dilution in the UK and mainland European markets we are encountering added complexity across the supply chain from material procurement right through to customer delivery.

Achievements

Creation of Retail Business
2011/2012 saw the completion of the strategy-for-growth objective, which marked the establishment of the new Retail business. The year was characterised by product, process and market successes that strengthened the position of the new business unit. This is underpinned by the strength of the Bord na Móna brand, which signifies quality and value. Importantly, the business is now better positioned to capitalise on any growth opportunities in Retail’s markets.

Horticulture Revenues
Despite continued pressure on the Retail business, the year delivered a more positive performance for the horticulture range with revenues up by 3.4% to €54.3 million.

New Products
The launch of the Verve growing media own label brand for B&Q, combined with increased distribution of the Growise brand, has enhanced the retail horticulture range. The professional horticulture offering has also been improved with new products in sod moss, milled black peat and bin turf..

The fuels category continued to innovate with new coal products and a valueengineered and expanded convenience product range.

Market Development
UK
The partnership with Vital Earth (a UK-based peat free product provider), formed in late 2011, added to Retail’s portfolio, as well as establishing a platform for growth across the territory’s entire retail product offering.

Professional
The professional grower customer base has expanded to the Eurasian markets, with the addition of a distributor in Turkey. The business has also achieved growth in the existing customer base in the UK and mainland Europe as poor harvests impacted producers in the UK and the Baltics. Retail had a particularly strong year in Europe where professional growers delivered the greatest increase in growth. Customer numbers have grown by 35% over the past five years.

Peat Dilution
The development of the coir processing facility in Kilberry, Co. Kildare, contributed to the business achieving progress on the peat dilution agenda. The facility’s manufacturing and operational capacities have addressed the challenges posed by both existing and new product demands of a more regulated environment.

Commitments

Growth Potential
The business is committed to providing a profitable and sustainable product range which satisfies the needs of customers as they operate in a difficult economic environment. Retail is uniquely positioned to operate as a cohesive trading unit across its target markets. It has a streamlined product offering and a product innovation capability which, combined with marketing competence, will deliver profitable growth. The business is committed to its continuing goal to build long term supplier partnerships and customer relationships to deliver more sustainable revenue streams. This is demonstrated by the development of five year contracts with our distributor network in Europe and the geographic expansion in the Far East, particularly in China, where partners have been identified and developed.

Sustainability
With full membership of the Growing Media Initiative, a UK-based scheme that fosters the need to protect the world’s peatlands and promote the use of alternative soil enhancing materials, Retail is committed to sustainable business. This is consistent with Bord na Móna’s triple bottom line approach of focusing on people, planet and profit in the growing media sector, which pursues the peat dilution agenda. The focus on sustainable alternatives to traditional fuels, combined with innovation in the ignition category, underscores the commitment to a future in the provision of effective, sustainable and competitive fuel.