WHAT PROGRESS HAVE WE MADE? Gabriel D’Arcy, Managing Director

I am delighted to report on the significant improvements Bord na Móna has achieved during the past financial year in realising our vision, ‘A New Contract With Nature’.


In the Resource Recovery business, the Group invested further in the development of our waste technology park in Drehid, Co. Kildare. This will accelerate the objective to ensure maximum landfill diversion in our waste collection business. The recovered waste streams will add considerable value to the development of peat-free horticulture products. Additional cross-synergies will accrue from the segregation of other waste materials such as waste wood for energy and bio-fuel product development.


The Energy business has progressed its biomass agenda at our Edenderry Power plant. This forms a significant part of Bord na Móna’s renewable strategy to dilute energy peat usage. In the past year, 24,900 tonnes of peat was displaced with carbon neutral biomass. In effect, this creates a platform for a more sustainable feedstock solution in the future. It is our intention to achieve a minimum target of 30% dilution on the fuel supplied to Edenderry Power station within the next seven years, which will contribute to achieving Ireland’s targets under the RES-E Directive (EC Directive 2001/77/EC of the European Parliament and of the Council of 27 September 2001 on the promotion of electricity produced from renewable energy sources in the internal electricity market).


The Group’s Wind Energy programme was advanced with plans to develop 500 MW of wind energy at three locations in Mayo, Offaly and Tipperary. The largest on-shore wind farm in Europe will be located at our site in Oweninny, Co. Mayo, with a capacity of 360 MW of power when fully developed. This project, which has full planning permission, is in the next round of grid connection offers.


It is a core objective of Bord na Móna to develop sustainable heating solutions for future generations of consumers. The Fuels business has initiated a number of projects to evaluate the feasibility of community and district heating. These solutions would involve locally sourced biomass as the primary feedstock. The emphasis will be on energy efficiency and sustainability which help the environment and offer attractive cost benefits to the consumer.


Equally, in the Environmental business, 2008/2009 was an exciting year for the developing Odour and Air Emissions Treatment Business. Bord na Móna now has over 500 installed plants throughout the EU, US and Asian markets. We believe there is a great opportunity for this business to achieve a leading global position in this niche technology sector.


Due to economic, competitive and retail market demands, our Horticulture business has been under pressure in recent years. We have responded to this through rationalisation, changes in work practices, investment in process technology and product innovation. Difficult decisions had to be made including the closure of our Cúil na Móna facility and the consequent upgrading of the Kilberry operation involving a €1.5 million investment. We are confident that these actions have created a business model that can compete successfully in the pan-European market.


The newly established Land and Property Division is tasked with delivering the best commercial, social and environmental values from Bord na Móna’s land and property assets. A particular emphasis is to significantly contribute to the enhancement of the national biodiversity resource through wise management of cutaway bogs and the wider Bord na Móna land holding. By building on our contacts with other interest groups, such as National Parks and Wildlife Service, BirdWatch Ireland and local communities, we are contributing to the enrichment of our local heritage by encouraging plant and animal life on the peatland and conserving and developing appropriate habitats. Bord na Móna’s commitment not to open any further bogs underpins our new vision.


All of these initiatives are consistent with our ‘New Contract with Nature’. We are building on the core strengths and values of the organisation to embrace the change that will be required to deliver this vision. As a Group committed to innovation and safeguarding the future, we are confident that we are doing the right thing. Failing to act is not an option and we have demonstrated that we have the capacity and vision to build on the significant progress we have already made.


The Group’s businesses achieved an improved performance in the financial year 2009, notwithstanding the poor weather for peat harvesting.


The main financial features for the year were:


Turnover of €401.6 million up 8.2% on the previous year (€371.2 million).
Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) of €57.3 million, an increase of 9.9% on the 2007/2008 figure reflecting the contribution of the Resource Recovery facility at Drehid, a significant increase in solid fuel sales enhanced by a prolonged cold winter, and strong peat sales for power generation. There were a number of once-off charges to the profit and loss account in the year which impacted EBITDA, namely, a share based payment expense of €6.1 million in respect of the issue of 5% of the issued share capital to the Group’s employees based on past productivity gains, a charge of €5.6 million in respect of the Horticultural restructuring programme and other redundancy charges of €1.3 million.
Profit before tax of €19.5 million, €0.3 million down on the previous year impacted by a higher interest charge of €2.5 million in 2009.
Profit after tax of €15.5 million compared with €16.8 million in 2007/2008.
In 2008/2009 Gross operating cash flow before working capital movements at €61.2 million was €10.7 million up on the previous year. The working capital requirements of the Group decreased by €32.2 million, which when combined with operating cash flow resulted in a net cash inflow of €93.4 million, up €50.2 million on the previous year. The significant cash outflows which resulted in a total cash outflow of €53.2 million for the year were:
  - Net capital expenditure of €29.3 million
  - Net acquisition costs of €5.0 million
  - Corporation tax payments and interest costs of €6.0 million
  - Dividend payment of €12.9 million
The net cash inflow for the year was €40.2 million compared to a net cash outflow of €41.1 million for 2007/08.
The Group had net borrowings of €56.0 million at year end, compared to €96.2 million at March 2008.
The Group paid a dividend to its shareholders of €12.9 million in the year.


In the 2008/2009 financial year 35% of the Group’s turnover came from its traditional peat based business as compared to 38% in the previous year.


A summary of the key Group financial results for the past three years has been:

Turnover 401,567 371,226 299,175
% change +8.2 +24.1 +1.2
EBITDA 57,256 52,080 45,398
% change +9.9 +14.7 -14.4
Profit Before Tax 19,520 19,825 29,207
% change -1.5 -32.1 -14.2
Shareholders’ Funds 198,558 234,200 235,480
% change -15.2% -0.5% +14.2%


The Group’s strategy requires that we continue to extract maximum value from our longstanding businesses supplying peat for Energy, Fuels and Horticulture products. We pursue this by achieving improved efficiency and investing in enhancement opportunities where appropriate. As would be expected, the newer business areas we are developing as we implement our strategy are in an earlier phase of development but nevertheless have made a significant contribution to performance in 2008/2009. The main developments during the financial year in each of the business areas are detailed within this review.


The main issues facing Bord na Móna are competitiveness and innovation while adapting our business model with reference to the impact of climate change. Given the global economic downturn, there is an additional responsibility on companies to ensure they remain competitive to react to ever-changing market demands. At Bord na Móna, an ongoing programme throughout our value chain ensures that we maximise our efficiency across all areas of operations from harvesting through to the consumer. Constant dialogue with our customers helps us to understand how we can improve our offering across an ever-growing range of products and services.


We also have an imperative to positively contribute to the climate change issue. This agenda is at the core of our operations and we have made significant strides in delivering a strategy to achieve the goals we outlined in our vision, ‘A New Contract with Nature’.


This will be achieved by a combination of organic growth and acquisition. Significant infrastructural projects have been identified across Energy, Resource Recovery and Fuels - Heating Solutions within Ireland. We have also identified significant potential opportunities internationally to expand the Horticulture and Air & Water Treatment markets.


In 2008, we set up an Innovation Centre in Newbridge, Co Kildare, with a planned spend of €50 million over the next five years in support of this. Innovation will be at the heart of what the Group does over the coming years. It will not only be product and technology focused but will also challenge our processes and business models to ensure we are creating ongoing efficiency improvements in everything we do. This will be the key enabler behind our growth agenda.


We have started a programme towards the development of a robust carbon management strategy. As part of this, we are currently conducting an enterprise-wide carbon footprint calculation of our operations. This will include detailed Scope 3 emissions utilising the greenhouse gas protocol promoted by the WBCSD (World Business Council for Sustainable Development). This will provide us with external validation of our carbon calculation and feed into future sustainability and annual reporting.


Investment for the Future
Capital Expenditure for 2008/2009 amounted to €30.5 million (€24.4 million in 2007/2008). A significant capital investment programme was undertaken during the year with expenditure incurred on phase 2 of Drehid following an enhancement of its waste licence, additional refuse collection vehicles and processing plant at the Material recovery centres, boiler upgrade at the Edenderry Power plant and replacement of peat harvesting plant.


Research and Development: In 2008/2009 Bord na Móna spent some €5.9 million on research and development including new business development, exclusive of grants (compared with €4.0 million in 2007/2008). Project work undertaken in this area is outlined in the section on innovation. Thirty people are directly employed in the Innovation Centre with a further twenty innovation staff embedded in the operational sections of the Group.


Funds from Operating Activities
The Group generated €93.4 million from operating activities in 2008/2009 compared to €43.2 million in the previous year.



€ million

€ million
Net cash flow from operating activities 93.4 43.2
Capital expenditure and acquisitions (34.3) (67.6)
Corporation Tax and Financing Costs (6.0) (8.7)
Dividend paid (12.9) (8.0)
Increase / (Decrease) in net cash 40.2 (41.1)


At year end, the Group had net borrowings of €56.0 million a reduction of €40.2 million in the year – a significant achievement. The Group’s balance sheet remains strong. The detailed cash flow statement is given on page 40 supported by Note 21 to the Financial Statements.


Capital structure and Treasury policy
Net Borrowings reached a peak of €97 million during the year compared with a peak of €121 million in the previous year. Bank interest and similar charges at €3.9 million compared with €4.6 million in the previous year a reflection of the strong cash in-flow generated by the Group during the year.


Treasury policy for the Group is approved by the Board and implemented and monitored by the Group Treasury function. The Board’s policy is to minimise funding costs while maintaining flexibility in volatile markets, always subject to acceptable levels of treasury risk. Year-end debt was mainly at fixed interest rates. Balance sheet exposure in relation to foreign currency investments is hedged as far as possible by borrowings in the same currency as the underlying net assets.


At year end the Group had $150 million (€117.5 million) fixed rate debt raised on the US Private Placement debt market. In order to hedge the associated US dollar exchange rate exposures and convert the underlying interest rates to fixed, the Group entered into a number of cross currency swaps to match the maturity profile of the debt.


The maturity profile of debt at year-end was 17% repayable in June 2013, 40% repayable in June 2016 and 43% repayable in June 2018.


The Group nets foreign currency cash flows to minimise overall exposure and has adopted a selective hedging approach in managing this exposure to secure the euro value of receivables and payables.


Gearing was at 28% at year end compared to 41% at the start of the year and the level of net debt reduced from €96.2 million at the start of the year to €56.0 million at the end of the year.


Pensions Reform
The Group operates Defined Benefits pension schemes covering the majority of employees which are funded by contributions from both the employer and the members. Contributions are based on the advice of a professional actuary obtained at regular intervals.


In January 2008, a collective agreement was reached consisting of a range of measures to enable a more secure pension platform for the Group and its employees.


The measures under consideration were as follows:
• Improvements of pensions by the implementation of a revised calculation (N200);
• Merging of RWESS and GESS defined benefit schemes into a single scheme;
• Closure of defined benefit scheme to new members;
• Introduction of a defined contribution scheme;
• Funding the deficit in the GESS scheme;
• Introduction of salary cap.


Bord na Móna remains committed to achieving a more secure pensions platform but adverse pension fund performance requires reconsideration of the collective agreement.


Similar to many other pension schemes in Ireland, there have been significant difficulties encountered by the GESS and RWESS pension funds in the past 18 months. There is a continuing deterioration of funding in both schemes and coverage for active members (current employees) has decreased.


We continue to actively engage with our key stakeholders to consider the issues and identify potential solutions. Such solutions will need to address member needs as effectively as possible.


Gabriel D’Arcy
23 June 2009