Annual Report 2016

45A5A81B-4BAF-4723-BFB4-09983CA05A23 Created with sketchtool.

Chief Financial Officer’s Review

A summary of the key Group financial results for the past two years is as follows:

FY16
€’M
FY15
€’M
Revenue432.8406.7
Operating profit as reported37.669.6
Investment property gain(7.5)(14.5)
Pension plan gain(10.7)-
Restructuring costs7.3-
Impairments of property, plant and equipment and intangible assets*24.50.2
Adjusted Operating profit51.255.3
Depreciation/Amortisation48.846.0
EBITDA adjusted for exceptionals and Investment property gains100.0101.3
Total assets725.6736.0
Capital expenditure71.8113.7
Net debt172.7177.9
Shareholders’ funds221.4209.1

* included in administration expenses in FY15


0F523CE3-A83B-4F78-B3C2-0797ED0B9FB9 Created with sketchtool.

Turnover increased by 6% from €406.7 million to €432.8 million, an increase of €26.1 million.

The key sales variances were as follows:

  • In the first full year of operation the sales of the Mountlucas and Bruckana wind farms increased by €13.8 million;
  • Waste treatment sales at the Drehid facilities increased by €9.3 million due to increased inbound tonnage and increased electrical output on recovered gas;
  • Waste collection sales increased by €4.5 million with an increase in domestic customer numbers and increased Commercial tonnage;
  • Horticulture sales increased by €6.8 million with improved performance in both the professional and retail sectors;
  • Sales of peat to the Lough Ree Power and West Offaly Power stations increased by €4.5 million in aggregate.
  • Electrical sales by Edenderry power plant in FY16 decreased by €4.7 million due to a planned extended outage and lower prices for electricity, which impacted adversely following the December 2015 exit of the plant from the PSO support mechanism; and,
  • Reduced coal and briquette sales amounting to €7.7 million due to the mild winter, lower home heating oil prices and increased competition in the fuels market.

Operating profit before exceptional items was €37.6 million in FY16 (FY15: €69.6 million). Operating profit adjusted for exceptional items and investment property gain was €51.2 million in FY16 (FY15: €55.3 million). The following exceptional items and investment property gain, amounting to a net charge of €13.6 million to the Operating profit, included:

  • A fair value increase of €7.5 million on the Baggot Street investment property;
  • A curtailment gain of €10.7 million on the restructure of the General Employees’ Superannuation Scheme on the implementation of a funding proposal;
  • Restructuring costs of €7.2 million following decisions to re-organise our coal processing operations and certain administrative functions following the establishment of a financial shared services centre at Group level;
  • An impairment charge of €23.6 million against the carrying value of the two thermal power stations at Edenderry. The impairment was due to forecasted lower electricity prices and expected changes in the market upon introduction of the Integrated Single Electricity Market in 2018; and,
  • An impairment charge of €0.9 million against the carrying value of certain assets in the Fuels business due to expected near-term changes in the solid fuels market.

EBITDA including exceptional items was €111.0 million in FY16 (FY15: €115.4 million). As outlined in the table above the EBITDA adjusted for the exceptional items and Investment property gain was €100.0 million in FY16 (FY15: €101.3 million).


AB2075C5-3834-4A48-BB4D-32CCE5502AFE Created with sketchtool.

EBITDA pre exceptional items and Investment property gain was €100.0 million in FY16

The key items which impacted the underlying trading performance during the year compared to FY15 were:

  • The peat harvest of 3.4 million tonnes was 1 million tonnes lower, (the majority of the reduction was due to a planned lower peat harvest) which reduced Operating profit by €2.9 million;
  • Heavy rainfall and resulting flooding impacted on the transport of peat which reduced Operating profit by €3.4 million;
  • Increased peat sales and lower peat transport costs increased profits by €6.1 million;
  • Lower wholesale electricity prices and increased operating costs reduced Operating profit by €6.4 million;
  • Increased investment in business development for future growth reduced Operating profit by €2.0 million;
  • Lower gross margin on lower sales of solid fuel products reduced Operating profit by €2.5 million;
  • Full year operation of the Mountlucas and Bruckana wind farms increased Operating profit by €7.1 million;
  • Increased tonnage, improved gross margins and lower administration expenses increased Operating profit by €3.4 million in the waste collection business;
  • Increased tonnage into the engineered landfill increased operating profit by €0.9 million;
  • Increased depreciation and amortisation charges on tangible and intangible assets on the increased usage of void space at the Drehid landfill and the implementation of a financial shared services centre in Newbridge reduced Operating profit by €2.8 million.

Profit before tax was €22.2 million in FY16 (FY15: €56.4 million) reflecting all of the items previously outlined and an increase in finance costs of €2.1 million as the charge in FY15 was reduced by capitalised interest of €3.1 million on the construction of the wind farms;

Profit after tax and discontinued operations in FY16 was €17.3 million (FY16: €35.0 million) with a tax charge of €5.8 million (FY15: €13.8 million) reflecting lower taxable profits and a tax charge of €6.4 million on financial derivatives in FY15. FY15 also included a loss on discontinued operation, net of tax, of €7.5 million on the closure of the Anua operations.

Total Assets at €725.6 million was €10.4 million lower than the prior year which reflected the asset impairments of €24.5 million and an excess of depreciation charges over Property, plant and equipment additions.

Funds from Operating Activities

 FY16
€’M
FY15
€’M
Net cash flow from operating activities97.3101.2
Working capital & provisions(6.7)(11.9)
Capital expenditure and financial investments(65.8)(113.3)
Financing costs paid(17.3)(16.7)
Cash received on derivatives4.72.8
Income tax paid(4.6)(10.8)
Dividend paid(10.1)(11.1)
Debt repayment0.0(40.7)
Acquisition of and dividend payment to non-controlling interest0.0(0.4)
Decrease in net cash(2.5)(100.9)
Non cash movement(0.1)(0.1)
Movement in net debt(2.6)(101.0)

The Group had a net cash outflow of €2.5 million in FY16 compared to €100.9 million in the prior year – an improvement of €98.4 million, largely due to the higher expenditure on wind farms and debt repayments in FY15.

At year end, the Group had net debt of €172.7 million, a decrease of €5.2 million in the year as a result of a foreign exchange gain on the US private placement loan notes.

The detailed cash flow statement is given here supported by Notes 19 and 23 to the Financial Statements.

Investment for the future

Capital Expenditure and Financial Investment for FY16 amounted to €71.8 million (FY15: €113.7 million). The capital investment programme undertaken during the year included expenditure on: production plant for peat harvesting, transport equipment for the transport of milled peat, construction of engineered landfill cells for the waste treatment facility, upgrades at the two briquette factories, refurbishment of the Baggot Street investment property and the implementation of new financial processes and systems based on a financial shared services model. An investment of €22.3 million was made in a 50/50 joint venture with Coillte in respect of the Sliabh Bawn wind farm. An investment of €1.7 million was made in the 50/50 joint venture with ESB in respect of the Oweninny wind farm.


7F8D5A7C-4790-4557-BE72-2B4B2BA1C39E Created with sketchtool.

An investment of €22.3 million was made in a 50/50 joint venture with Coillte in respect of the Sliabh Bawn wind farm.

Research and Development: During FY16 Bord na Móna spent €7.5 million on research and development including business development, exclusive of grants (FY15: €5.5 million). The Group are developing new opportunities in areas such as: renewable fuels, smokeless coal, wind and solar farms on our peatlands and opportunities in biomass pellet manufacturing plants. Nine people are directly employed in the Innovation Centre with a further twenty people in business development and innovation embedded in the operational businesses of the Group.

Capital Structure and Treasury Policy

The Treasury Policy for the Group is reviewed by the Board on an annual basis and is implemented and monitored by the Group Treasury function. The Policy aims to minimise overall Group funding costs and to maintain flexibility in volatile markets, subject to acceptable levels of treasury and counterparty risk.

The overall objective of the Treasury function in managing foreign exchange risk is to contribute to the achievement of the Group financial objective of stable Euro operating profit growth in a risk averse and cost effective manner and to use natural hedges across the Group wherever possible. Exposures in relation to foreign investments are hedged as far as possible by borrowings in the same currency as the underlying net assets.

The Treasury policy permits derivative instruments to be used to mitigate financial risks and derivatives are executed in compliance with the specification of the Minister for Finance issued pursuant to the ‘Financial Transactions of Certain Companies and Other Bodies Act 1992’.

The Group’s overall debt position is primarily fixed through swaps. Net borrowings in the current financial year reached a peak of €224 million in December 2015, compared with a peak in the previous year of €214 million. The peak borrowing occurred upon the investment in the Sliabh Bawn wind farm joint venture with Coillte. Finance costs at €19.6 million were €3.8 million higher than in the previous year as €3.1 million of interest was capitalised in FY15. Finance income at €4.7 million was €1.7 million higher due to increased income on the cross currency swaps of €1.9 million as the U.S. dollar was stronger in 2016 compared to 2015 partly offset by lower deposit interest due to reduced market rates of interest.


AB2075C5-3834-4A48-BB4D-32CCE5502AFE Created with sketchtool.

During FY16 Bord na Móna spent €7.5 million on research and development including business development, exclusive of grants

At year end, the Group had $273 million (€241.8 million) fixed rate debt raised on the US private placement market. In order to hedge the associated U.S. 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 this debt. Sums of $85 million (€75 million) are repayable in June (€53 million) and August (€22 million) 2016.

The maturity profile of debt at the financial year end was as follows: 31% repayable in FY17, 16% repayable in FY18, 24% repayable in FY19 and 29% repayable in FY20.

Gearing was 55% at year-end compared to 57% at the start of the year reflecting capital and joint venture investments.

Michael Barry

Chief Financial Officer