Annual Report 2016

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Managing Director’s Report

It is with great pleasure that I present the 2016 Annual Report for Bord na Móna. I am glad to report that considerable progress has been made on securing the future of Bord na Móna. As we move forward, operational excellence will be essential in each of our business units in order to ensure that Bord na Móna remains competitive in the markets that we serve.

It was another year of solid achievement. Turnover, at €432.8 million was up 6% on the previous year while EBITDA pre-exceptional items and investment property gain, at €100.0 million was €1.3 million adverse. Operating profit margin pre-exceptional items and investment property gain in FY16 was 11.8% compared to 13.5% in FY15. This was achieved despite Edenderry power plant exiting the Public Service Obligation (“PSO”), a period of very low electricity prices and a mild winter which had an adverse impact on fuel sales.

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FY16 at a glance

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Industrial Relations

We reached agreement with employees on a comprehensive programme to facilitate change and transformation of the Company over the period to 2019. The agreement is wide-ranging in its scope, encompassing: mechanisms to reduce the Company’s cost base, particularly in the Peat business, changes in pay systems and progression linked to the achievement of specific agreed levels of cost reduction. The significance of this cannot be underestimated. It facilitates the implementation, through partnership, of the changes required to ensure an economically viable business into the future.

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Biodiversity Action Plan

April 2016 saw the launch of our second Biodiversity Action Plan covering the period 2016-2021. Under the previous plan (2010-2015) we successfully mapped and studied all of the 80,000 hectares (“ha”) of Bord na Móna peatlands and developed measures to ensure ongoing rehabilitation according to best practice and expand core areas for biodiversity. We are proud of the fact that we have now rehabilitated up to 12,000ha of peatlands, and look forward to increasing this further in the course of the new plan.

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Co-firing

During the year, we demonstrated the capability of Edenderry power plant to co-fire with biomass at a rate of 37%, while maintaining plant availability and enabling it to qualify for support under REFiT 2. The plant will run at this rate for the full year in FY17. We also proved the ability of our biomass supply chain to deliver a consistent supply of suitable biomass from both domestic and imported sources at acceptable prices.

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Harvest

In summer 2015, we achieved a harvest of 3.4 million tonnes (94% of target) in spite of adverse weather conditions. Peat stock levels remain strong following two excellent harvests in 2013 and 2014.

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New Business

Horticulture secured a three year contract to supply growing media products to the largest garden centre group in the UK.

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Sustainability2030

In October 2015, our sustainability report “Sustainability2030” announced that Bord na Móna will cease production of peat for energy by 2030 and transition towards an increasingly diverse and sustainable business model. Sustainability means developing businesses that deliver long term profitability in an environmentally and socially sustainable manner that ensures the future of Bord na Móna.

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Bord na Móna Brand

Although a household name, research showed a lack of understanding of the brand and the breadth and scale of Bord na Móna activities. The recent brand refresh offered a timely opportunity to elevate and promote Bord na Móna’s unique and powerful story. Our brand is a key strategic enabler as we transform our business to provide a sustainable future.

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Strategic Alliance with the ESB

Over the past year, we engaged in wide-ranging discussions with the ESB on areas of common interest and potential strategic alliance. An area of particular focus has been securing the future of the ESB peat power plants following expiry of the PSO in 2019. Both companies are working together with the objective of ensuring that the plants operate on an economically viable basis post 2019. The recently obtained Planning Permission for a 172MW wind farm in Oweninny, Co. Mayo to be developed jointly with the ESB is a significant milestone for the project.

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Sliabh Bawn

We entered into a joint venture with Coillte for the development of the Sliabh Bawn wind farm in Co. Roscommon. The 20 turbine wind farm, is expected to become operational early in 2017 and will supply renewable electricity to 40,000 homes.

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EPL

The plant is currently operating under a temporary High Court stay until 14 October 2016, pending a decision by An Bord Pleanala in respect of our application to extend planning permission for the plant until 2030.

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Outlook

Bord Na Móna operates in a dynamic environment with regulatory and planning guidelines having a significant impact on all aspects of our business. This, coupled with the current low electricity pricing, poses significant challenges. Our agility in responding to these challenges, together with our transformation programme, will be critical to our success.

The transformation programme encompasses a commitment to continuous improvement including achieving the following objectives:

Key areas of focus also include:

Our employees are the most important resource that we have.

For Bord na Móna to overcome the challenges we face, the critical success factor will be our people and their continued development. Enabling them to reach their full potential is one of my key priorities.

Bord na Móna has strong links with the people and the communities we serve going back generations and our sustainability strategy is deeply invested in creating the brightest possible future for them.

This Company has an exciting future and I am committed to working with our employees, our stakeholders and communities to deliver it.

Mike Quinn

Managing Director

30 June 2016