Annual Report 2017

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Chief Financial Officer’s Review

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

Revenue 406.2 432.8
Operating profit as reported 24.7 37.6
Investment property gain (2.0) (7.5)
Pension plan gain - (10.7)
Restructuring costs 1.5 7.3
Exceptional costs/Impairments 14.124.5
Adjusted Operating profit 38.351.2
Depreciation/Amortisation 43.848.8
EBITDA adjusted for exceptional items 82.1100.0
Total assets 636.8725.6
Capital expenditure 42.771.8
Net debt 170.5172.7
Shareholders’ funds 231.6221.4

Turnover decreased by 6% from €432.8 million to €406.2 million, a decrease of €26.6 million.

The key sales variances year on year were as follows:

  • Waste treatment sales at the Drehid facilities increased by €1.2 million due to a change in the mix of inbound tonnage and increased electrical output on recovered gas;
  • Waste collection sales increased by €1.4 million with an increase in domestic customer numbers and increased commercial tonnage;
  • Reduced coal and briquette sales amounting to €13.1 million due to the mild winter, lower home heating oil prices and increased competition in the fuels market;
  • Sales of peat to the Lough Ree Power and West Offaly Power stations decreased by €5.7 million in aggregate;
  • Electrical sales of the Mountlucas and Bruckana windfarms decreased by €5.2 million due to lower wind yields – this has been the second lowest yield in the last ten years;
  • Electrical sales by Edenderry power plant in FY17 decreased by €3.9 million due to a full year impact of the December 2015 exit of the plant from the PSO support mechanism; and
  • Horticulture sales decreased by €1.3 million due to adverse sterling exchange rate;

Operating profit before exceptional items was €24.7 million in FY17 (FY16: €37.6 million). Operating profit adjusted for exceptional and once off items was €38.3 million in FY17 (FY16: €51.2 million). Exceptional and once off items in FY17 (€13.6 million charge in FY16) included:

  • Exceptional costs of €3.4 million and an impairment charge of €10.7 million against the carrying value of the goodwill arising on the acquisition of White Moss Horticulture Limited. The exceptional costs and impairment charge related to regulatory non-compliance issues, at the Company’s Liverpool facilities which resulted in: inventory write-offs, incremental professional fees and goodwill impairment;
  • A fair value increase of €2.0 million on the Baggot Street investment property;
  • Restructuring costs of €1.5 million in re-organising our coal processing operations;

The key items which impacted the underlying trading performance during the year compared to FY16 were:

  • At Edenderry Power, decreased electrical capacity revenue and increased operating costs reduced Operating profit by €7.2 million;
  • Lower wind yields at the Mountlucas and Bruckana windfarms decreased Operating profit by €3.7 million, reflecting the known volatility of wind output from year to year;
  • Increased spend of €2.2 million on business development for future growth and process improvement in operational areas;
  • The peat harvest of 3.1 million tonnes was 0.3 million tonnes lower as a result of prevailing weather in Summer 2016 adversely impacting Operating profit by €1.7 million;
  • Decreased peat sales partly offset by lower peat transport costs decreased profits by €0.6 million;
  • Lower gross margins on Horticultural sales, adversely impacted by a weaker sterling exchange rate, reduced Operating profits by €1.7m;
  • Lower gross margin on lower sales of solid fuel products reduced Operating profit by €1.2 million;
  • Increased tonnage, improved gross margins and lower administration expenses increased Operating profit by €0.4 million in the waste collection business;
  • Reduced operational costs at the engineered landfill increased Operating profit by €0.6 million and;
  • Lower depreciation and amortisation charges, on tangible and intangible assets, reflecting: reduced usage of void space at the Drehid landfill, lower carrying value for the co-fired Edenderry Power station and a lower peat depletion charge increased operating profit by €5.0 million.

EBITDA including exceptional and once off items was €79.3 million in FY17 (FY16: €111.0 million). EBITDA adjusted for exceptional items was €82.1 million in FY17 (FY16: €100.0 million).

Profit before tax was €12.2 million in FY17 (FY16: €22.2 million) reflecting all of the items previously outlined and a decrease in finance costs of €2.7 million following the repayment of €76.3 million debt during the year.

Profit for the year in FY17 was €5.2 million (FY16: €17.2 million) with a tax charge of €6.9 million (FY16: €5.8 million).

Total Assets at €636.8 million was €88.8 million lower than the prior year which reflected (i) a reduction in cash of €82.0 million - €76.3 million was utilised for debt repayments; (ii) lower carrying value in property, plant and equipment of €8.5 million due to excess of depreciation over additions; (iii) reduction in inventory levels of €4.8 million with lower coal and briquette inventories offset by other receivables and increase in investment property (assets held for resale).

Funds from Operating Activities

Net cash flow from operating activities 82.197.3
Working capital & provisions (18.7)(6.7)
Capital expenditure and investments (47.7)(65.8)
Financing costs paid (15.3)(17.3)
Cash received on derivatives 154.7
Income tax received (paid) 0.6(4.6)
Funds advanced on RCF facility 11.6 -
Dividend paid (4.5)(10.1)
Debt repayment (76.3) -
(Decrease) in net cash (53.2)(2.5)
Non cash movement(0.1)(0.1)
Decrease in net debt (53.3)(2.6)

The Group had a net cash outflow of €53.2 million in FY17 compared to €2.5 million in the prior year – largely due to the debt repayments of €76.3 million in FY17.

At year end, the Group had net debt of €170.5 million, a decrease of €2.2 million in the year.

The detailed cash flow statement is given on page 80 supported by Notes 19 and 23 to the Financial Statements.

Investment for the future

Capital Expenditure and Financial Investment for FY17 amounted to €47.3 million (FY16:€71.8 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 waste treatment facility, the purchase of refuse collection vehicles, skips and bins, upgrades at solid fuels facilities, and the implementation of new automated systems based on a financial shared services model. Acquisition costs of €12.9m were paid in acquiring White Moss Horticulture Limited and Pacon skip hire businesses. An investment of €0.5 million was made in the 50/50 Joint Venture with ESB in respect of the Oweninny wind farm and an investment of €0.8m was made in acquiring a 50% interest in Electricity Exchange, a demand side management business.

Research and Development: During FY17 Bord na Móna spent €9.3 million on research and development including business development, exclusive of grants (FY16: €7.5 million). The Group are developing new opportunities in areas such as: renewable fuels, smokeless coal, wind and solar farms, a US biomass pellet manufacturing plant, new products and markets in the horticultural sector and process improvements in all areas. Fourteen people are directly employed in the Process Improvement/Innovation Centre with a further twenty five 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 €196 million in September 2016, compared with a peak in the previous year of €224 million. The peak borrowing occurred upon the the completion of the peat harvest. Finance costs at €16.4 million were €3.3 million lower than in the previous year due to debt repayment during the year. Finance income at €4.3 million was €0.5 million lower due to lower income on the cross currency swaps also due to debt repayment.

At year end, the Group had $188.0 million (€173.9 million) fixed rate debt raised on the U.S. 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. A sum of $45.0 million (€32.2 million) is repayable in August 2017.

The maturity profile of debt at the financial year end was as follows: 23% repayable in FY2018, 37% repayable in FY2019 and 40% repayable in FY2020.

Gearing was 60% at year-end compared to 61% at the start of the year reflecting the small reduction in borrowings.

Michael Barry
Chief Financial Officer