Chairman's Statement

Excellent Performance

Coillte had an excellent year in 2010 achieving a net profit after tax of €32.1m, up from €4.2m in 2009. This improvement was largely driven by strong demand for logs sold to sawmills in the first half of the year and higher prices for our panel board products, especially our SmartPly oriented strand board (OSB) product range. Effective cost control also contributed, as did good management of exchange rate exposure and interest costs.

However, the economic environment in which the Group operates continues to be fragile and there is considerable price volatility for our core products. Demand for logs fell towards the end of 2010 and adverse movements in foreign exchange rates are also a concern. All the indications are that 2011 will be a more difficult year. We have made very good progress in our transformation programme which positions us to better deal with the volatility which looks set to be a feature of our business for some time to come.

Strategic Development

The Irish economy as a whole and the construction sector in particular, continued to stagnate in 2010 and there is unlikely to be any significant increase in activity in 2011. The UK economy is forecast to grow by 2% in 2011. In both of these key markets planned reductions in public expenditure, increases in taxation and other austerity measures are likely to impact economic recovery in the forest products and property sectors.

The continuing difficult market conditions for construction products reinforce the need for the Group to continue to implement our clear, distinct strategy which is focused on managing our full range of natural resources innovatively and sustainably.

Our strategy recognises that Coillte has two essential assets - forests and land. Our businesses are about adding value to these assets in a sustainable way. Coillte will continue to develop in four areas: forestry, land management, panel products and renewable energy. We believe that this strategy, when fully implemented, has the potential to add significant shareholder value in the medium term while also fulfilling important national objectives in relation to forestry, sustainable timber products, climate change and renewable energy.

2010 provided ample evidence that our strategy is correct and appropriate and we are rapidly gaining momentum in a number of areas.

In our forestry business our sawmill customers have proven to be resilient in coping with the downturn in construction activity in Ireland through 2008-9. Nevertheless the volume of log sales to sawmills was down overall during 2010 despite the success of sawmills in export markets. However sales of wood panels were up by 25%. We also reviewed our forestry strategy during 2010 and have developed a clear roadmap to improve the competitive position of our forestry business.

In panel products, demand and prices for SmartPly OSB were strong while demand for Medite MDF was flat through 2010. We received planning permission to facilitate reinvestment in the SmartPly facility and have developed a new added value business model that will increase our product range to meet more demanding customer requirements.  In Medite we completed a number of investments that improved product quality and lowered input costs and positions the business well for the future.

The number and value of property sales achieved in 2010 reflected the depressed state of the property market. However, we made excellent progress in our telecoms infrastructure business by completing 104 masts as part of the National Broadband Scheme undertaken by ‘3’ with Government support under the National Development Plan.

In relation to renewable energy we recorded a number of significant developments.  We completed our first wind farm at Garvagh Glebe, Co. Leitrim in a joint venture with ESB Power Generation and subsequently sold our 50% share of the project to ESB. We received planning permission for a major windfarm in Cloosh Valley, in Co. Galway in a joint venture with SSE Renewables and Finavera. We also progressed six other projects through different stages of the planning process. In addition to Coillte led projects, we facilitated the development of windfarms with a total generation capacity of 54 MW through sales of sites, provision of rights-of-way and other easements. We progressed our partnership with John Sisk & Son and CES to deliver biomass heat solutions to industrial clients and completed a number of pre-feasibility and feasibility studies for clients.

Destination 2012

In addition to implementing focused strategies in each business we have taken a number of actions to improve performance across the Group. Destination 2012 is a Group wide initiative, started in 2009, to transform Coillte into a high performance organisation. We have set ourselves challenging goals in relation to how we partner with customers, how we deliver economic value, how we become a more vibrant and competitive organisation and how we can become a more progressive business. Substantial progress towards this goal was achieved in 2010. These goals, and associated key performance indicators that we use to measure progress, have triggered a focused programme of actions that are addressing issues such as customer satisfaction, innovation, cost reduction, employee engagement and sustainability across the Group.

I am certain that this combination of focused business strategies at the division level, coupled with Group wide initiatives to drive performance improvement at the individual, team and business unit levels is already delivering results.  I am also confident that as these initiatives progress Coillte will take performance to a new level and that this drive for improvement will continue beyond 2012. 

Sustainable Pension Arrangements

In previous reports I highlighted the Board’s concern that the cost of funding the Group’s defined benefit pension schemes was unsustainable. The most recent actuarial valuations (31 December 2008 - Coillte and 1 January 2009 - Medite) estimated that the combined deficit was €98.3m.

I am pleased to report that Coillte has agreed a funding plan with the Trustees and the Pensions Board to address the deficit in the Coillte scheme and ensure the sustainability of our pension arrangements. The plan provides that the deficit will be closed over a period of 10 years. This is a significant development, which in addition to safeguarding pensions for Coillte employees, also provides certainty about how this substantial liability will be managed.

Commitment to Sustainability

While Coillte is focused on commercial success we are committed to ensuring that we deliver the fullest possible range of environmental and social benefits in the management of our business. Coillte has an ongoing commitment to comply with all Forest Stewardship Council (FSC) principles to protect and maintain the integrity of the forest estate in the long term. In 2010 we published our first Sustainability Report in compliance with the Global Reporting Initiative C standard. We have also initiated work to assess and reduce the carbon footprint of our operations.

Our forests provide very important recreation facilities that attract over 18 million visits annually. Coillte is pleased to work in partnership with local authorities and others to enhance these facilities and increase the benefits for local communities and tourism.

Corporate Governance

The Board and Management of Coillte have a longstanding commitment to the highest standards of corporate governance. We comply with the requirements of the Code of Practice for the Governance of State Bodies and conduct our businesses ethically.  During 2010 the Corporate Governance Committee of the Board undertook a fundamental review of our governance systems and practices.  We also undertook an independently facilitated Review of Board Effectiveness and updated our Code of Conduct for Directors and Employees.  Details of the Group’s compliance procedures are contained in the Report of the Directors.

Thanks

Coillte Group thanks its customers, contractors, suppliers and business partners for their business and continued support. 2010 was a difficult year for many businesses and 2011 is unlikely to be any easier. We are committed to working with our customers and partners to manage our way collectively through the current difficulties.

The Board wishes to acknowledge the encouragement and assistance of the former Minister for Agriculture, Fisheries and Food, Brendan Smith, TD, former Minister of State with responsibility for Forestry Sean Connick, former Minister for Finance Brian Lenihan TD and the officials of their Departments. We congratulate the new Government on their election and assure our shareholders the Minister for Agriculture, Food and Marine and the Minister for Public Expenditure and Reform of our full support.

For my part I would like to thank my Director colleagues for their work during the year and their commitment to the Group.  I would especially like to thank Eugene Griffin whose term of office as a director ended in 2010.

I would also like to join with my fellow Directors in thanking management and employees throughout the Group for their efforts. This is a challenging time for every business and Coillte is no exception. Employees have shown tremendous commitment and enthusiasm for our transformation efforts and this augurs well for the future of the business.

Brendan McKenna

Brendan McKenna
Chairman