Financial review


Group turnover increased by €43.5m (21%) during 2010 to €250.4m, principally driven by strong log and OSB panel prices and a significant increase in demand for OSB, mainly in the UK market. The Group’s sawmill customers have successfully developed export markets in the UK for sawn timber and there was strong demand in the first half of 2010. However, as the year progressed, demand and prices softened and this was ultimately reflected in the demand and price of logs which fell sharply in the final quarter. Demand for panel products and, in particular OSB, was very strong due to a number of factors including a shortage of plywood in European markets. This was, in turn, reflected in the sales price, particularly OSB which increased sharply during the year. Export sales account for 54% of turnover with 70% sold into the UK market.

Operating profit before exceptional items increased from €0.8m to €46.1m reflecting the improved prices achieved in 2010 and a significant reduction in operating costs as part of an ongoing initiative across the Group. Profit after tax increased from €4.2m in 2009 to €32.1m in 2010. The results include an exceptional charge of €1.4m in respect of the impairment of certain forestry assets whereas the 2009 results included an exceptional credit of €18.5m, largely as a result of the profit realised on the disposal of immature forests. Further details are provided in Note 5 to the accounts.

EBITDA for the Group increased from €55.2m to €65.6m, an increase of 18.8%. A reconciliation of EBITDA is included in Table 2 below.

Interest (including related bank costs) and financing charges for the year were €11.8 million, a decrease of €0.1 million on 2009. Interest charges on our overdrafts and loan facilities were €9.3m (2009:€8.5m) while the finance charge relating to the FRS17 finance costs associated with the pension fund deficit was €2.5m (2009:€3.3m). The underlying EBIT interest cover for the year was 5.2 times.

The Group tax charge for 2010 was €1.3m (2009:€3.3m).


While there are signs that the Irish economy is stabilising there is little prospect of any increase in activity in 2011. The UK market performed well in 2010 however, any increase in house building in the private sector is likely to be offset by a reduction in activity in the public sector as a result of the significant cuts in Government expenditure announced last year. The demand for and price of logs fell sharply in the final quarter of 2010 however, they have now stabilised. Demand for panel products is expected to be maintained at 2010 levels throughout the current year. The current weakness in the sterling exchange rate remains a significant issue for the Group because it not only impacts on the return from the sale of panel products but also the Group’s overall results and cash flows. The Group continues to make significant progress in reducing operating costs and further improvement is expected during 2011.

Capital Expenditure

The Group increased its capital expenditure programme in 2010 from €40.7m to €45.5m. A significant proportion of the expenditure was incurred in enhancing and maintaining the forest estate (€33.4m). However, the Group continued to invest in telecom mast sites and in developing its wind energy strategy.

Net Debt and Gearing

At year end, the Group’s net debt had fallen by €26.8m to €150.6m with headroom on existing undrawn facilities of €95.3m. Gross debt increased by €2.3m and cash balances increased by €29.1m. These figures include the proceeds from the disposal of the Group’s share of the Garvagh Glebe wind farm (€25.4m).  Gearing was 12.3% at year end and 28% of the debt portfolio was at fixed interest rates at 31 December 2010. The ratio of net debt to EBITDA was 2.30 times and interest cover was 7.6.

Employee Benefits

Coillte operates a number of defined benefit pension schemes with assets held in separately administered funds. The most recent actuarial valuations (31st December 2008 — Coillte and 1st January 2009 — Medite) indicated that the market value of the scheme’s assets was €123.9m, which was €98.3m less than the scheme’s liabilities.

A funding proposal (approved by the Pensions Board) is in place for Coillte Teoranta and has the objective of bringing the Scheme back to full solvency on the Minimum Funding Standard basis by 31st December 2020.  Coillte have made significant additional cash contributions to the Scheme as part of this agreed funding proposal including an up front contribution of €3m, €1.5m annual contributions over twelve years (indexed at 6.5% p.a.) and a commitment to transfer €30m of non-cash assets.  

The Group continues to adopt the full requirements of Financial Reporting Standard 17 (FRS 17) retirement benefits’ disclosure. The deficit on the fund at 31st December 2010, based on FRS 17 and calculated using the projected unit method, is €89.2m (2009: €72.4million) and is fully reflected in the Group accounts. The FRS 17 deficit is lower than the last actuarial valuation due to a number of measures taken by the Group, including additional payments of €13m transferred to the scheme since 2008 and the introduction of employee contributions in September 2009.

Financial Risk Management

The Group’s treasury operations are managed in accordance with policies approved by the Board. These policies provide principles for overall financial risk management and cover specific areas such as interest rate, liquidity and foreign exchange risk. The Group's operations expose it to a variety of financial risks that include the effects of changes in debt market prices, foreign exchange risk, credit risk, liquidity and interest rate risk.

The Group has in place a risk management programme that seeks to manage the financial exposures of the Group by monitoring levels of debt finance and the related finance costs.

In order to ensure stability of cash out flows and hence manage interest rate risk, the Group has a policy of maintaining at least 50% (2009: 50%) of its debt at a fixed rate. Further to this the Group seeks to minimise the risk of uncertain funding in its operations by borrowing within a spread of maturity periods. Financial instruments are used to manage interest rate and financial risk. The Group does not engage in speculative activity and treasury operating policy is risk averse. From 8th January 2011 a number of fixed interest rate contracts came into effect increasing the percentage of the debt portfolio at fixed interest rates from 28% to 63% (Note 18).

Price risk
The Group is exposed to commodity price risk as a result of its operations. However, given the size of the Group's operations, the costs of managing exposure to commodity price risk exceed any potential benefits. The Directors will revisit the appropriateness of this policy should the Group's operations change in size or nature.

Foreign exchange risk
The Group is exposed to foreign exchange risks in the normal course of business, principally on the sale of sterling. The Group's policy on mitigating the effect of this currency exposure is to hedge sterling by entering into forward foreign exchange contracts based on expected sales in the UK markets.

Credit risk
The Group has implemented policies that require appropriate credit checks on potential customers before sales are made. In addition, insurance is also put in place for the larger customers of the Group.

Liquidity risk
The Group actively maintains a mix of long-term and short-term debt finance that is designed to ensure the Group has sufficient available funds for operations and planned expansions.

Table 1 - Key Performance Indicators

  2010 2009
Revenue (€’m) 250.4 206.9
EBITDA (€’m) 65.6 55.2
EBIT (€’m) 44.6 19.3
Interest cover, excluding associates    
    - EBITDA basis (times) 7.6 6.5
    - EBIT basis (times) 5.2 2.3
Net Debt (€’m) 150.6 177.4
Net debt as a percentage of total equity (%) 12.3 14.7
Net debt as a percentage of fixed assets (%) 10.4 12.5
Net debt/EBITDA 2.3 3.21
Effective tax rate (%) 3.9 43.5

EBITDA— earnings before finance costs, tax, depreciation, depletion and intangible asset amortisation, impairment and VR costs

EBIT — earnings before finance costs and tax (trading profit)

Interest cover — the ratio of EBITDA or EBIT to net interest charges


Table 2 - EBITDA Reconciliation

  2010 2009
€000 €000
EBIT (€’m)
44,623 19,296
Depreciation 10,361 8,961
Depletion 9,101 18,439
Amortisation of Goodwill 118 117
Share of Associate losses 50 50
VR Costs - 5,209
Impairment 1,392 3,100
EBITDA 65,645 55,172