Summary
¦ Coillte owns 7% of the land area of Ireland.
¦ Coillte Panel Products accounts for around half of Coillte’s overall turnover.
¦ Biomass combined heat and power could become an important part of the business.
¦ Product innovation has helped SmartPly and Medite gain market share.
Like most other forest products companies across the globe, Irish state forester Coillte would probably like to forget 2009. The stagnation of the European wood markets resulted in turnover falling by 17% to €207m, while profits were hammered down by more than 50%, to €4.2m.
But what a difference six months makes. Prices have improved in most of its business operations, and demand is strong for logs and panels. “We’ve had a good first half of the year, although recovery continues to be fragile,” said chief executive David Gunning.
The recovery hasn’t happened by accident. The company’s response to its stuttering finances was to tighten its belt, cutting costs by €24m and selling immature timber, netting €33.8m.
Panel products
It also restructured its Coillte Panel Products division, with Neil Foot taking on the role of chief operations officer, with responsibility for both the SmartPly and Medite plants in Ireland. Sales of OSB and MDF to the UK hit record levels, thanks to a combination of increased market share and plywood substitution. Product innovation for both SmartPly and Medite remains fundamental to the business.
Coillte Panel Products now accounts for about €117m, or around half of Coillte’s overall turnover, but its other divisions, Coillte Forest and Coillte Enterprise, play vital and increasingly lucrative roles in the operation.
Indeed, Coillte Forest, the core business of which is timber production (around 2.4 million m³ per year) is where it all started for the company, which owns about 7% of the land area of Ireland.
There is a strong emphasis on the balance between commercial, environmental and social objectives. Coillte’s entire 445,000ha forest estate has been FSC certified since 2001 and around 15% of it is managed principally for biodiversity and recreation. Coillte also provides forestry, timber harvesting and marketing services to other forest owners.
Turnover for the division last year was €85m, but soaring log prices, significantly higher than six months ago, will strengthen the division further.
Coillte Enterprise is the company’s “venturing arm”, which identifies and “extracts value from” the group’s broad asset base. Its turnover is relatively modest at around €34m, but its profit margins are “very good”.
Its activities include selling and developing small pockets of land and managing a business with 200 telecoms masts. Coillte Enterprise is now also building masts, via a sub-contractor, as part of Ireland’s drive to bring broadband to rural areas.
Renewable energy
Renewable energy is also in the mix and Coillte Enterprise has just built its first wind farm, in Co Leitrim, in partnership with Hibernian Wind Power, part of ESB, the state-owned Irish power company.
Biomass is inevitably part of the equation and it’s here that Coillte will have to perform its most delicate balancing act – as a forester, evaluating the potential of the wood energy market against, as a manufacturer, the needs of its panel products division. As in other timber-producing countries, wood fibre supply is extremely tight.
“Biomass combined heat and power has the potential to become an important part of our business, if we manage it properly,” said David Gunning. He added, however, that Coillte is not a fan of co-firing (burning two types of material at the same time in existing plants) with virgin wood fibre and is in ongoing dialogue with the Irish government on what it calls “the inefficient burning of a valuable resource”.
“Co-firing is the elephant in the room,” added Coillte Panel Products’ managing director Gerry Britchfield. “It’s only about 30% efficient so it’s a very poor use of the resource. Co-firing would account for 1 million-plus m³ of volume so, if you took that out of the equation and got real traction behind energy crops, there would be enough supply for the sawmills, panel mills and bioenergy.”
The growth of the wood energy sector is just one example of how the dynamics of a vertically- integrated forest products company have changed. “It used to be all about economics, but now it’s about the innovative management of sustainable resources,” said Mr Gunning. “Issues such as the value of the forests to the nation and the mitigation of climate change have transformed the relevance of forests and of Coillte, so we also have to transform to become a sustainable proposition.”
Destination 2010
To this end, Coillte has implemented “Destination 2012”, an internal programme designed to ensure the highest performance across all its sectors. “It’s a rallying cry,” said Mr Gunning, “a challenge to turn ourselves into the sort of business we want to be.”
Goals set out by the programme include partnering with customers and managing relationships in a more meaningful and innovative way. This calls for having a deeper understanding of a customer’s own business and coming up with solutions, either with product development or services, that enable it to progress.
The programme also sets out the company’s determination to be part of a progressive, low carbon future – establishing whether a tree is worth more left standing and sequestering carbon, or felled and turned into a sustainable building material.
Also key to Destination 2012 is economic value at every level and a “vibrant and competitive” spirit. “We aim to benchmark ourselves against the best in the world in every field we operate in,” said Mr Gunning. “And we intend to communicate our values through the whole distribution network.”
