Mr. David Gunning:

I thank the Chairman and members of the committee for giving me the opportunity to present the Coillte story. This is our first time to engage with the new committee and we are delighted and very grateful for the opportunity to tell the positive story of Coillte.

Coillte is the country’s largest natural resources company. As is stated on the advertisement shown in the presentation, “Trees are just the start of it”. We see our purpose as enriching lives locally, nationally and globally through innovative and sustainable management of natural resources. That is a purpose we take seriously in everything we do. We thought it might be useful to give a short overview of Coillte’s current position. We will deal with our performance in 2011, sectoral issues and the recent Government decision on the sale of harvesting rights.

Coillte is, first and foremost, a business. We and our customers, the companies which buy our logs and the timber produced in Coillte’s forests, are competing in a global competitive market. We are competing against competitors from all around the world in every market in which we operate. Our mission is to pursue the full commercial development of the company in every aspect. We have a clear strategy focused on the two themes of innovative and sustainable management of natural resources. We see our role as being to add value to the forest and land assets that we manage on behalf of the State.

We have made a considerable transformation in Coillte in recent years. In 2006 we were very dependent on the domestic market, the sale of logs to Irish processors and the construction sector, from which we have all learned the difficult lessons. I hasten to add that we identified the gap in our strategy before the major downturn, but it did not make us feel all that much better when it happened and we were exposed. However, we have made considerable progress in the intervening period. We now focus on four key business areas. Forestry is the sector in which Coillte originated. Our wood panel business involves the processing of some of the timber into value-added products, primarily for export. I will talk about these aspects in a little more detail. Another business area is land management - managing the 7% of the land area of the country that we manage on behalf of the State. We also engage in activities in renewable energy in both wind and biomass energy projects.

We employ approximately 1,000 people, the majority of them in this country. We have a number of sales and marketing operations in the United Kingdom. Mr. Egan and I will visit that office tomorrow to meet with our sales staff in the UK. The UK is our biggest market and, increasingly, we spend more of our time in that area. We also have a sales office in the Netherlands that deals with all our activities on the European Continent.

Regarding Coillte, many members will have seen some of the images on the slide advertising our brand building activities. The one on the left is a photograph of Dubai International Airport to which we have shipped significant quantities of Coillte's MDF product manufactured in Clonmel. The image on the right is a red squirrel, and we are working closely with the National Parks and Wildlife Service to bring red squirrels back into Ireland's forests. On the page members can see the breadth of activities in which Coillte is involved. It is very much a commercial entity, export oriented and delivering on our business objectives while at the same time providing a range of public goods. I will provide more detail on that later.

We have three operating divisions. Coillte Forest is the legacy of the company. It manages the forestry business, the planting, harvesting and supply of logs to the Irish saw mill sector. We have a large number of customers in that sector, but approximately ten of them account for almost 90% of our total volume. This is a €100 million business. That is the scale of this forestry piece of Coillte's business. Seventy per cent of that €100 million derives from exports by Coillte or in the forestry area where we sell logs to our large customers who are exporting to the UK, France and other locations.

Some interesting customers have come on board recently. Members can see the dark horse in the picture. It was not an Arthur's Day stunt to have anything black in Coillte's advertising. We sell timber to a company called Blue Frog which manufactures high quality animal bedding for sale to the thoroughbred sector. The Middle East is one of its target markets. I emphasise the breadth of activities in which we are involved.

We are very well known for the photograph on the right: "A short stroll for walkers, and a long haul for Coillte." That is very much a part of what we do. We are Ireland's largest outdoor recreation provider. We are very conscious of our responsibilities in terms of delivering public goods, and we take that responsibility seriously. As I stated to this committee previously, with almost 6,500 properties in the country we are everybody's neighbour and we take that responsibility seriously. Approximately 20% of our estate is managed for nature conservation. That allows me to mention our three equal goals: an economic return, providing a social return and an environmental return. That is what Coillte is all about.

There have been many great achievements in the agrifood sector which this committee will be well aware of, but proportionately, in terms of the success in the timber sector here, 80% of domestically produced timber was consumed in Ireland in the 2006-07 period. Today, we export 80% of everything we produce to markets that are providing us with a reasonable income. I am not just talking about Coillte. Our saw mill customers have done an outstanding job in terms of addressing markets in the UK and further afield.

Coillte Panel Products is a €150 million business with two brands in the stable, so to speak. We have SmartPly OSB, which is a manufacturing business with sales throughout Europe based in Waterford Port, south Kilkenny - I had to get that right, I have been here previously and I am aware of the sensitivities with these particular issue - and Clonmel, where we have our large medite plant next door to the big Bulmers operation in Clonmel. These are big businesses which export 90% of their products. The UK is a big target market for us but, increasingly, we are shipping product to Turkey, Israel and parts of the Middle East. The photograph on the right is the Islamic Museum of Art in Qatar. I included it especially for Deputy McGrath who was unable to attend today because I had a discussion with him previously about advertising and the various activities taking place in terms of exports from his particular area.

Product from each of these companies was used in the recent Olympics and Paralympics. The sub-floor of the velodrome that we all thought was so fantastic was made with OSB from SmartPly. The roof contained OSB from SmartPly, and MDF from Clonmel was used for much of the finish around the velodrome. The press centre was made entirely of MDF from Clonmel. The corporate hospitality suites in the main stadium were made from MDF from Clonmel, and the archery arena was enclosed in a new SmartPly product made in Waterford Port. I had a different view from other people watching the Olympics in that I was looking for opportunities to spot our products on the various activities in the various locations. I thought members would be interested in those points.

The Coillte Enterprise side is our third operating division. Coillte Enterprise is primarily about the development and the provision of infrastructure. That is what we do in that particular area and under that label we have a significant activity in the renewable energy area. We are a developer of wind farms. We have nine projects currently across a range of counties. We have development partnerships with a range of public and private organisations and approximately 55 separate projects are under way within the wind area ranging from wind farm development through to joint ventures and other activities with other partners.

We are also in the land sales and land development area. Last year, Coillte did just under 50 land transactions ranging from selling a small piece of land to an abutting farmer to supporting compulsory purchase orders, CPOs, of different kinds from local authorities. We finalised a large sale last year to Irish Distillers to provide it with a location to build warehousing, as it had run out of warehousing in the Midleton plant, to provide whiskey to the world markets in the future.

On the telecommunications infrastructure, we provide approximately 17% of Ireland's telecommunications mast structures on the Coillte estate. These are used for the regular telecommunications services on which we have all become dependent but we also built 100 masts specifically to support the rural broadband scheme. Quite a significant number of rural areas are receiving broadband from infrastructure invested in by Coillte, which is delivering a commercial return.

The next slide, Coillte by numbers, is to try to pull together the last slides. In round numbers we export about 100 truck loads of timber through Irish ports every day. We employ approximately 70 harvesting contractors and 30 haulage contractors. The reason we need 30 haulage contractors is that we move about 100,000 truck loads of logs every year. We have a 50% market share in the UK and Ireland for oriented strand board, which is a fantastic product and a replacement for plywood. As plywood becomes more scarce in the market, which will happen because of certification issues, there is an opportunity for this area to grow significantly from Coillte's perspective.

In any year we spend approximately €150 million on procuring goods and services to keep the company going.

Coillte has 420 telecommunications mast sites and ten wind farm projects in nine counties. Some 20% of the wind energy currently in production is on lands formerly owned by Coillte. Coillte continues to make significant inroads in and give support to many Government initiatives and priorities in this area.

According to the Irish Forestry and Forest Products Association, the forestry sector employs up to 12,000 people, which does not include 14,000 private farm foresters. The estimated economic value of the sector is €2.2 billion and accounted for €286 million in exports in 2011. We are producing as much timber from Coillte’s forests today as we did at the peak of the construction boom in 2006 and 2007 and we have managed to find other markets for it. It is a positive story.

In 2011, profit after tax was €19.9 million, primarily from strong log prices in Ireland and improved prices for our panel products in the UK and other export markets. We successfully renegotiated and refinanced the group debt, a significant achievement in the current banking environment. We are happy to have a syndicate of five banks supporting Coillte’s debt for the next five years which gives much certainty to all our operations and future investments. A dividend of €10 million was paid to shareholders. We are very focused on cost savings with a saving of €4.4 million achieved as a result of implementing a transformation programme. One must remember, however, this transformation programme is not just about cost saving. One cannot be in the manufacturing business if one does not have control of the cost base. Since 2008, we have taken 20% out of our overall cost base.

In 2011, Coillte planted approximately 14 million trees on 5,641 ha and built and upgraded 375 km of forest roads, representing an investment of €34.5 million in renewing and developing the forest infrastructure. We launched Medite Tricoya, a product of which I am particularly proud, the world’s first fully weatherproof medium-density fibreboard, MDF, wood panel product. More of this type of innovation will be seen from Coillte and it will secure the company’s future. This was developed in partnership with Accsys Technologies which has the intellectual property that we have licensed from it. Our expertise is to make large panel products out of this. For those interested in UK politics, the chief executive of Accsys Technologies is Paul Clegg, brother of Nick Clegg.

SmartPly Europe Limited was nominated in the export category in the HSBC European business awards, largely due to improvements in exports and market attraction. We have achieved planning permissions granted for wind farms for phase two in Cloosh Valley in County Galway and Sliabh Bawn in County Roscommon.

Coillte is delighted it has been certified with the Forest Stewardship Council, FSC, for ten years, one of the first forestry companies in western Europe to achieve this. It is a seal of approval that states our forests are responsibly managed. This is an important point for our customers too. There will be a FSC logo on any wood product in Woodies or B&Q, even the wooden handle on a hammer, stating it has come from a sustainable managed forest.

This year we signed our first biomass supply contract signed with Astellas Pharmaceuticals in County Kerry, a company that produces medicines that prevent the rejection of body organs after transplants. The biomass will power all of its process heat and manufacturing activities. Coillte’s LIFE native woodland restoration project was recognised by the European Commission as being in the top six projects in Europe. We are embarking on other applications which will make it the fifth LIFE project in which we have been involved. We are proud of the statement this makes concerning our environmental credentials and our commitment to protecting the environment in all we do.

Coillte extended the network of mountain bike trails by adding Ticknock to it. It now comprises Ballyhoura, Ballinastoe, Derroura, Portumna and Ticknock. Coillte is a successful commercial business but is also very much aware of its responsibilities in delivering a range of social and environmental benefits. It is getting this balance right on which we are focused.

As for performance in 2012, I do not need to advertise how challenging the economic environment is. The growth projections across Europe have not delivered as expected but we are proving to ourselves that we are getting better at dealing with uncertainty and volatility in our markets. There is some restricted investment in construction, hence prices are somewhat reduced. We have reached a floor at this stage and expect some uplift between now and the end of the year. Coillte sees continued good progress securing planning for wind farm projects, adding value to those assets. There will be an ongoing focus on cost reduction and the transformation of the business. Last year, Coillte delivered over €12.5 million of revenue from products that did not exist four years ago. We are setting ourselves challenging targets to increase revenue from new products. It would be very easy to continue with current activities. The challenge has to be to find higher margin and higher contribution revenues.

We have heard much about reluctance to change. I am happy to report Coillte has had significant engagement with its larger unions, IMPACT and SIPTU, over the past several years around transforming our business and on the reward models of what and how people get paid.

Again, IMPACT voted earlier this year to engage in a full transformation of the business but, more importantly, to opt for a reward model, which is very different to what would have been in placed when Coillte transferred out of the Civil Service. This reward model is based on market-related pay and pay for performance. We are putting an end to any kind of incremental or service-related pay within Coillte and IMPACT should be recognised for that. SIPTU has also engaged in this discussion and voted to engage in a full transformation of the business. I use this opportunity to pay tribute to the employees of Coillte - the employee representatives - in respect of this, which we need to do to continue to be competitive at a global level. We are taking on companies from Scotland, Latvia and Latin and North America in terms of our products in a global market. We need to be free to do that in such a way that we can be competitive.

I will turn to the slide dealing with the Government decision on the sale of harvesting rights. Committee members will be aware that the Government made a decision in principle on 26 June to sell the harvesting rights to Coillte's forest for a period of between 50 and 80 years. The board and management of Coillte have been fully engaged with our shareholders and NewERA, the shareholder representative which is acting on behalf of the shareholder, to implement or give effect to this decision. We are working very closely with NewERA on a range of detailed reviews, examining financial and other implications of this Government decision to ensure we can realise the maximum value for our shareholders and contribute to the Government's €3 billion target for asset disposal. I can indicate that there is a lot of work and a significant effort going in between now and the end of this year on all aspects of this activity.

The last slide says it all. Trees are just the start of it. I thank the committee for its attention, will be happy to have a discussion and will try to answer any questions people may have.