THE FRIDAY INTERVIEWDavid Gunning,chief executive, Coillte
AFTER HIS first full year at the helm, nobody is going to accuse Coillte boss David Gunning of not being able to see the wood for the trees. In 2007, the State forestry company generated €40 million in after-tax profits from its activities, a 79 per cent increase on the previous year.
Turnover rose by about 66 per cent to €318 million, and sales of the company's logs topped €100 million for the first time. Along with that, 54 per cent of sales were exports.
As performances go, it was pretty solid. But the company is not likely to match it this year. The biggest part of its business is not growing trees but manufacturing panel boards at two plants, Medite in Tipperary and Smartply (formerly Louisiana Pacific) in Waterford harbour, both of which it bought from multinational partners and customers.
These generated close to €190 million of group turnover last year, more than forestry and other enterprise activities put together. The products are sold largely to the building industry. Coillte-manufactured boards can be found in Dubai airport, the Scottish parliament and Wembley stadium.
While these are high-profile customers, the company relies on the general building industry for much of its sales, and this is a sector that is not doing well. Gunning agrees that this year will not mirror 2007.
"The whole timber industry was up last year - there was an increase in global prices," he says. "But things are definitely slowing down and we are seeing that slowdown, not unlike other people."
Some activities will offer a measure of relief. Boards are used in building repair and maintenance, as fencing and sound barriers on roads, and for packaging, among other things.
Coillte's board met on the same day it published its results, and Gunning says it is "in the process of looking at and updating our strategy" to deal with the tougher trading environment that it is facing this year.
The group adopted a new long-term strategy last year built around forestry, the wood panel business and energy. Gunning says it is planning to invest "tens of millions" in Medite and Smartply.
He won't say just how many tens of millions, but says the money will be used to maintain the competitiveness of both plants. "In Medite, we have three goals. One is to provide us with higher-quality product, the second is to allow us to use a broader range of input materials, and the third thing is it will significantly lower our energy costs."
For him, the key point about investing in Coillte's manufacturing business is that it allows the company to add value. It's not going to develop if it limits its activities to growing trees, harvesting them and selling logs.
Coillte is also looking to spread its interests beyond forestry and timber products and into energy, more specifically wind farms and possibly biomass production. It has applied to the Commission for Energy Regulation (CER) for licences for 17 wind farms that will produce up to 960 megawatts (MW) of electricity, the equivalent of two average-sized power plants.
It is also involved in joint ventures with existing players, including ESB Independent Energy, Airtricity and SWS. Gunning says he would be happy if Coillte got the go ahead for just half of its proposed wind farms.
This makes it the fourth State-owned company, along with the ESB, Bord Gáis and Bord na Móna, with big plans for alternative energy. However, Gunning is quick to say that it's not a case of "me too". He points out that Coillte is the Republic's biggest landowner, with 440,000 hectares. A lot of it is ideally located on hills and mountains for wind turbines. "With the 7 per cent land area of Ireland, we have got what we believe is the most effective wind regime sites in the country," he says.
"We've been at this since 2000 in terms of co-operating with others. The other thing is, this is a good business. We are looking at a 12 to 14 per cent return from the capital investment." One of the key drivers of returns from alternative energy is the guaranteed fee for the power produced.
For onshore wind farms, this is currently around five cent a unit, a figure the industry would like to see increased. Electricity users ultimately carry the cost of this, but it's the State, which owns Coillte, that has put the regime in place and is thus helping to underwrite the investment.
The costs of developing the wind farms themselves run at between €1.5 million and €2 million per MW. Coillte's investment is likely to be at the lower end of this, as it owns the land. The next issue is whether or not the sites can be connected to the national grid. That is an issue for the regulator, Gunning points out.
Another incentive to build wind farms is to offset its own energy use. Coillte's manufacturing businesses use a lot of power. This might seem odd as its 400,000 hectares of forest is presumably the biggest carbon offset in the country.
So, with that many trees devouring tonnes of carbon dioxide, why worry about offsetting at all? Gunning's argument is that Coillte can converge the two activities, that is, growing trees and generating alternative energy.
He's enthusiastic about this, and sees it as the next big growth area. Gunning himself is a former Telabs executive, who got in on the ground floor as the technology and telecoms industries hit their growth phase in the 1990s. He believes that alternative energy is now very much at the same point in its development. It's also clear that Coillte is turning from a forest manager with some involvement in manufacturing to a manufacturer and energy producer that manages a lot of forests.
The company still has its remit as the manager and keeper of the State's forests. It has invested €5 million in developing them for tourism and recreation, a resource Gunning says is worth €97 million. However, Coillte has taken flak down through the years for not being the most environmentally correct forest manager.
Part of the argument runs that it has invested too much in fast-growing, non-native trees that are good commercially, and not put enough effort into looking after native species.
Gunning says that 10 per cent of its plantations are native hardwoods. Its forestry lands are also certified by the Forest Stewardship Council (FSC), an organisation set up in California - where else? - in 1990 that has taken on the job of coming up with a credible way of judging whether woodlands are managed in a sustainable and fair way.
A lot of commercial organisations now look for timber products grown in FSC-approved forests. For example, Gunning points out that big retailers such as Marks & Spencer demand this when they are fitting out their shops. This is largely a response to the current consumer vogue for all things green and sustainable.
Coillte is also the steward of something else: the millennium trees that were planted for every person in the State on the eve of 2000. According to Gunning, this does not mean that you can walk into a State forest and find your very own Scots pine. "It means we all have a share of millennium forests," he says.
Sounds like a case of not being able to see your tree for the woods.
ON THE RECORD
Name:David Gunning.
Age:47
Post:Chief executive State forestry company Coillte.
Why is he in the news?Coillte published its 2007 results this week.
Career to date:Began his career with the Defence Forces and qualified as an electrical engineer. Joined HP and went from there to a start-up in Shannon, Delta Communications, which Chicago-based Telabs subsequently bought. He later worked for Comreg.
Family:He's married with four children.
Something you might expect:He's on the national council of business group Ibec.
Something that might surprise:He's taking his piano exams, grade three, along with one of his sons.
