Committee Reports > List of Committees > Joint > 1979 > Committee on Commercial State-Sponsored Bodies > Report No. 03 - Min Fhéir (1959) Teoranta

APPENDIX 7

MEMORANDUM SUBMITTED BY MIN FHÉIR (1959) TEORANTA

Reference is made to the attached tabulation of operational results for the Company from 1964 to date—TABLE A.

Prior to the first year of trading (1964/65) some £93,000 had been spent on the development of part of the Company’s holding of bogland in preparation for the growing of grass together with some £83,000 on Plant, Machinery, Buildings etc. Further capital expenditure under these headings has been incurred over the years.

As can be seen it was not until 1967/68 that a Profit before Finance Charges and Depreciation was achieved, and this positive result was achieved only once more (1971/72) before the EEC subsidy turned the position round in 1975 and 1976. The substantial loss in 1977 is attributable to the selling price of grassmeal and cubes going “through the floor” in the Autumn/ early Winter of that year—dropping from a prospective (and achieved) figure of some £100 per tonne to under £80 per tonne. A decision was made to hold stock forward to 1978, and although this decision entailed the incurrence of storage and interest charges it has been proved right insofar as all stocks (1977 and 1978) will have been cleared by April this year and will have attracted subsidy at rates some £14 per tonne higher than those ruling prior to March, 1978.

Scrutiny of the column “Finance Charges” will make evident the heavy burden of interest arising from the accumulated losses incurred over the years.

Proposals for the Company’s future, incorporating relief from the burden of debt and savings in costs by changing from oil-burning to turf-burning and the winning of the Company’s turf requirements from its own bog, together with an expansion of the area under grass, have been made frequently to the responsible Department of Government, but most particularly by the present Board in May, 1977, with substantial revisions in September, 1978. To date, only limited approval for the implementation of the proposals has been forthcoming.

For information, copies of the September, 1978 proposals are attached hereto—TABLE B.

March 1979.

TABLE A

MIN FHÉIR (1959) TEORANTA—SUMMARY OF RESULTS 1964 TO 1978

TABLE B

Letter from Chairman of Min Fhéir (1959) Teoranta To secretary, Department of Industry, Commerce and Energy

7th September 1978.

The Secretary,

Department of Industry, Commerce and Energy,

Kildare Street,

Dublin 2.

Dear Sir,

The Chairman’s report and recommendations submitted to the Department of Industry and Commerce on 27th May, 1977, have been reviewed following the failure to maintain in 1977, and since, the sales price of £100 per tonne which had then been assumed to be attainable and had been obtained in 1976.

It is now considered prudent in assessing the future of the Company to reckon on a price of £80 per tonne and the Company’s marketing plans have been formulated with a view to securing at least that price. Experience to date and observation of the market suggest that it will be possible to achieve this minimum target. Indeed it is considered probable that in the peak selling season (December to April) a price well above that will be achieved.

It is recognised that it is essential to establish a viable future for the Company. On the basis of a price of £80 (in present terms) a viable future can be hoped for only if production costs per tonne can be reduced and the burden of debt eliminated so as to remove the crushing interest payments which the Company must otherwise meet. The proposals dealt with in this letter have been prepared with a view to providing a viable future for the Company by dealing with these needs. The projected Profit and Loss Accounts for the years 1979 to 1982 appended to this letter are presented to show the financial results of implementing these proposals. The assumptions underlying these projections are basically as in the May 1977 presentation but modified in the light of experience since then and in particular of the considerations mentioned above. The assumptions of Selling Price and Subsidy increases in future years take account of inflation but at a lesser rate than that allowed for Costs. Recognition has also been given to the necessity to allow for increased labour and fertiliser costs (over and above the allowance for inflation) in the years in which increased quantities of grass are harvested.

The only means of materially reducing costs of production which still are open to the Company are (a) to reduce fuel costs by reverting to turf-burning and (b) to increase the tonnage of grass produced by extending the area under cultivation together with some reseeding of the present cultivated area. Plant modifications to achieve the former have been under examination in consultation with Bord na Móna, Mr. Frank Lunny, Consultant, formerly of Bord na Móna, and the Technical Services Department of NET. The studies prepared by Mr. Lunny and the NET Technical Services Department (copies attached) show that a reduction in production costs of the order of £7 rising to £12 per tonne can be achieved by returning to turf as fuel for grass drying. It is proposed to achieve these savings by installing turf-burning furnaces at a cost of some £45,000 this winter, operating with bought-in turf for the 1979 season and by cutting turf on our own bog to service the furnaces for the 1980 season and thereafter. It is anticipated that a market for any surplus turf produced can be secured. This surplus could be upwards of 4,000 tonnes per annum. It is proposed to implement the programme of Field Development, dealt with in the May, 1977 presentation, to achieve the increased acreage under cultivation and consequently the increased tonnage throughput, at a cost of some £200,000.

While the Board have noted the suggestion that the Company might be absorbed by some other organisation, it must be pointed out that action of this kind will not ensure its viability or supply the necessary funds to re-equip the operation and to repay the accumulated debts of the last 13 years. Indeed, it must be pointed out that unless the Company’s lands could be sold, e.g. to Bord na Móna, sufficient funds could not be generated from within the Company to meet its obligations. As this action would necessitate discontinuing the Company’s operations and laying off all employees, terminating contractors services etc. the Directors would not wish to recommend that course of action to the Minister.

It is unfortunate that the Company has lost money in each of its 13 years of trading and has indeed been unable to meet its obligations for four years running. The continued operation of the Company during that latter period has only been possible because of the forebearance of the Sugar Company and NET in the matter of payment for fertiliser supplied. These companies can no longer be expected to carry this burden.

The Board has during the last two years made strenuous efforts to improve the Company’s performance. It has replaced or overhauled the field machinery which had been seriously run down, and has had the factory equipment, which was in a grave state of disrepair, examined by competent engineering staff and put in a proper state of maintenance. Studies on the improvement of plant efficiencies have also been completed with the assistance of the Institute for Industrial Research and Standards and effect has been given to their recommendations. In addition, the Board has dealt with serious labour problems and restored the confidence of the Company’s staff.

The Board has also reorganised the Management of the Company and has taken positive steps to establish a sales organisation.

If, as the Board would wish, the Company is to continue in operation, capital must be injected into the Company and the legislation governing the Company’s operations must be revised. The current financial position is that as at 31st August, 1978 amounts owing by the Company to the principal creditors were as follows:

These amounts all bear interest at commercial rates placing an intolerable burden of some £45,000 per annum on the Company or about £15 per tonne at current rate of output.

To ensure the continued operation of the Company and its restoration to viability for the next 5/10 years, capital must be injected by the Government for the following purposes:—

(1) £410,000 to clear the debts owing to the Bank, NET and CSET and relieve the Company of the interest thereon.

(2) £45,000 to instal turf-burning furnaces at Geesala, with the existing oil-burners being retained on a stand-by basis.

(3) £45,000 to purchase turf-cutting and crushing machinery to win peat from the Company’s own bog for burning in the furnaces referred to at (2) above.

(4) £200,000 to provide for field development to increase the acreage under grass from the present 777 acres to 1,203 acres and correspondingly to increase the production tonnage from 3,200 to 4,800.

(5) £30,000 to provide bulk storage at Geesala.

The Capital would be required on the following basis:

The attached projected Profit and Loss Accounts have been prepared to demonstrate the effect at:—

By this stage, as is evidenced by the figure for “labour” in Direct Costs, the seasonal work-force would have been augmented to some 20 people, or the existing 17 would be employed for a slightly longer period than at present.

It should be noted that all the funds requested by way of Capital injection will be spent within the State: indeed the £200,000 for field development will all be spent locally by way of wages and machine and equipment hire at Geesala.

As the provisions in the Government’s Capital Expenditure Programmes for 1977 and 1978 could not be availed of pending the development of a viable proposal, it would now be necessary to include some £490,000 in the 1979 Estimates, with a further £240,000 to follow in the programmes for the years 1980 and 1981.

Alternatively, and more satisfactorily, it is suggested that in view of the Accumulated Deficit to 31-12-1977, standing at £223,475 as per the published Accounts, a Capital Grant of this amount might be made available to the Company before the end of this year, presumably by way of Supplementary Estimate, thus obviating the delay in making funds available which would naturally occur if all the monies required are to be provided by way of increased equity with the consequent need to await amending legislation. The returns on capital indicated by way of percentages noted at the foot of each projected Profit and Loss Account column are based on the assumption that all funds would be by way of equity. If the 1978 Capital Grant suggestion were adopted these percentages would improve, as the capital base on which they were calculated would be correspondingly reduced. The requirements for 1979 to 1981 could of course be reduced by the amount made available in 1978.

You will no doubt be aware of the extremely urgent nature of the requirements in view of the present parlous cash position of the Company.

Representatives of the Board and Management will be available at short notice to discuss any aspects of these proposals with your Department.

(Signed) J. B. HYNES,

Chairman.

ANNEX TO FOREGOING LETTER

PROJECTED PROFIT AND LOSS ACCOUNTS