CHIEF EXECUTIVE’S REVIEW
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The advances were achieved despite a difficult economic and financial backdrop, falling energy demand and new EU legislation that will fundamentally change the structure of the company. In parallel, we continued to operate our established businesses and to serve our customers to the very high standards that we have set ourselves. Most importantly, we delivered natural gas safely and reliably to gas users in Ireland, north and south, on behalf of many market participants. All that we have done has underpinned our philosophy of ‘Exemplary Service at the Right Price’.
Key Achievements in 2009
We at Bord Gáis:
| • | successfully entered the residential electricity market with ‘The Big Switch’ campaign, gaining over 300,000 new customer accounts; |
| • | implemented three successive gas price reductions, giving a cumulative 25% saving in twelve months to household and SME customers; |
| • | acquired the wind generation assets of SWS Natural Resources in a transaction worth over €500m to place the company in the No. 2 position in Ireland in wind; |
| • | won five customer service accolades in Irish and UK award competitions; |
| • | raised over €900 million from international investors including the company’s first Corporate Bond issuance; |
| • | brought natural gas to six new towns; |
| • | expanded our gas business in Northern Ireland and entered the competitive business electricity market; |
| • | completed a five-year €170m mains renewal project, ensuring that Ireland has one of the most modern networks in Europe; |
| • | completed the €90m reinforcement of the gas pipeline system serving the Cork area to enable gas flows to two new power stations; |
| • | continued construction, on time and within budget, of the 445MW gas-fired power station at Whitegate, Co. Cork; |
| • | achieved the Excellence through People accreditation. |
Bord Gáis Key Results 2009
Group turnover at €1,349 million for the year to 31 December 2009 was down 2% on the 2008 result. Sales of energy (gas and electricity) were down 4% to €1,161 million, as increased electricity sales were offset by depressed gas demand coupled with reduced gas prices following successive price reductions. Energy sales accounted for 86% of group turnover.
Gas Transportation sales to independent shippers were up 14% to €188 million in 2009, accounting for 14% of group turnover, mainly due to a new revenue stream from the Corrib Partners that was activated by the commissioning of the Bord Gáis pipeline to their terminal.
Profit before Tax decreased by 21% to €119 million. The year-on-year decrease of €32 million results from additional expenditure associated with continuing expansion into new business areas, increased financing requirements and higher depreciation charges reflecting the impact of the capital investment programme.
Total gas volumes transported by Bord Gáis decreased by 5% in 2009, with 76% of gas flows serving the Irish gas market and 24% utilised in Northern Ireland and the Isle of Man.
Irish Gas Market Review
Gas demand of 56,400 GWh in Ireland during 2009 was 4% lower than the volume used during the previous year. The weather was somewhat warmer over the course of the year, with 4% less degree days (cumulative number of degrees from average temperature each day over the year) and demand was down in each of the residential, industrial/commercial and power generation sectors.
The number of gas users in Ireland reached c. 640,000 by the end of the year, an increase of nearly 2% on 2008. The addition of 9,000 new residential users was just 43% the level of the 21,000 users added in 2008, reflecting the decline in the new housing market. Average residential consumption decreased by 7% in 2009, driven by the downturn in the economy, warmer temperatures and energy-conscious customer behaviour and building changes.
However, falling gas demand worldwide coupled with strong supplies meant that wholesale gas prices fell and we were able to pass on this benefit to our customers with price reductions totalling 25% over twelve months. Irish gas costs are generally below the EU average, with business tariffs up to 15% lower and residential prices up to 30% below the EU average in 2009, according to Eurostat.
While the number of industrial/commercial users increased by a net 1,125 in 2009, a similar level of growth to 2008, gas demand in the sector was down 4%, reflecting the weak economy.
Power generation accounted for 65% of total gas demand in Ireland in 2009, with industrial/commercial users consuming 20% and the residential sector using 15% of total volume.
Independent shippers/suppliers accounted for 58% of total gas sold in Ireland in 2009, down slightly from a 62% share in 2008. Indigenous gas supplies accounted for 7% of total Irish gas demand during the year, down 1% on 2008 and a percentage that will continue to decrease until there are further landings of indigenous gas.
Electricity Business
In February 2009, we launched our Big Switch campaign aimed at residential electricity consumers. The success of the campaign exceeded all expectations and, by year end, over 300,000 customers had switched. As a consequence, Bord Gáis Energy increased its share of the Irish electricity market to 12%.
We prepared our entry into the residential market in a highly focussed manner with dedicated teams concentrating on three key areas: customer service; sales and marketing; and systems. Their objective was to ensure that Bord Gáis Energy was in a position to offer competitive electricity products to households throughout Ireland, supported by simple, efficient, customer-focussed processes that would deliver exemplary service.
The response to the launch was excellent and customer additions continued strongly throughout the year. The campaign has been award winning in the use of technology and modern marketing techniques.
The company also successfully defended its position in the large electricity users market and grew its SME electricity customer base to over 25,000.
A key element of our strategy is the development and acquisition of significant power generation assets to underpin our growth in the retail electricity market. Construction of our 445MW gas-fired station at Whitegate, Co. Cork, continued through the year and the €400 million state of the art plant is on schedule for commercial operation in July 2010.
In line with the company’s commitment to have a significant level of renewable generation in its power generation portfolio, we completed the purchase of the wind generation assets of SWS Natural Resources in December 2009 in a transaction worth over €500 million. Following the acquisition, which includes 179MW of operational wind generation capacity, we hold a strengthened platform from which to offer green electricity to our customers. Bord Gáis acquired the 39MW Sorne wind farm in Co. Donegal during the year, as well as 565MW of wind development projects which the company will build out over the next few years in a €950 million investment programme.
Customer Service
We are committed to providing customers with exemplary service. We have clear standards of service that far exceed most utility standards and effective measurement systems to track performance. In 2009, although customer interactions increased greatly with the Big Switch campaign, we maintained our standards of service to customers through allocating additional resources and utilising efficient systems.
In 2009, Bord Gáis won five customer service awards, validating the extremely high standards of service that we set and meet continuously. Bord Gáis Networks won the overall best Customer Contact Centre award at the UK & Ireland Customer Contact Association Awards in Edinburgh, where other short-listed finalists included British Gas, O2 and Tesco. Bord Gáis Networks also took the Best Customer Experience award in their Mobile, Telecoms and Utilities category. The Irish Contact Centre Management Association Awards saw Bord Gáis Energy take first place in the Best Sales or Telemarketing campaign while Bord Gáis Networks won two firsts for Best Quality Measurement Programme and Best Small or Growing Contact Centre. We will not remain complacent but will push forward with further initiatives supported by our business partner, Fexco, to maintain a premium service.
Alternative Energy R&D
We are investing €10 million in Alternative Energy R&D as part of our strategy to champion energy sustainability. There are many projects underway or being assessed, including some with exciting potential to reach mainstream commercial operation, such as:
| • | Renewable Gas: Bord Gáis commissioned a study into the potential for Renewable Gas in Ireland, which will be published in 2010, and is currently conducting a feasibility project into using grass and other substrates as an innovative bio-fuel in a ‘grass-to-gas’ project. |
| • | Micro CHP: Bord Gáis is working on a joint marketing plan with Ceres Power to trial and roll-out a fuel cell based central heating boiler that generates electricity while heating the home. |
| • | Compressed Natural Gas (CNG): Bord Gáis has purchased a CNG vehicle and installed re-fuelling facilities to enable a feasibility study on this potentially viable alternative to petrol and diesel in the transport sector, especially commercial transport. With the emergence of recoverable unconventional gas, CNG usage may be re-prioritised in hybrid transport technologies. |
Safety
Safety is a top priority for all of us in the company and we devote substantial resources to ensuring that we maintain our established record through ongoing training programmes, the operation of best in class systems and continuous vigilance. The safety ethos that governs our gas pipeline construction and operations has been successfully transferred to our power generation business. This is well demonstrated by the fact that, at the Whitegate power plant development, just one Lost Time accident occurred in the 1.7 million man hours worked on the project to January 2010.
Complacency has no place in a safety-led environment and we continue to audit performance assiduously as well as promoting an active safety culture. A major component of the safety culture is the HazConTM hazard reporting system that enables employees and contractors to report workplace hazards so that they may be addressed. Over 600 hazard reports were made in 2009 and the objective is to increase this number in future years through increased hazard awareness.
Acknowledgments
The work and dedication of our staff was never more evident than in 2009. In a very challenging year, they pursued opportunities and excellence in equal measure and succeeded in both. Many firsts were achieved – our debut corporate bond launch; the acquisition of a significant wind generation portfolio and our entry into residential electricity. Our performance on customer service and safety reached even higher standards. This is testament to the talent, determination and pride of the people in Bord Gáis. The company is continuing to evolve organisationally to meet the business challenges and the positive response of staff to ongoing change enables Bord Gáis to achieve its goals, to the benefit of the company and its customers. In 2009, the company received the Excellence through People accreditation, which recognises organisations that see their people as a key competitive advantage. As Chief Executive of the company, I value this accreditation greatly and will work to ensure that we uphold its ethos.
I would like to acknowledge the support of our private sector partners who continue to support all that we do consistent with the values of Bord Gáis.
I sincerely thank the Ministers and their officials at the Department of Communications, Energy and Natural Resources and at the Department of Finance for their continued support of our strategy.
I would like to thank Ed O’Connell, who retired as Chairman in June 2009, for his stewardship of the company and for setting a great foundation. I would like to thank our new Chairman, Rose Hynes, and all of the Board for their support and strong engagement in the implementation of our strategy in a very busy year.
John Mullins
Chief Executive