Coillte’s money man tries to see the wood for the trees
What is a youthful former private equity shark like Fergal Leamy doing running a forestry company?
Fergal Leamy: estimates Irish forestry output will double in the next 10 years. Photograph: Nick Bradshaw
The headquarters of some Irish semi-State companies are fierce ugly. Dublin Bus’s head office on O’Connell Street, for example, looks like the back of a bus. The National Lottery’s headquarters isn’t much better, while the ESB head office that scars Fitzwilliam Square is so hideous it would frighten children.
You might think Coillte, the forestry company, is another of those dusty old semi-States that is probably based in some Stalinesque monolith. But it isn’t.
Its wood-panelled head office peeks out of a forest in Newtownmountkennedy in Co Wicklow like a fancy Swiss mountain lodge. You would nearly expect the receptionist to start yodelling at you from her timber desk. The place is surreal.
Almost as intriguing as Coillte’s headquarters is the background of its chief executive, Tramore man Fergal Leamy (38), who has just completed his first year on the job, after joining Coillte from Terra Firma, the London-based private equity group founded by legendary financier Guy Hands.
What is a youthful former private equity shark – a man who before that ran Greencore’s US operation and was once a McKinsey consultant – doing running a taxpayer-owned forestry company in an alpine chalet in Wicklow?
It isn’t the money, that’s for sure.
Not that the Coillte chief executive is on the bread line – the €191,000 Government-capped salary will certainly keep Leamy in sharp suits. But, compared to the staggering rewards on offer in the world of private equity, it is buttons.
When Leamy worked for Greencore, his salary was reportedly €430,000. According to him, there was a “quantum difference” between his Greencore wage and what he earned working for Terra Firma. God knows what he earned there.
“When you are in private equity, it is true that you are very, very well rewarded,” he says, flashing an expensive-looking, if slightly sheepish, smile.
“I had been fortunate enough in the previous few years [before he took the Coillte job] whereby finance didn’t need to be the key motivator here. As a family, we had been travelling for 15 years. My son was six and had lived on three continents. We wanted to move back to Ireland.”
So, basically, you had already made a ball of cash and you were prepared to take a hit on your salary to get a job back home? Leamy nods his head.
His last role before Coillte was running an agri-business for Terra Firma in Australia. It owned 350,000 head of cattle. Leamy, a UCD business and legal graduate, was effectively the second-biggest farmer in the country. Perhaps there is a nuanced dimension to this financier’s career choices, after all.
“You find out a lot about yourself working 100 hours a week in private equity. I found out that my main motivator is leaving a mark on something.”
He certainly aims to leave a mark on Coillte, which owns 7 per cent of the State’s land mass, has 1,000 staff and sales of about €300 million.
Leamy has just completed a year-long strategic review of the business. He is embarking upon a change programme designed to turn the group into a cash-generating machine for the State.
He is targeting a 60 per cent-plus spike in its earnings to €130 million over five years. His central target, however, is to transform Coillte from a company that generates no cash today into one with free cashflow of more than €60 million.
Coillte has assets valued at €1.3 billion. By cutting costs, super-sizing its core forestry business and overhauling its other divisions, Leamy hopes to generate an annual return for the State of up to 5 per cent within five years.
If he delivers, they’ll love this guy in the Department of Finance.
Yet, Leamy wasn’t originally convinced by the Coillte role. When a headhunter called about the job, he says his initial instinct was: “I’m not interested.”
Leamy had served a short stint as an adviser to Simon Coveney, Minister for Agriculture. He knew the aching limitations of working within the State’s machinery.
“I was suspicious as to whether you could really make a difference. Then I became convinced by the board that had been put in place. People like John Moloney [the chairman and former Glanbia chief executive] and Roisin Brennan [the former IBI corporate financier and current DCC director].”
Coillte had an interesting couple of years before Leamy joined. When the construction collapse kiboshed its core home market, its future was uncertain. Economist Colm McCarthy’s Bord Snip recommended the sale of its forestry rights.
The previous chief executive, David Gunning, was on a package of more than €400,000, which seriously irked the leaders of our recession-ravaged State. He then sued them for bonuses he was owed following his exit in 2013. Outsiders saw Coillte as another cushy State number.
For a while during the recession, it was tagged for a merger with Bord na Móna, but this plan was abandoned. The board was overhauled and a long search began for a new full-time leader. That search led to Leamy.
He grew up in Waterford playing hurling and golf. He is also a cousin of Denis Leamy, the former Irish rugby international.
His father was “an AI man”. An AI man? Artificial intelligence, like, a robot-builder or something? “Artificial insemination... of cattle.”
Young Leamy didn’t know what he wanted for a career, so he studied business and legal at UCD to give himself options. At college, he paid his way by running a business selling on students’ college books for a 15 per cent commission.
UCD led to the food, retail and agriculture divisions of McKinsey, the consultancy where Patrick Coveney, later to become chief executive of Greencore, also worked.
When Leamy decided to leave the world of consulting to run a real business, Coveney hired him to set up Greencore’s operation in the US at the age of 29. He left in 2011 after Greencore’s Northern Foods deal collapsed.
Leamy’s next job was as an adviser to Patrick’s brother, Minister Simon Coveney, who was restructuring the Department of Agriculture. Leamy was paid a salary of about €130,000, shattering the political adviser pay scale and fuelling Coveney’s critics. He quit after five months. “It was never meant to be a long-term role,” Leamy says.
Coveney, however, seems to have taken an awful lot of flak for a guy who quickly ditched the State to return to the private sector.
Leamy joined Terra Firma, and was promptly sent down under to run Consolidated Pastoral Company, the big cow company. Guy Hands bought it from the family of the late Australian tycoon Kerry Packer.
“I was sent so sort it out,” Leamy says. He was also “looking after” a business in Germany for Terra Firma. The air miles took their toll. The call came from Coillte last year, and here he is in Newtownmountkennedy.
Leamy is aiming to transplant sound commercial values into the State-owned forestry business.
“We are looking to run Coillte as well, if not better, than any private business.” He likes this line, and falls back on it a few times.
“The challenge I had coming in was [that] it wasn’t generating any cash. In 2015, the business did ebitda [earnings before interest, tax depreciation and amortisation – a standard metric] of €80 million. But recurring cash was close to zero. Now, the challenge is to turn the profits into cash.”
The State had a €1.3 billion asset, which had branched out into all sorts of extraneous sectors such as telecommunications, but the exchequer wasn’t getting any return from Coillte.
“If you’re a shareholder, that’s very frustrating.”
Too much of Coillte’s past profits came from one-off land sales. Leamy wants to build a business that throws off steady, predictable but growing returns. The strategy is three-pronged.
Firstly, he plans to beef up its core forestry division, which provides a third of its revenues. Leamy estimates Irish forestry output will double in the next 10 years, as swathes of trees mature from incentive schemes funded by forestry funds in years past.
“Ireland has a natural competitive advantage. Trees grow more quickly here than elsewhere, because of the environmental conditions. So the cost of production is effectively lower.
A Sitka Spruce, Colillte’s favoured variety, takes about 30-35 years to grow in Ireland, whereas a similar tree takes up to 100 years to grow in Scandinavia.
“But the Scandinavians get roughly the same price for their timber.”
Coillte has eight or 10 core forestry customers – mostly family-owned sawmills that buy its logs and sells the timber here and abroad for construction and other uses. It will help them expand and diversify their markets. The more timber the sawmills sell abroad, the more logs they will buy from Coillte.
The second strand surrounds its MDF manufacturing plant in Clonmel and Smartply panels business in Waterford. Coillte is focused on investing in those businesses and developing “value-added” products, such as treated timber fascias and fire-resistant wooden building materials.
The third prong is its “land solutions” business – finding alternative ways to squeeze revenues out of its 450,000 hectares of holdings, especially 10,000 hectares in the west and midlands identified as being not ideal for forestry.
Leamy plans to invite tourism businesses to set up more operations, such as ziplining amenities and accommodation parks, such as Longford’s Centre Parcs development, on Coillte’s lands.
It is also planning to unlock the full tourism potential of Avondale House, the birthplace of Charles Stewart Parnell, which it owns. Once again, Leamy says it will seek private partners.
Other “solutions” for its lands include developing wind farms, but not operating them long term. It closed deals recently for several major wind farms, including a joint venture with Bord na Móna at Sliabh Bawn in Roscommon to generate enough power for 40,000 homes.
“We’re good at developing wind farms, but we don’t have the scale to operate them. Let someone else do it. I’d rather focus on developing some sort of long-term income stream from this sort of use of our lands.”
Along with all of this, Leamy plans to reduce the debt associated with its core forestry business. Group debt levels are down by almost €80 million to €155 million, helped by an injection from the €70 million sale last year of its telecoms mast business.
He rattles off that line again about running Coillte “as well as any private business”. Is he readying Coillte for privatisation? If there was any sense he was, protestors would be chaining themselves to its wooden gates in the morning.
Leamy says he is not, but there is a caveat.
“It’s a natural question, given my background. But if we run this business well, the logic of it being privatised reduces. As a taxpayer and shareholder, if we are not delivering, then of course, give it to the people who can operate it better.”
He reiterates, however, that he is not here to privatise Coillte and there are no plans at State level to do so.
As if to prove that he hasn’t gone all public sector, Leamy volunteers that a redundancy programme will cut close to 100 from the business.
He avows he will also serve a maximum of seven years himself, under his contract. Then it will likely be back to the private sector, one imagines.
He is also chairman of Little Dish, a British kids’ healthy meals company co-founded by Roscommon man John Stapleton, that supplies some of the biggest supermarkets in Britain and Ireland.
“I buy into the view that certain assets are special, and Coillte is one of them. It owns lands for the public. It gives the State much more than financial return.”
Before it can justify its existence, however, it must generate that financial return. Leamy, the money-cruncher, appears laser-focused on ensuring it does.
Name: Fergal Leamy
Position: chief executive, Coillte
Family: Married, two kids
Interests: Watching rugby and hurling, playing golf. Tottenham Hotspur.
Something we might expect: A UCD business graduate, he entered the world of consultancy.
Something that might surprise: He was Australia’s second-biggest cattle farmer.