Government cutbacks shaved €1 million off profits at Coillte last year and are predicted to cost the State-owned forestry agency €2.5 million in 2003.

The organisation has warned that it cannot stay viable unless the Government restores subsidies trimmed in a drive to cut public spending, Coillte chief executive Mr Martin Lowery warned.

Cutbacks took the form of reduced afforestation grants, changes in rollover relief on capital gains tax and lower payments to farmers planting on their land.

"We can absorb a hiccup but things need to be put back on track again," Mr Lowery told Coillte's annual general meeting.

"It is important that the forestry industry is put back on course this year. We are a low-profile industry but provide essential employment in rural areas which otherwise lack investment."

Despite reduced exchequer support, Coillte profits climbed 2 per cent in 2002 to €18.74 million. Saw-log sales hit record volumes but a depressed market meant revenues only rose marginally.

A €6 million loss at the Waterford-based Smartply subsidiary also cut into margins, though the deficit was 50 per cent reduced on 2001. Losses at Smartply are forecast at €3 million in 2003.

The value of land held by Coillte rose to €814 million, although holdings are worth many times more at current market prices. Some land was sold last year but the impact on the balance sheet was minimal.

Mr Lowery said: "Increased profits in 2002 was a considerable achievement taking into account difficult trading conditions, absorption of 100 per cent of losses at SmartPly compared with 35 per cent in previous years, and the impact of external factors such as Government expenditure cutbacks."

Accounts show Mr Lowery was paid €253,000 in salary and bonuses for 2002, compared to €241,000 the previous year. Eleven non-executive directors shared €98,000. Coillte employs 1,000.