Like many State companies, Bord na Mona's financial position is improving. Profits rose last year and - assisted by a State equity injection of £49 million - the company's balance sheet is looking a lot healthier. But chairman, Mr Pat Dineen warns bluntly that "underlying profitability . . . is not yet satisfactory".

The figures for the current year will be affected by the bad weather, but Mr Dineen also has longer-term trends in mind.

Bord na Mona's balance sheet has obviously benefited from the State equity injection. Debt fell to £111.1 million in March, from £167.5 million at the start of the previous year and, with a further £61 million in State funding promised, the improvement in the balance sheet will continue. Lower interest costs will result.

However, the Government demanded a quid pro quo for the equity injection. Bord na Mona has been subsidised for years by charging the ESB over the odds for peat. In return for the new equity, Bord na Mona will cut the price to the ESB and other users such as the new Europeat station to commercial levels.

The annual report points out that the net result will be to put downward pressure on turnover and profits, even allowing for lower interest charges. This is partly because of lower revenue from the peat sales, but also because the existing pricing arrangements contained an element which had been used to service and amortise the unsustainable debt.

The report thus points out that the equity injection is far from a "free lunch". The management team thus faces the challenge of completing the transition to a fully competitive energy company.