Fall in share price outside company's control, says MacSharry

Eircom's chairman said the company had performed well in the past financial year and delivered "one of the best sets of financial results among the main players in the European telecommunications sector".

Mr Ray MacSharry was "extremely confident" about the future and believed Eircom would deliver results for shareholders.

He acknowledged their anger over the drop in share price but insisted this was due to many factors, most outside the company's control.

He also defended the remuneration of company directors.

He refused several calls to say what individual directors had received but added these figures would be disclosed next year.

In his opening address, Mr MacSharry said: "We are a £1 billion turnover company with well over one million mobile customers and over 1.6 million fixed lines."

Mobile business accounted for some 20 per cent of revenue and there were more than 250,000 Internet customers.

"We are certainly well on our way in our transition from a good old telephone company to a fully modern telecoms group."

Eircom had increased revenues by more than 10 per cent, achieved record profits of £265 million, up 18 per cent on last year, and increased capital expenditure by 28 per cent.

This translated into a 26 per cent rise in earnings per share and a final dividend of 2.4p per share, giving a total dividend of 3.6p per share for the full year.

Addressing shareholders' anger over the share price, he said the factors which had led to the fall included "negative sentiment" from last September towards Irish equities, driven by questions raised by key international media and analysts regarding economic sustainability.

KPN and Telia had also announced their decision to sell their stakes in Eircom amounting to 35 per cent, he added.

The resulting 35 per cent stock overhang inevitably affected Eircom's share price.

He said the resolution of the intended sale of the 21 per cent KPN stake had taken far longer than the board wanted but Eircom could not resolve the problem.

It continued to work with KPN in that regard. Telia had also agreed not to sell its stake until January 2001.

He said: "It is our view the current share price does not adequately reflect the true value of the company and there is widespread support for this view among the analyst community."

He shared the view of market analysts that the situation would correct itself.

On the remuneration of senior Eircom executives, he said the basic salaries of the chief executive, Mr Alfie Kane, and the chief financial officer, Mr Malcolm Fallen, and their benefits, were at a rate consistent with large plcs in Ireland.

He added that certain items of non-recurring compensation had inflated the performance-related element and given the impression of a greater-than-normal remuneration.

In particular, most payments to Mr Kane were back pay for developing the business from a £1 billion company to one valued at £7 billion on flotation.

He said most bonus payments to Mr Kane were once-off.

He accepted these payments were reported at a sensitive time when the share price was well below the flotation price but said the decision to make the payments was in August last year, when the share price exceeded flotation price.

He added the bonus payments to Mr Kane and Mr Fallen were not linked to the performance of the share price.

On the long-term incentive plan - approved despite strong opposition from small shareholders - Mr MacSharry said the scheme aimed to ensure key people, "whose performance is critical to the success of the company's business goals" were "incentivised" and their interests aligned to those of shareholders. He added the criteria on which it was proposed to grant share options had been agreed with the Irish Association of Investment Managers.

Those criteria stipulated that share options could not be exercised unless the firm's earnings grew by a rate equivalent to that of inflation, plus an additional 5 per cent.

The board had decided the plan would not be introduced until, at the earliest, after the announcement of Eircom's interim results in mid-November.

It had also decided that until the next a.g.m. share options would be allocated only at a price above €3 or the market price, whichever was highest.