Eircom reports €52m loss after restructuring

Eircom made a pre-tax loss of €52 million in the year to March 31st, 2002, compared to a profit of €66 million in the previous year, regulatory accounts published yesterday by the group show.

The loss was caused by huge write downs in the value of network assets, the sale of Eircell, and a drop in turnover at some key business units. This occurred during a major rationalisation programme at Eircom, as the firm cut back its operations in preparation for a trade sale during 2001.

The figures also show the firm made a €187.5 million dividend payment to shareholders following the group's sale to the Valentia consortium last year. This increased Eircom's retained losses for the year to €269 million, up from just €10 million in 2001.

The figures, which are included in regulatory accounts that are prepared on the order of the telecoms regulator, show Eircom's group turnover fell to €1.78 billion, down from €2.15 billion last year.

The biggest reason for the fall in turnover was the sale of Eircell to Vodafone in May 2001. This meant the mobile firm contributed just €95 million revenue to Eircom's finances, compared to €705 million in the previous 12 months.

This sale also hit Eircom's earnings, according to the accounts which show Eircell cost the group €47.8 million in the year to March 31st, 2002, compared to a profit of €67.6 million in the previous year.

Eircom reduced its operating costs to €1.86 billion, down from €2.07 billion in 2001, in part due to its redundancy programme, the closure of its international divisions and the introduction of more efficient work practices.

A number of exceptional items detailed in the accounts caused the massive increase in losses at the group. Write downs on the value of Eircom's network, its property portfolio and the closure of the group's international businesses cost the group almost €70 million.

The regulatory accounts give a detailed breakdown of how each Eircom division performed during the year to March 2002. These show its retail business lost €10 million reversing a €12 million profit in the previous 12 months.

The write-down of almost €40 million in the value of Eircom's network assets, including its local access network - the telephone wires that run into every home in the State - contributed to this.

Turnover at Eircom's retail business was €1.298 billion, a drop of €12 million on the previous 12- month period. A combination of lower line connections - as consumers increasingly use their mobile phones rather than fixed lines - and lower prices enforced by the current price cap on Eircom explain this fall off in revenue.

The firm was able to increase the rental income it receives from its 1.7 million customers by about €40 million. Eircom's access deficit - the difference between rental income on lines received and the money it invests in its core network - represented a €189 million loss, the accounts show.

Profit generated from Eircom's local access network business grew to €102.4 million in the year to March 31st, 2002, up from €80.4 million.

Returns from Eircom's core network business - which offers interconnection services to Eircom's own retail arm and other telecoms operators - fell to €56.2 million, down from €57.9 million in the previous 12 months.

A division entitled "Other business" which includes Eircom's subsidiary businesses such as Eircell, the internet firm Indgio and its apparatus supply business, generated a loss of €154.4 million, according to the accounts.

Eircom's public payphone business doubled its losses to €6.5 million in the year to March, up from €3.04 million in previous year. Turnover at the payphone unit fell €4 million to €24.3 million during the year driven by the increasing penetration of mobile phones.

One of the few Eircom business units to post a significantly better performance was its directories assistance unit which managed to reverse losses with the launch of its 11811 service. The division posted a €133,000 profit on turnover of €21.7 million for the year to March, up from a loss of €4 million on €16.2 million turnover in the 12 months to March 2001.

Eircom recorded a profit of €12.8 million from its leased line business in the 12 months to March 2002, representing a fall of almost €16 million on the previous year.

The unit generated turnover of €147.3 million in the 12 months to March 2002, down from €151 million the previous year. This could reflect more competition in the market for leased lines following regulatory intervention to support competitors gaining access to these types of leased lines in 2001.

Eircom managed to make a profit from its internet call business in the year to March 2002, posting returns of €2.1 million on turnover of €23.2 million.

This represented a small rise in turnover - up from €22.2 million in the year to March 2002 - suggesting a slight increase in the number of people using the internet here.

Eircom's internet unit, Indigo, posted revenues of €8.2 million in year to March 2002, up from €6.15 million the previous year.

An Eircom spokesman said last night the impact of a stringent price cap set at the consumer price index minus eight was hitting revenues for its fixed line business.

He said the change in the profit before tax reflected additional exceptional items and charges.