Eircom workers to get €37.4m in dividend payout

Eircom's employee share ownership trust (ESOT) will receive €37.4 million in dividends from the company after it declared a final dividend yesterday of 6 cent per share, in addition to a 5 cent interim dividend.

Eircom shares lost 3.66 per cent to close down 7 cent at €1.84 after the former State monopoly reported a 2 per cent fall in sales to €1.6 billion in the year to March 31st. But lower operating costs helped lift profit margins in the group's first full year since its return to the stock market,

When restructuring costs were stripped out, earnings before interest, tax, depreciation and amortisation (EBITDA) rose 2 per cent to €600 million.

Davy Stockbrokers analyst Jack Gorman said the results were broadly in line with expectations but he said that Eircom's adjusted earnings per share of 14 cents was 2 cent lower than forecast, mainly due to a higher depreciation charge.

Eircom confirmed its interest in acquiring the Meteor mobile phone business but said that an auction process was expected to continue until July, a month later than mooted a fortnight ago.

In addition, Eircom warned that it faced a non-cash pension charge of €50 million per annum for the next 14 years to meet its obligations under the FRS 17 and IAS 19 accounting standards, which oblige it to book its pension liabilities as if they must be funded exclusively from bond market investments.

This charge is in addition to a cash charge for pensions of €33 million and is some €13 million greater than anticipated when the company floated. "It's not a huge surprise but it's more than we expected," said chief executive Dr Phil Nolan.

However, chief financial officer Peter Lynch said the charge would reduce if bond returns increased. He said the charge would not damage Eircom's capacity to pay a dividend.

The company said preference shares held by the ESOT will receive €21 million from the dividend while the ESOT's 20 per cent holding of the ordinary shares in issue will receive €16.4 million. The total dividend payout will be €103 million.

Dr Nolan said the decline in revenues was in line with Eircom's expectations and attributed the increase in profitability to lower operating costs and increased efficiencies. After a cut of 668 to 7,275 in Eircom's staff at a cost of €72 million, Dr Nolan said he was confident that the company could reach its previously stated target of 7,000 before its deadline of March 2008.

The number of broadband customers rose to 128,000 from 39,000 in the year and currently stands at 140,000. However, the company said it was losing money on the service and said the investment in customer acquisition will require "greater price stimulation" than assumed.

Goodbody Stockbrokers analyst Neil Clifford said the broadband figures suggested a modest slowdown in the first quarter of the current year. "Interconnect revenues were slightly ahead but this was offset by higher-than-expected discounts."