Esat says earnings target will be met

Esat Group cut its pre-tax loss to €65 million in the year to the end of March 2002, down from €319 million in the previous 15-month period, writes Jamie Smyth.

Trading losses fell to €48 million in the same year, down from €92 million, the firm's latest financial accounts show.

The State's second biggest fixed-line telecommunication firm benefited from a one-off gain of €711 million from the disposal of its 49.5 per cent stake in Esat Digifone to British Telecom. However, this was offset by depreciation and amortisation charges of €677 million, mostly caused by write-offs on a string of acquisitions made by Esat during the boom.

Despite the poor set of results, Esat Group insists it is still on target to meet its goal of generating positive earnings by April.

Mr Tom Byrne, chief financial officer at the Esat Group, said the firm was on target to meet its goal of becoming EBITDA (earnings before interest tax, depreciation and amortisation) positive and would next year generate positive cashflow, he said.

Last year, Mr Ben Verwaayen, chief executive of Esat's parent, British Telecom, set the strict target for Esat, and all its foreign subsidiaries. A failure to reach the target would result in closure of the subsidiaries, the BT chief executive said in May 2002.

Esat is expected to give a financial update on its financial progress in mid-April. The financial accounts for the year to the end of March 2002, which were signed off only recently by its board, outline the challenge the firm had to achieve its goal.

The group generated turnover of €260 million for the 12 months, up from €242 million in the 15 months to the end of March 2001.

Figures supplied to The Irish Times for the 12-month period to the end of March 2001 show comparative turnover was €198 million. Pre-tax losses came to €207 million in the same period.

The director's report included in the latest annual return says trading conditions remained difficult due to stiff competition from the incumbent operator (Eircom) and the impact of the downturn in the technology and internet markets.

Turnover from continuing operations, excluding acquisitions, grew by 18 per cent in the year to the end of last March.

The directors also indicate that Esat paid €10 million in restructuring charges between March and August 2002 as part of a redundancy programme.

In May 2002, Esat completed the purchase of the Web development firm Labyrinth for a total consideration of €11.8 million.

Esat earlier paid €304.7 million to acquire the assets of Ocean in May 2001. The group figures detail Ocean's results for the period from May 2001 to March 2002, which show the firm generated turnover of just €30.5 million.

In a reflection of the unrealistic valuation placed on telecom assets during the dotcom boom, depreciation and impairment charges on various acquisitions created a loss of €329.5 million.

A note to the accounts details that legal proceedings against the firm have been issued by unsuccessful bidders for the Republic's second mobile phone licence. It is unlikely these proceedings will become active until after the completion of the Moriarty tribunal, says the note. The note continues: "It is not possible to predict the findings of the tribunal and, therefore, it is not possible to quantify any potential liabilities or the costs of defending these actions."

The accounts also detail a second claim against Esat made by CIÉ in February last year for performance fees due under a licence agreement. The claim relates to 2000 and amounts to €1.6 million, said the firm, which included a provision of €150,000 in the accounts.