A BUOYANT economy resulting in new customers and increased telephone Eireann usage a helped Telecom Eireann report a 76 per cent rise in pre-tax profits to £204 million for the year to the end of March. Strong growth in turnover, lower interest costs, down from £67 million to £43 million, and lower restructuring, costs led to strong profits growth last year.

By the year end Telecom's effective debt was reduced from £703 million to £373 million. Some £180 million of the £330 million reduction came from operating profits. The £150 million balance came from the £183 million paid by KPN/ Telia for a 20 per cent strategic stake in Telecom.

Because there are "substantial" penalties for early repayment of some of Telecom's fixed interest debt, the company put the £150 million into a special fund earmarked for debt repayment. This means that in March 1997, Telecom's effective gearing - the ratio of its debt to shareholders funds - fell from 1.4 times to 0.45 times.

Chairman Mr Ron Bolger said his aim is to wipe out the company's debt over the next two to three years. He said the strategic alliances completed late in its financial year was a key element in helping the company to meet future competition.

Telecom faces the challenges of trying to implement its "transformation plan" to cut costs and improve services as its markets are opened to competitors and margins are squeezed. Just this week ESAT and CIE announced a deal to develop a competing telecoms infrastructure.

But implementation of Telecom Eireann's transformation plan has been stalled by the failure to agree on the level of shares for employees under the employee share option plan with 5 per cent offered by the shareholders and 14.9 per cent sought by the unions. It is hoped to resume these talks very shortly.

Telecom's turnover rose by 11 per cent to £22 billion, despite a £65 million reduction in phone charges.

Turnover was boosted by new connections, up 5 per cent to 171,300, an 83 per cent rise in the number of mobile phone users to 288,000 and a 400 per cent rise in the numbers using voicemail to 120,000. Overall traffic (minutes of telephone usage) rose by 14 per cent to 7.4 billion minutes.

A breakdown of turnover shows that 55 per cent came from telephone traffic while 19 per cent from rental income. Some 90 per cent of Telecom's income was generated in the domestic market.

Operating costs rose by 11 per cent to £674 million. Mr Bolger said that core payroll costs were reduced by £20 million by changes such as the removal of the bonus scheme and some overtime payments and reductions in numbers employed But recruitment of marketing and service specialists and a higher volume of business meant that the overall reduction in payroll costs was less, at £8.5 million.

Staff numbers fell from 11,707 to 11,560 people. Mr Bolger estimated that staff numbers will be reduced by 1,200 over the next two years.

Profits alter tax improved from £67 million to £127 million and the company paid dividends of £13 million to its shareholders. Some £114 million was added to reserves.