HEADING into the crucial stage of its strategic alliance talks, Telecom Eireann has reported a strong set of financial results, including a sharp £159 million reduction in its debt. Growth in its telephone business and cost containment boosted pre tax profits to £116 million, from £49 million the previous year. Turnover exceeded £1 billion for the first time.
Telecom Eireann's results for the year to April benefited from strong economic growth, which helped boost turnover by over 12 per cent to £1.094 billion. This came despite price reductions which the company has pledged will continue this year.
As announced recently, call costs are to fall by £65 million this year. Chairman Mr Ron Bolger has promised that domestic and business consumers will continue to benefit from ongoing reductions. "Tariffs are only going one way, which is down," he said yesterday.
Telecom is now entering the make or break stage of its talks with two potential strategic alliance partners: a consortium of KPN and Telia, the Dutch and Swedish telecommunications operators, and TeleDanmark. The two partners are now in detailed talks with Telecom and must decide in weeks whether to lodge a final bid for the 35 per cent stake.
Telecom chief executive Mr Alfie Kane believes there is a reasonable prospect" of an alliance being concluded. However, Telecom insists that neither it nor the Minister, Mr Lowry, is interested in a "fire sale".
According to Mr Bolger, a strategic alliance, as well as bringing a cash boost to the company's debt reduction drive, could offer marketing and technical expertise and other advantages.
However, he says Telecom is already getting on with the "80 per cent" of what needs to happen with or without an alliance.
Debt reduction remains a priority, he says. While another reduction on the scale of the past year's may not be achieved, Telecom is hoping that its operations will reduce the debt by a further £100 million this year from its current level of £703 million. Last year, the State waived... its dividend, which was £10 million the previous year.
With the company due to receive a further £220 million if the strategic alliance talks are successfully concluded, the debt to equity ratio could fall below 1 to 1 this year.
Telecoms programme of containing costs has helped limit the rise in operating costs to 6 per cent. Operating costs, having risen from 57 per cent of turnover in 1992 to 60 per cent by 1994, have fallen back to 55 per cent.
In the 1994/95 financial year, a change in depreciation policy reflecting the rapidly outdating nature of telecommunications equipment - sent Telecom's profits down to £49 million from between £80 and £94 million in the three previous years. However, last year profitability rose, despite a further 5 per cent rise in the depreciation charge to £269 million.
Operating profit rose 44 per cent to £183 million and, with the interest charge also falling due to the drop in debt and low interest rates, profit before tax rose to £116 million. A higher tax charge meant that profits after tax were £66 million, compared to £23 million the previous year.
The group is now generating a sufficient cash flow to fund ongoing capital investment and reduce its debt. Capital expenditure rose by 15 per cent last year to £198 million, while the debt repayment of £159 million was the biggest ever achieved in a single year, reducing the debt to equity ratio to 1.4 to 1.
The strong economy boosted activity across Telecom's businesses last year. Total traffic rose by 12.4 per cent, compared to 7.4 per cent the previous year. New line connections jumped 11 per cent to 163,000. Strong promotions and falling mobile phone prices led to an 80 per cent rise in the number of mobile phone customers to 158,000.
