Twenty years after opening for business, Channel Tunnel operator Eurotunnel finally sees a strong and profitable future, supported by record passenger traffic and a growing freight business.
The company, twice forced to refinance after construction cost overruns and over-optimistic traffic forecasts, said it benefited from a recovering British economy last year and saw solid trading in February. It also expects to pay corporation tax for the first time next year.
CEO Jacques Gounon, who took the helm in 2007, said shareholders could expect a further dividend rise this year and next, after a 25 per cent hike to 15 cents a share for 2013 announced today.
“For the first time in Eurotunnel’s troubled history, we consider the group’s situation is very satisfactory and we are confident in the future,” Gounon told reporters.
The tunnel linking France to Britain carries the Eurostar high-speed train from Paris and Brussels to London and shuttle trains conveying passenger cars, coaches and freight trucks.
The 50.5 km link, which took nearly six years to build and cost £9 billion as well as the lives of several workers, was inaugurated by Queen Elizabeth and French president Francois Mitterrand on May 6th, 1994.
It was built without taxpayers’ money on the insistence of former British prime minister Margaret Thatcher, leaving shareholders - many of them private individuals who were encouraged to invest, and bondholder banks, to bear the brunt of its unfolding financial troubles.
The project’s costs were nearly double those initially estimated. Revenue projections proved overly optimistic, shuttles broke down and a fire in the tunnel wreaked havoc in November 1996.
Eurotunnel’s debt pile brought it to the verge of bankruptcy in 1996 and then again in 2006, and after a long legal battle, bondholder banks forgave billions of euros of debt.
In 2013, an all-time high of over 10 million passengers took the Eurostar, while Eurotunnel’s shuttle services carried 2.5 million passenger vehicles and 1.4 million trucks. Eurotunnel’s revenue rose 12 per cent to €1.1 billion, driven by a 16 per cent jump in revenue at its rail freight unit Europorte.
“It’s obvious we are seeing an economic recovery in Britain that is actually very strong,” Gounon said.
He noted a growing number of Britons - who represent two thirds of the Tunnel’s users - were driving their cars onto its shuttles to go to continental Europe, but said that in France, consumer confidence was still grim.
“The Brits are in need of a bit of fun” and eager to turn the page of austerity, he said. “But the French are feeling down in the dumps.”
Earnings before interest, tax, depreciation and amortization (EBITDA) reached €449 million and Eurotunnel is aiming for €460 million this year and over €500 million in 2015.
Earnings however, came below market forecasts of €482 million for this year and €521 million in 2015 in a Reuters poll. Analysts found the guidance disappointing, and Eurotunnel shares were down more than 3 per cent having risen 34 per cent in the last 12 months.
Gounon said the guidance factored in a continuation of the loss-making ferry service between Calais and Dover, MyFerryLink, a service whose future hangs in the balance pending the outcome of an inquiry by Britain’s Competition Commission. A preliminary finding on the case will be released at the end of next week, he said.
Gounon said Eurotunnel would create extra parking space at its terminals and buy three additional freight shuttles to absorb truck traffic, which he saw rising 3-4 per cent annually.
Gounon also saw potential for 14.2 million Eurostar passengers by 2020 if new high-speed rail links were opened, for instance with Geneva in Switzerland.
Eurotunnel, whose concession runs until 2086, has already announced the Eurostar would connect London to Marseille in 2015 and London to Amsterdam in 2017. Germany’s rail operator Deutsche Bahn is set to start using the tunnel too from 2016.
Reuters reported earlier this month that the British government was considering selling its 40 per cent stake in Eurostar. (Reuters)