Eurotunnel off target on interest

EUROTUNNEL'S new chief executive Richard Shirrefs kicked off his tenure today with a warning that the company is unlikely to meet its target of generating enough cash to meet interest payments on its huge debts this year.

Shirrefs, who was finance chief of the Channel Tunnel operator, displaced his French boss Philippe Lazare at the turn of the year in a row over management.

Unveiling losses of £147m in 2001 against £124m the previous year, he said: 'We set ourselves a new target of full interest cover in 2002. We are, however, now shooting from a lower base. It is not completely unattainable and we have not abandoned it, but we are saying it is quite possible we will have to go into 2003. The original target in the debt restructuring prospectus was set at 2004, but the new target of this year looked reasonable enough 18 months ago.'

The increased losses in 2001 came after what chairman Charles Mackay called a 'quite extraordinary range of unforeseen external challenges', though the 12% dive in operating profits to £183m was almost all due to a £25m shortfall in profits from telecoms companies using the tunnel to lay cable.

Mackay blamed 'the collapse of the telecoms cable market, serious flooding on both sides of the Channel, foot-and-mouth disease and, most damaging of all, asylum seekers - all this against a deepening economic downturn, aggravated by the events of 11 September'.

Revenues from passenger and freight operations and income from other tunnel rail users were flat at £521m. However, the shortfall cut operating cashflow after capital expenditure to 72% of the £330m annual interest bill on Eurotunnel's £6.5bn of debt. Capital expenditure grew to £82m.

Despite another £25m lost to having to ward off asylum seekers - £20m in lost revenues from track delays plus the £5m spent on fortifying the French terminal - and the company's continuing legal battles with governments and clients, Shirrefs remains upbeat.

With interest payments staying stable, capital expenditure should have peaked and revenues should be on the rise again after the company forced through a 10% rise in tariffs for freight users from 1 January.