Alfie Kane's "performance" bonus (Phoenix)

dahamsta

From The Phoenix, October 26:

Alfie Kane's "performance" bonus

AS EIRCOM sinks over the horizon, Alfie Kane has decided to belatedly issue the company's annual report in the secure knowledge that he will not have to hold an agm and be torn to shreds once again as he was last year. He also does not have to worry about being criticised for the massive payoffs he has got despite the terrible results he has produced.

Bad and all as the results are, shareholders should be thanking their lucky stars that Alfie Kane did not succeed in his determined bid to buy one of the third generation mobile licenses in Britain. He bet the company on this by bidding a crazy €2.5 billion for one of the 3G licenses. lf the Brits had accepted this bid, Eircom shareholders would have suffered much more serious damage than they already have, for the general view now is that without having a 2G infrastructure already in place it would be prohibitively expensive to build the infrastructure from scratch and acquire any decent market share.

This would have been such a nightmare scenario that several companies in Europe without a 2G system already installed have actually begun to hand back their 3G licenses, despite having spent a fortune buying them. In contrast, last May, Eircom got back the €168m deposit it had to lodge with the Brits in order to qualify for bidding.

Nevertheless, the actual full results now published are truly shocking. Although turnover was up 10% to €2.2 billion, published pre-tax profits fell 76% from €271m to only €66m. This latter was adversely impacted on by the €113m provision which had to be made to cover write-offs in ebeon, Viasec and Nua, as well as covering the costs of pulling out of London and cutting back in Northern Ireland.

More depressing is that despite Alfie Kane's March 2000 restructuring programme (which involves reducing staff by 3,500 over the coming years), Eircom's net staff costs last year actually rose15% to €461m - a totally crazy result.

After the outrage expressed at the €2.5m payout Alfie Kane got the previous year, it was expected that he would not take anything other than his (huge) base salary of €444,000 in the year to March last. particularly so in the light of the over €2 billion which original Eircom shareholders have dropped. However, not only was Alfie Kane paid a special performance bonus last year of €200,000 on top of his base salary, but he also got a €500,000 pension top-up, to bring his total package last year to €1.2m. This means that over the last two years Kane has got almost €4m while his shareholders drowned their sorrows.

Oddly enough, the new finance director, Peter Lynch, who was in the job for three months of Eircom's last financial year, was only paid a base salary for this period of €68,000. But what is much more important is that he expressed absolute confidence in the company by buying 500,000 shares in Eircom, whereas Alfie Kane still holds only 21,000 shares - a clear vote of no confidence in both himself and the company.

However, what is most disturbing about the results is that while Eircell mobile sales were up almost 50% to €700m and profits up 30% to €90m, the underlying surplus in Eircom's fixed-line business almost halved to a miserable €124m, nothing like enough to justify Valencia's near €3 billion bid for the company.

Given that there is little or no ability to increase Eircom's fixed-line telephone revenue, as tariffs have to be reduced to limit the effect of competition, the only chance the Valencia consortium have of getting its money back is to actually push through the 3,500 staff reduction programme which Alfie Kane signed up with the union in March last year. If this was implemented it would cut €150m off the payroll cost and push Eircom's profits to €374m. By implementing this, and at the same time limiting Eircom's capital spending to well under its €300m depreciation charge - as opposed to the €400m Alfie Kane spent last year - the Valencia consortium would have some chance of recovery.

Also, with a massive €2.5 billion loan structure to pay down, the last thing the Valencia consortium will want to do is undertake the massive broadband capital investment programme. In the meantime, Eircom shareholders must be delighted to know that the company has paid €15m out to Denis O'Brien for the inducement fee he negotiated with the company to encourage him to make his last bid.

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dahamsta

Oh sorry, the point...

The key point is in the last paragraph - that the "new" Eircom will simply not be able to afford investment in a broadband infrastructure, even if it implements the redundancy programme. This is why Local Loop Unbundling is even more important now that it has ever been. Bitstream operators are going to be limited by Eircom's investment, so we're not going to see a replication of the structure in the UK; we're not going to see hundreds, or even dozens, of bitstream operators jumping into the bitstream marketplace, because their market is going to be extremely limited - it's going to "hobble" them right from the off.

The only answer is a fair and affordable local loop unbundling programme. The infrastructure has to be opened up to large operators like Esat, Colt and Nevada tele, so they can install their own equipment and kickstart flat-rate narrowband and broadband in Ireland. On top of that, we need to see intelligent entrepreneurs seeing past the often inaccurate rhetoric spouted about broadband, to the long-term markets and profits involved. And of course we need the investment funds to see that too. These people have to forget about the short-term dotcom fairy-stories and start thinking long-term.

adam

Fergus

These sort of payoffs are pretty much criminal. It's the sort of thing that gives capitalism a bad name, and rubs the ordinary honest person's nose in it. When you think back to the last Eircom AGM and the almost unanimous disapproval which was just ignored, you have to dispair of the situation.

b20uvkft6m5xwg

Yeh I saw this alright.
Its the one w/ Gerry Adams on the cover is it?? The old man gets it free, so I was havin a gander, but I think it was late so I forgot to post sommit about it.

What else can be said...Disgraceful.

The graph is a bit misleading though because it shows the share price before the forced devaluation due to the sale of eircell to vodafone. Me thinks they should have used a percentage calculation!

Now you have gone and further upset me Adam....
Not only as a sharelholder but a customer of evil €ircom. (no jibes please)

Matfinn

Alfie Kane, for his actions, should be arrested and put in jail. He is taking our money for his own personal use. The last time I checked this was a form of robbery. I always wondered why eircom charged such high prices for net access. I could almost say it was to keep the top fatcats in there above a million pounds. Crazy idea but when you consider it, makes more sense. I had to pay £250 for a phonebill to eircom for 2 months net access. 80 miles from me I know a fella paying NTL £15. Here is a conversation I had with my good friend from the Belfast.


<matfin> con
<matfin> how much again is your net access?
<matfin> a month
<CoNfOuNd> £0.00
<CoNfOuNd> lol
<CoNfOuNd> well
<matfin> how much you pay ntl for flatrate?
<CoNfOuNd> as long as i spend £15 a month on other ntl services
<matfin> ok
<CoNfOuNd> its 100% free
<matfin> do you get tv with that aswell?
<CoNfOuNd> i get a tv and two phone lines, so that pays for the internet


And we are the E-hub of Europe. I wish for the government to take note of this, and especially Eircom.

Thats all from me.

Matt