Ferry group set sights on Aer Lingus

SEA ferry company Irish Continental Group would like to buy Aer Lingus from the Irish Government and say they have the financial clout to close the deal.

ICG managing director Eamonn Rothwell said acquiring the State airline remains top of their acquisition wish list. He said keeping the carrier in Irish ownership would preserve valuable landing slots at US airports for the company.

“Finance will not be a problem,” he said.

ICG results for the year to the end of December 2003 show it slashed debts by €32.4 million, bought back €9.8 million in shares and grew turnover to €304.3million.

The company also managed to slash tax charges to just €0.3 million compared with €3.1 million the previous year. The company said this was a reflection of its election to take the EU-wide option to pay tax on tonnage rather than profits.

In 2003 the company acquired €1.23 million shares, 5% of the issued capital, at a cost of approximately €9.8 million, an average price of €7.97 per share. The shares closed down 3.25% at €11.80 yesterday.

Profit before tax, before an exceptional charge of €4.8 million for staff restructuring costs, for the year amounted to €22.5 million compared with €25.8 million the previous year.

Chairman Tom Toner said: “The success of our current cost saving programme will be critical to the success of the group going forward. With our quality asset base and continued strong cash flow we are well positioned for the future.” Merrion Securities analyst John Mattimoe, who rates the shares a buy, said the strong cash generation of the company remains intact.

“The operating result was reasonable in a difficult environment. Operating profits fell by 17% to €28.9 million, with nearly all of this fall in the ferry division, where EBIT (earning before interest and tax) fell by 19% to €25.3 million.

Mr Mattimoe said looking forward, in the ferry division the yield environment is still tough, although some further volume growth is possible.

“The operating performance will benefit from the imminent closure of P&O’s Mostyn route and lower fuel costs in euro terms, while the recent strengthening in sterling versus the euro would be a net positive, if sustained. Cost efficiencies should be a positive from 2005 on,” he said.

Mr Mattimoe said ICG’s cash flow profile remains hugely attractive.

“With low medium-term capex requirements, average medium-term free cash flow of €40 million per annum is capable of being generated, which represents a free cash flow yield of 14%. This cash flow can be used to pay down debt, fund further earnings enhancing share buybacks or possibly support corporate action,” he said.