Telecom Eireann has incurred substantial one-off costs as it prepares for its flotation, reducing its operating profits last year by 55 per cent. Results for the year to the end of April, published yesterday, show that the company recorded operating profits of £107 million (€137 million) compared to £241 million (€306 million) the previous year.

The company took on board several exceptional one-off costs as it prepares for flotation. These include: buying out certain employee benefits, such as bonuses, in return for a £100 million contribution to the employee share option scheme; spending on the flotation; and a Year 2000 compliance programme. The last is expected to cost £25 million.

Analysts were not surprised by the results, although some observers had expected the profit figure to be higher. "They [the results] won't shoot the lights out," said Mr Ciaran O'Neill, an analyst with NCB.

He said the results would not have a substantial impact on the flotation. He added that investors would look to cash flow and Telecom was generating good income. Mr O'Neill said that the key challenge now was to cut interest and operating costs to deliver earnings growth. Turnover rose by £20 million, or 6 per cent, to £1.44 billion (€1.82 billion) and total telecoms traffic was up 16 per cent on last year with 9.6 billion minutes. Profit after tax and exceptional items was £66 million, down from £155 million in 1997/98.

The deal with NTL, which saw the US giant buy Cablelink, of which Telecom is a 75 per cent shareholder, is not included in the results. It is understood that Telecom will use these proceeds for new investment opportunities.

Telecom said its strong cash flow had also enabled the company to invest £361 million in infrastructure - up £60 million on last year and financed without recourse to borrowings. The company also paid £83 million tax, compared to £18 million last year and dividends of £46 million to its shareholders - the Government and KPN/Telia. The company now has 1.6 million lines installed, providing the highest number of lines in one year in its history with 216,000 connections, an increase of 6 per cent on the previous year.

Much of the demand in new connections is coming from homeowners but the buoyancy in the economy is also driving new connections to businesses.

Telecom, which will benefit from the 32 per cent tax rate when writing the costs off, also reduced its debt by £23.8 million to £148 million. Five years ago, it stood at £1 billion. Telecom chief executive Mr Alfie Kane said the flotation - which is expected to see 35 per cent of the company offered for sale in July - was a welcome development and would be "a useful catalyst to further sharpen our commercial focus".

Mr Kane said the company had continued to make progress on improving efficiency. "Our pay and non-pay costs as a percentage of turnover have fallen from 42 per cent last year to 40 per cent in 1998/ 99," he said.

The results show that net staff costs fell from £324 million in 1997 to £316 million in the 12 months to April. It is understood that the savings the company gained from staff contributions to their own pension funds amounted to £5.5 million, since they began in November. Staff are contributing 5.3 per cent of their wages to a pension fund as part of the transformation plan to make the company competitive.

The plan, already agreed with employees, will include a substantial reduction in the workforce. Last year 500 people left the company.

During the year, Telecom also completed a £100 million investment programme to enhance its broadband infrastructure. It says this will mean an 80 per cent increase in the amount of fibre optic in the network by the end of the financial year.

It also completed a new fibre optic submarine cable from Ireland to Britain, capable of handling 60,000 calls at any one time.