CIE has decided to fund the investment needed to improve its services out of the group's cash flow. But the heavily borrowed business is not generating enough cash to fund that investment. Revenue growth has been sluggish while costs have been rising rapidly.
Putting forward the group plan to cut annual operating costs by £44 million, its chairman, Mr Brian Joyce, warned that failure to achieve the savings would an the group would be unable to survive in "the commercial marketplace of the future".
What will make that marketplace more difficult for CIE is the expected arrival of new competitors when EU competition law deregulates the transport market and ends State subsidies to public transport companies.
CIE reported a loss of £31 million for 1995. Revenue from operations rose by £14.4 million, to £328.6 million but operating costs jumped £47.4 million (including exceptional costs of £20 million) to £440 million. This left a deficit of £111 million before interest charges (£14.5 million) and provision, of funds to cover insurance claims (£8 million).
After a Government grant of £102.5 million, CIE recorded a deficit of £31 million for the year.
All three operating companies lost money. After State grants, Iarnrod Eireann (Irish Rail) lost £15.9 million, Bus Eireann (Irish Bus) lost £6.4 million, and Bus Atha Cliath (Dublin Bus) reported losses of £7 million.
CIE had borrowings of £200 million at the end of 1995. This is the maximum level of borrowings the board is prepared to allow. So the £250 million to be spent on increasing efficiency between 1997 and 2000 must be funded out of cash generated from operations,
That is where cuts of £44 million come in CIE wants to shave £44 million off its annual running costs to fund the capital cost of investing for the future.
CIE declined to disclose the cost of implementing the plan or how long the changes will take to pay for themselves in terms of lower costs and increased efficiency.
Under the plan, a minimum of £30 million is to be shaved, off the cost structure of Iarnrod Eireann, with minimum cost savings of £8 million required at Dublin Bus and £6 million at Irish Bus.
Iarnrod Eireann the largest company in the CIE group, plans' to invest £169 million between now and 2000 to improve its fleet. Some funds will come from the EU but Iarnrod Eireann will have to fund £90 million. Under current operating conditions, it cannot fund that investment.
Last year, costs were £235 million while revenue, including State grants, was £219 million, leaving a deficit of £16 million. Borrowings were £177 million, carrying interest costs of £16 million. The company has an accumulated deficit of £10 million. "To fund any new investment out of cash flow, Iarnrod Eireann must generate an operating surplus.
If no action is taken, Iarnrod Eireann's borrowings are expected to rise to £255 million by 2000. It will have an accumulated "deficit of £90 million and an annual interest bill of about £20 million.
Labour inflexibility is costing £12 million per annum, according to the chief executive, Mr David Waters. Other potential savings identified include the £6 million spent on overtime and weekend working, depot costs of about £4 million, savings on bought in goods and services of about £6 million, and other overheads of £1.6 million.
At Dublin Bus, the plan is to cut costs by £8 million a year and to grow revenue in order to invest £13 million to £14 million in the fleet over the next five years. But the company has accumulated losses of £20 million, expected to rise to £24.7 million at the end of 1996. Revenue so far this year is £1 million below target. If no action is taken, the company expects cumulative losses to double to £46 million by 2000.
Revenue this year is forecast at £103 million, just below last year's figure of £103.5 million. Costs have fallen from £110.6 million to an expected £107.3 million this year. While non payroll costs have fallen, labour costs, which account for 60 per cent of spending, are rising. This year cash flow from operations is projected at just over £7 million. This will not cover capital investment of £13 million so Dublin Bus will have a net cash outflow of just over £6 million.
Bus Eireann, which runs provincial city services and inter city buses, expects to lose £5 million this year after its State subsidy. Costs are rising while revenue is shrinking in a market where competition from private operators is increasing. The company needs to cut costs to generate the cash to buy new buses.