Eurotunnel cuts losses by 18% but warns of debt problems

Eurotunnel, the debt-stricken Channel tunnel operator, yesterday celebrated the first fruits of its cost-cutting programme and a rise in passenger numbers as it reduced its first-half losses by 18%. But the group, which is in tense talks with creditors over its £6.1bn debt, said it faced "increasing uncertainties".

The group warned that cash-flow would be severely vulnerable next year and it would not meet contractual debt repayments from early 2007. Eurotunnel is fighting plans by its banks to take effective control via a debt-for-equity swap. A new executive team led by Jacques Gounon has taken over after a series of boardroom coups and shareholder revolts.

Mr Gounon, who became chairman on February 18 and chief executive at the annual meeting on June 17, said the firm had accelerated improvements in its operational performance and would consolidate a 3% cut in operating costs in the second half. It is cutting capacity on its 25 shuttle trains to meet demand and axing 800 of more than 3,000 staff by April, with more than 100 jobs already cut in Britain.

The net loss was reduced to £87m from £105m, while operating earnings rose 19% from £62m to £74m on a 2% rise in revenues to £268m. This was helped by £36m from the railways under a minimum usage charge that is being contested in the courts and runs out late next year.

The company carried 703,363 lorries, up 9%, and 951,561 cars, up 1%, but much of the increase was due to ferry disruptions in Calais and an early Easter. Passenger levels fell in the second quarter but coach traffic increased 34% in the half and Eurostar, the train operator taking on low-cost airlines, carried 8% more passengers.

Mr Gounon frankly acknowledged the problems his new team face in refinancing this year. He plans to write off £4bn of debt - to the horror of creditors - and start repaying debt from mid-2006, when £4m is due. Repayments from then to 2009 total £263m. He said that, without a deal with creditors and with ongoing disputes with the railways, Eurotunnel would not meet its debts before 2007.