Cable & Wireless misses forecast after difficult year

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Cable & Wireless, the UK-based telecoms group, missed consensus forecasts for its full year results but raised its dividend by 18 per cent saying that there was improved visibility in the medium term outlook.

Earnings were affected by investment in Bulldog, its broadband business, which booked a £127m loss, higher than usual losses from churn and price erosion, and a one-off pension fund payment.

Revenues were 9.6 per cent higher to £3.23bn, but were flat excluding the £266m from Energis, which was bought in November for £711m.

Pre-tax profits were £209m for the 12 months to March 30, a 35 per cent decline on 2004 levels. Excluding exceptional items including asset impairments, restructuring costs, and profits from investment sales, pre-tax profits were 32 per cent lower at £112m.

Earnings per share were also lower than consensus forecasts at 3.4p, with a loss of 0.4p on continuing operations. Tony Rice, financial director, said: “performance isn’t good enough and it’s the ambition of our new group to improve it over the next two to four years.”

However, the dividend was raised 18 per cent to 4.5p which Mr Rice said reflected “improved visibility of our future prospects, particularly in the UK but in our international business as well”.

It has been a tumultuous year for C&W. In August it bought smaller business telecoms company Energis for £674m, and in January issued a profit warning and announced that Francesco Caio, chief executive, would be leaving. In February it said that up to 3,000 of its 5,500 UK jobs would be cut and in April restructured into two businesses, UK and International, each with its own operating board and balance sheet.

Mr Rice said losses of £125m due to churn and erosion was a higher than normal level “and it’s something we can impact going forward”. Churn and erosion levels at Energis were half that of the “old” C&W business, he said.

The group also made a one-off payment into its defined benefit pension scheme of £98m, and said it was now fully funded.

“There’s a persistent opinion in the market that C&W is a company with a pensions problem,” Mr Rice said. “We categorically are not. [The pensions contributions] are based on mortality assumptions which are extremely prudent.”

The balance of a £250m share buyback scheme, of which there was £150m outstanding, was cancelled, which Mr Rice said was to rebuild the group’s share price following the purchase of Energis.

Earlier in May, C&W chairman Richard Lapthorn proposed a new incentive scheme for the top 60 managers, designed to mirror those of private equity buyouts. The proposal, which investors will vote on in July, was controversial and Mr Rice criticised the “lurid headlines” it had garnered.

“I think personally it’s a really important tool in the turnround of a business,” he said.

In early trading, C&W shares were down 3 per cent at 97p.

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