Cable & Wireless writes off pounds 200m after merger

Cable & Wireless Communications (CWC), the pounds 4bn merged cable grou p, is to write off pounds 200m to cover the cost of restructuring. The news emerge d as CWC gave the first indications of its performance since the merger and pledged to make annual savings of pounds 20m.
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The decision by Graham Wallace, CWC's chief executive, to issue the group's first trading statement yesterday partly reflected continuing concerns about the company's share price, which has fallen steadily since the merger was completed in April. Yesterday the shares dropped a further 13p to 242p, down from 300p in April, as analysts registered surprise at the group's decision to press ahead with a pounds 1bn investment programme this year.

More than pounds 600m of the investment was earmarked for an expansion of the cable and long-distance telephone network, 58 per cent of which has been completed. A further pounds 250m would cover connections to homes, while the remaining pounds 170m would be spent on a new computer billing system.

The provisions of pounds 200m were larger than the pounds 125m of write-offs originally forecast by analysts. The 40 per cent cut in the group's management, with the loss of around 400 jobs, cost pounds 45m, while other provisions included pounds 55m to cover a reduced valuation of computer systems and pounds 53m of property write-downs.

Mr Wallace defended the provisions. "When you put four organisations together you've got to take a pretty close look at costs," he said. He gave an upbeat assessment of CWC's recent performance, as the company yesterday unveiled its new marketing campaign using the brand Cable & Wireless, also the name of its majority shareholder, and backed by a pounds 50m advertising promotion.

Total revenues in the three months to the end of June rose by 13 per cent, to pounds 551m, compared with the same quarter the year before. The merger combined Mercury's long-distance network with cable operators Bell Cablemedia, Nynex CableComms and Videotron.

CWC also pointed to an increase in the number of homes taking its services. Penetration for telephony offerings rose from 20.1 per cent to 22.6 per cent, with 772,209 subscribers, while cable television penetration edged up by 1 percentage point to 19.1 per cent.

Mr Wallace said bundled tariffs, which offered telephone line rental and five television channels for pounds 11.99 a month, would boost customer numbers.

He said the rationalisation would bring efficiency savings of pounds 106m compared with the former spending plans of the four companies, translating into a pounds 20m boost to CWC's profits. Last year's profits, for the 12 months to the end of March, were pounds 80m on a pro-forma basis, suggesting earning this year could be above pounds 100m.