The C&W chairman said Mercury profits are back on a growth track, as the rationalisation programme announced six months ago takes effect more quickly than analysts expected. Losses at One-2-One, Mercury's mobile phone arm, have also peaked and are expected to fall sharply this year.
Despite the improvement at Mercury, however, C&W said it would be cutting capital expenditure in the division from pounds 421m to less than pounds 400m in an attempt to restore earnings growth. In the year to March, earnings per share were flat at 23.6p after a 22 per cent fall in pre-tax profits from pounds 1.09bn to pounds 844m.
"We are not making any excuses - this was a disappointing result and one we do not intend to repeat," Lord Young said. He added that earnings had grown by an average of 19 per cent since privatisation and C&W intended to return to that rate of growth.
He promised that the company would pay more attention to the balance between short-term earnings growth and the long-term development of the business, which analysts saw as a response to rumours that C&W might be a bid target.
Recent market whispers have put C&W in the sights of a range of companies, including BT, AT&T and Bell Canada, owner of the 20 per cent of Mercury not owned by Cable.
Turnover at C&W pushed through pounds 5bn for the first time, rising 9 per cent to pounds 5.13bn, with sales growth especially strong in Europe and at Mercury, where minutes carried on the network rose 18 per cent and customer lines increased by more than half.
But underlying profits at Mercury slipped 17 per cent to pounds 203m, even before a pounds 122m charge to cover a restructuring of the division which the company now expects to yield cost savings of pounds 60m, 20 per cent more than hoped for.
Elsewhere, profits in Hong Kong, where C&W holds a 57.5 per cent stake in Hongkong Telecom, were 10 per cent higher at pounds 810m after line growth of 5 per cent and a 15 per cent rise in outgoing minutes called.
The Caribbean, C&W's other major market, saw profits of pounds 171m, an 11 per cent improvement, a result which would have been stronger but for the effects of exchange movements.
At Mercury One-2-One, losses almost doubled from pounds 33m to pounds 61m as the company stuck to its marketing strategy of offering free off-peak calls, but the company said losses would quickly reduce.
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