Cable & Wireless considers demerger options

Cable & Wireless will be making a decision about the possible demerger of its core business divisions over the coming 12 months, the company said yesterday.

In 2006, the global telecoms group divided itself into two standalone divisions, one covering Europe, Asia and US (EAUS), and the other its international operations including businesses in Panama, the Caribbean and Macau. In line with its proposed timetable, it will be this year that the management makes detailed decisions about realising the value in the business.

"There are many ways to realise the value and for the last two years we have been saying to shareholders that we will look at this in 2008/9," Tony Rice, the finance director at C&W, said. "Now that process is very high on our agenda and a demerger is certainly one of the top options under consideration. Aligning the group to return capital to shareholders, or selling off parts of the business, are also options."

The global telecoms group's financial results for the year to March, published yesterday, showed revenue down by 5.9 per cent to £3.15bn but earnings up by 23 per cent to £605m, beating analyst expectations of £601m. The group is cash positive for the first time since 1993 and the dividend is up 28 per cent year on year to 7.5p. The company's guidance for the coming year anticipates further growth to between £702m and £725m.

The biggest contributor to last year's strong performance was the EAUS division, which saw pre-tax profits up by a massive 161 per cent to £219m. The turnaround plan for the business was first unveiled in 2006 and includes a four-year strategy to improve efficiency, boost margins and cut customer numbers from 30,000 to 3,000 in order to focus on high-quality contracts. "Part of the strategy was to move from a business very heavily dependent on short-term voice contracts to one with high-quality longer contracts for network services," John Pluthero, the chief executive, said. "We have almost doubled the size of that business in the last couple of years and the margins on those kinds of products are two or three times as high as those on voice contracts."

But the progress has not come without a price. The group has laid off 500 people in the last 12 months, or around nine per cent of its workforce – which has contributed around £4m to its £140m cost-reduction programme. Other, more lucrative measures, included renegotiating network contracts, improved pooling of resources and cutting rejected orders from customers by 97 per cent. "It is not magic, it is not just about firing people and squeezing the pips, you have to change the way you work," Mr Pluthero said.

The company also reported that its UK pension scheme is fully funded, with a £19m cash contribution to the fund taking it to an IAS surplus of £375m, compared with £43m last year.

C&W shares closed at 156.6p yesterday, up 2.69 per cent.