Cable & Wireless plans split after unveiling shock profits warning
Demerger is back on after markets recover
Friday 06 November 2009
Cable & Wireless has resurrected plans to split in two a year after shelving the move because of market turmoil, but also warned on profits as its Caribbean business suffered.
The blue-chip telecoms group yesterday intends to demerge the Worldwide business, which provides companies with telecoms services, from the regional telecoms arm, CWI.
Its chairman, Richard Lapthorne, said: "As a result of the emerging signs of more settled conditions in financial markets, we are now moving forward to list the two businesses as independent, publicly quoted companies."
Mr Lapthorne added that C&W was keen to push on with the move "as quickly as possible". The announcement contained little detail, but the company said it would be fleshed out "before the end of the month". This will include a timetable for the demerger.
The original plans to split were put on ice in November last year, as the financial markets weakened. John Pluthero, the executive chairman of the group's operations in Europe, Asia and the US, said at the time that shareholders backed the company's decision. He feared that one of the businesses would be bought cheaply if it went ahead.
Tony Rice, the head of the international business, called it an "unnecessary risk". He added: "When the market sorts itself out, and not just over a five-day period but shows a decent period of stability, we will look at the prospect again."
The Worldwide arm specialises in internet protocol, data, voice and hosting services for companies, and operates in 153 countries around the world.
Robert Grindle, an analyst at Deutsche Bank, said yesterday's news would spark interest from rivals: "There would be a number of interested bidders for Wordwide as a standalone entity".
CWI runs mobile and broadband as well as domestic and international fixed-line services in the Caribbean, Panama, Macau and Monaco. The division dragged on performance as falls in the Caribbean forced the group to issue a profit warning during the presentation of its half-year results.
Mr Lapthorne said: "Since the summer we have seen further deterioration in the Caribbean economy, with no immediate signs of improvement. Consequently, despite robust management action, we are reducing earnings before interest, tax, depreciation and amortisation guidance for 1009/10."
The "hiccup in the Caribbean," as Mr Lapthorne referred to it, was brought about by a fall in the number of tourists heading to the region and in the amount spent by those who still visited. The group does not expect a recovery there in the second half of the year, and said it "was not planning for one next year".
The company posted a 13 per cent rise in revenues to £1.8bn in the six months to the end of September, while profits after tax were up 42 per cent at £163m. Mr Lapthorne said it was "a good set of results, especially when viewed against the recession".
Jonathan Groocock, an analyst at Investec, disagreed, saying the numbers were "weak". He also questioned the demerger: "In the absence of a trade buyer, we struggle to see the value created by such a move."
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