Caio quits C&W after second profits warning

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The Independent Online

Cable & Wireless, the ailing UK telecoms group, parted company with its chief executive yesterday as it delivered a further profits warning and unveiled plans to split itself into two self-contained businesses.

The fresh restructuring of the company led to renewed speculation it could be ripe for takeover, helping limit the damage to its share price. At one stage the shares were down 15 per cent but they later rallied to close 11 per cent lower at 102.25p. At that level, C&W faces expulsion from the FTSE 100.

Francesco Caio, who has been chief executive for three years, will leave at the end of March with a pay-off expected to be about £1.9m. His position is not being replaced.

The C&W chairman Richard Lapthorne said Mr Caio's contract would be honoured in full because "he is a good leaver". Asked whether his own position was under threat because of the latest profits setback, Mr Lapthorne replied. "I would go with pleasure if that is what investors want."

Mr Lapthorne conceded that C&W had only itself to blame for the profits warning because it had failed to guide the market about the likely profitability of its UK division, leading analysts to pencil in forecasts for next year which C&W itself did not expect to achieve for another four years.

In a trading update, C&W said profits from its UK division, which includes the newly acquired telecoms network Energis, would be no higher than they are expected to be this year, leading analysts to slash profit forecasts by about £100m.

This is the second profits warning in four months. In October, C&W shares fell as much as 17 per cent after it warned of lower UK sales. The latest profits warning was blamed on continued erosion of margins, high levels of customer turnover and the speed at which users were switching from traditional networks to the internet.

Under the new management structure, Mr Lapthorne will remain as part-time executive chairman on a £386,000 salary. The two new self-contained divisions will be the UK business, which will include the Bulldog broadband service, and national telecoms, which comprises C&W's portfolio of profitable overseas networks. John Pluthero, the former chief executive of Energis, will become managing director of the UK division and Harris Jones, a former T-Mobile executive, will become the managing director of the international division.

Mr Lapthorne unnerved investors by cautioning there would be more upsets to come. "John Pluthero will make mistakes," he said, which is why C&W would not tie him to targets. He agreed that the decision to split C&W into two self-contained businesses was consistent with a demerger at some point but said it was "well premature" to talk about that happening, adding that demergers could be a huge management distraction.

The decline in the C&W share price could mean that the former Energis chairman, Archie Norman, will miss out on part of the bonus he is due to receive after the sale of the company. Of the £711m purchase price, £80m is a deferred payment which depends on C&W shares hitting a price of 180p in three years' time.

The restructuring will lead to a fresh round of job cuts at a corporate level and further one-off charges, but Mr Lapthorne would not detail either of these. The company, which has relocated its headquarters from central London to Bracknell in Berkshire, has already shed 1,800 jobs since November 2004 and employs about 5,500.

The turmoil in the telecoms sector was further underlined on Monday when France Telecom ousted its finance director, Michel Combes, after its second profits warning in four months.

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