The Thing Is: Cable & Wireless

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The Independent Online

City analysts are not normally known for admitting their sums are wrong. But on Cable & Wireless, you'd be hard pressed to find anyone claiming their profit estimates are anywhere near the mark. "We are not changing our forecasts at this stage although they will surely be wrong," confessed Martin Mabbutt, telecoms analyst at Deutsche Bank, in a note published after C&W delivered its results on Wednesday.

C&W used its results to wheel out the new, improved management team, fronted by chief executive Francesco Caio and chairman Richard Lapthorne. It certainly looked better than the old lot, headed by former chief executive Graham Wallace, who led C&W down a disastrous path of expansion into loss-making internet services.

In an effort to clear the decks and herald an era of openness, Mr Lapthorne decided to disclose a little more about what's happening within the telecoms behemoth. The problem is, it raised more questions than it answered. The markets were certainly befuddled, driving the stock down 10 per cent and then up 10 per cent in a matter of hours. The thought process went something like this: C&W is pulling out of the US business - buy. But it doesn't reveal how much this will cost - sell. Management seem more competent than the last lot - buy. But they have disclosed the UK business is a dog - sell.

In short, the C&W's presentation has raised three big issues. Closest to home is the UK operation. It was always assumed that this business was struggling, but not this badly. Sales have fallen 16 per cent and the division made a £303m operating loss last year. The operation is in such a large hole that there seems little chance of it ever climbing out. So a merger (perhaps with Energis or Thus) or an outright closure can't be ruled out.

The second issue is the US. Under Mr Wallace's stewardship, C&W spent a staggering £9bn in America. While it was a gross waste of money, shareholders are shedding no tears over the news that C&W is pulling out. The question is how. It is desperately trying to find a buyer, which is why it refused to say last week how much leaving the US would cost. But no one seriously believes there will be any takers. Analysts estimate that if C&W closes the US, it could cost up to £700m.

Finally, there is the small paragraph tucked away on page 13 of C&W's results. Unbeknown to almost everyone outside 124 Theobalds Road, C&W owns an insurance company called Pender. But this Isle of Man-based business, which offers insurance to C&W and other telecoms firms, is facing "substantial claims". C&W has pledged to defend these "vigorously", but Mr Lapthorne won't say how much the claims are for.

So in an effort to be more open, C&W management have left investors scratching their heads.