C&W rises after reassurance on property lease exposure

Cable & Wireless was forced to clarify its exposure to property leases yesterday in an effort to reassure investors that any further restructuring would not be as costly as feared.

Cable & Wireless was forced to clarify its exposure to property leases yesterday in an effort to reassure investors that any further restructuring would not be as costly as feared.

The company, which last week announced it was pulling out of the bulk of its US and Continental European operations, said most of its ongoing lease liabilities were related to its UK businesses and not its US operations.

The move sent shares in the company up 6.75p, or 9 per cent, to close at 82.5p, making the stock the second-biggest riser in the FTSE 100 index.

Cable & Wireless said last week that it was taking an £800m charge to cover the costs of the restructuring in the US and Europe – a move that will see 3,500 jobs axed, mainly in the US.

But investors feared more restructuring in the US might be necessary and baulked at the potential costs of such an exercise after Cable & Wireless said its leasing commitments had risen to £2.2bn from the previously reported figure of £897m.

Fraser McLeish, an analyst at Investec, said: "The market has been concerned that the majority of the outstanding lease commitments relate to the US and would therefore crystalise on any further US restructuring."

Cable & Wireless pointed out, however, that its remaining lease commitments now stood at about £1.4bn, not £2.2bn, since it had already accounted for £800m of the cost. Furthermore, it estimated its ongoing exposure in the US at about £400m and said the bulk of the balance, or about £800m, was related to its UK businesses.

The clarification comforted City analysts, who generally deemed the UK business as being a viable operation and one that was unlikely to undergo a major restructuring, and who had feared the bulk of the company's £2.2bn cash pile could be eaten away.

It may, however, have come too late to save Graham Wallace, the chief executive, who has presided over four profits warnings, as calls for his resignation continued.

Cable & Wireless also confirmed that the majority of its £1.4bn of future lease payments related to property leases, rather than network leases. "This is important as network leases have no intrinsic value whereas property leases are generally easier to get out of – the property can be sub-let or often the landlord is prepared to negotiate," Mr McLeish said.

The move comes less than a week after Cable & Wireless announced a pre-tax loss of £4.4bn for the six months to 30 September after accounting for £3.5bn of exceptional charges including the write-off of £2.7bn of goodwill. Of the £800m of restructuring charges announced then, only £100m covered job losses with the costs of exiting property leases pitched at £525m and the costs of network leases and other contracts at £175m.