C&W investors want heads to roll after string of profit alerts

Nigel Cope,City Editor
Friday 22 February 2002 01:00

Institutional owners in Cable & Wireless are pushing for a management clear-out at the under-performing telecoms group after the latest profits warning on Wednesday.

Institutions believe the changes should start with Graham Wallace, chief executive, Robert Lerwill, finance director and Sir Ralph Robins, the chairman who is approaching 70.

A senior fund manager at one of the group's major institutional shareholders said yesterday: "The institutions have just lost faith in the current management team. There will be a lot of meetings going on and [Sir] Win Bischoff, the senior non-executive director, will have to make some decisions. It's starting."

Cable & Wireless shares have fallen from 1,463p to just 214p, their lowest level in more than a decade. There have been three profits warnings in the past six months, including Wednesday's statement that said revenues at the key Global division would be down by 10 per cent on the previous year.

While Mr Wallace has earned credit for raising cash through asset disposals, the continued investment in the Global business is testing shareholder patience.

Shareholders are also nervous about the accounting practices related to sales of network capacity. The company last week denied that it had undertaken any "hollow swaps" of capacity where profits are booked on swapped capacity and where no cash changes hands.

Another of C&W's largest shareholders said: "There is a bit of a question about the execution of the strategy. There are concerns that the management will fritter away the cash which, to be fair, they have built up in the first place. Mr Wallace's talents may lie in selling things rather than running them."

The shareholder added that he would like to see a further return of funds from the group's £2.2bn of net cash. "We'd like some more to come back. They could throw in a decent special dividend."

Wholesale changes at the top of Cable & Wireless would cost the company millions in compensation payments. Mr Wallace and Mr Lerwill are both on two-year rolling contracts, contrary to corporate governance best practice. In the latest annual report the company said: "The board does not consider it in shareholders' interests to renegotiate these contracts."

Mr Wallace was paid a total of £1.66m last year, with a salary of £756,000, a short-term bonus of £459,000 and a £391,000 share award. He was appointed chief executive in 1999 having previously been chief executive of Cable & Wireless Communications. Mr Lerwill earned just under £1m, including a £386,000 salary.

Sir Ralph, whose is also chairman of aero engine maker Rolls-Royce, earns £250,000 a year as Cable & Wireless chairman but has no service contract.

However, one senior fund manager, said it could be a "hollow gesture" to sack the management. "You could get something worse," he said.

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