Wallace defies pressure to quit after C&W unveils £4.4bn loss

Graham Wallace, the chief executive of Cable & Wireless, yesterday hung onto his position as shares in the telecoms company plunged 36 per cent after it announced 3,500 job losses as well as a £4.4bn loss for the half year.

Mr Wallace, who has faced growing calls to quit after presiding over four profit warnings, conceded yesterday he would have done things differently with the benefit of hindsight but insisted he did not think the company's strategy had failed.

Cable & Wireless said that its review, which will see the workforce of its Global internet and data division pared back to 9,000 and see it abandon £300m of sales a year, would cost it about £800m and save it about £400m a year.

The company is pulling out of its US and Continental operations but will continue to serve its multinational customers there. The bulk of the job losses associated with the move are expected to fall in the US where the group is cutting the number of data centres it operates to 15 from 27 and where it has invested £3bn to £3.5bn.

But shares in Cable & Wireless dropped 47.25p to close at 83p last night, valuing the group at less than its £2.2bn of cash and making the stock the biggest faller in the FTSE 100 index. Analysts attributed the drop mainly to the high exit costs and fears that the restructuring had not gone far enough.

The review was unveiled as the company announced a £4.4bn pre-tax loss for the six months to 30 September after accounting for £3.5bn of exceptional charges including the write-off of £2.7bn of goodwill. Cable & Wireless' sales fell 28.8 per cent in the half year to £2.4bn including an 11 per cent drop in Global's revenues to £1.5bn and a 1 per cent rise in sales at its Regional operation to £723m.

The company also admitted to a £47m pension deficit this year but said the deficit under the FRS17 accounting standard was more like £375m to £400m.

But analysts were yesterday focusing on the company's restructuring and the cost of that exercise and predicted Cable & Wireless' £2.2bn cash pile could fall as low as £600m.

Only £100m of the company's £800m exit costs cover job losses with the costs of exiting property leases pitched at £525m and the costs of network leases and other contracts at £175m.

Mr Wallace said he had not offered to resign and insisted his strategy had not failed. "You don't improve the margins the way we have.... with a failed strategy," he said but added: "If we had our time again ... we would have taken on less data centres."

David Nash, chairman designate, also rallied round his chief executive, saying: "Had the board considered a change would have been in the group's best interests, we would have made it. The board believes Graham Wallace knows more about the business than anyone else, is totally committed to the success of the strategy agreed by the board and is the right man to lead the team."

But a former Cable & Wireless chairman, Lord Young, said heads should roll: "Whoever was the architect of this strategy must bear responsibility." The spread betting firm Financial Spreads is offering a market on the number of days Mr Wallace has left as chief executive with the spread currently at 85 to 95 days.

"Management change now looks inevitable given that the majority of C&W's problems stem from the Exodus acquisition," said analysts at Investec. The purchase of the web-hosting business was one of the two major acquisitions that Mr Wallace had overseen.

Cable & Wireless also admitted yesterday that market conditions remained "difficult" but said it expected its Global division to become free cash flow positive by the fourth quarter of 2003-04 and estimated its Regional operation would grow revenues by 0 to 5 per cent.