Cable & Wireless Plc says it is back on the right track to double digit earnings growth and intends to split its shares one-for-one share to make its them more attractive to smaller shareholders and institutions. This will take effect from October 28. Chairman Lord Young says that the company traditionally splits its shares when […]
Cable & Wireless Plc says it is back on the right track to double digit earnings growth and intends to split its shares one-for-one share to make its them more attractive to smaller shareholders and institutions. This will take effect from October 28. Chairman Lord Young says that the company traditionally splits its shares when they hit about UKP8. He does not see the alliance between British Telecommunications Plc and MCI Communications Corp as a threat because it will, he reckons, target big global customers, especially those with strong UK and US links. For the year ending March 31, pre-tax profit rose 42.5% to UKP918.
But these were swelled by exceptional gains of UKP177m, ahead of analysts’ expectations of UKP95m. This was due to Cable selling a 20% stake in Mercury Telecommunications Plc to BCE Inc of Canada in March 1993, and the exercise of warrants at Hong Kong Telecommunications Ltd. Excluding these gains, pre-tax profits rose by 15% to UKP824m at the top end of the expected UKP800m to UKP825m range. Turnover also increased 22.5% to UKP3,826m, reflecting growth in all major market sectors and geographical areas. And cost-cutting has paid off too, with operating profit 17% higher than the previous year at UKP771m. If last year’s US dollar exchange rates were applied, however, the figure would have been UKP10m lower. The board is recommending a final dividend of 10.1 pence, bringing the total for the year to 14.85 pence, a 12% increase on 1992. A scrip dividend alternative will be made available to everyone except US shareholders. Lord Young said that to maintain growth, the group intends to consolidate its efforts around three regional hubs in Western Europe, Asia, and the Caribbean, focussing on basic telecommunications, mobile communications, and differentiated services. It will create clusters of businesses around each of the hubs to form a federation that offers a pool of expertise at both local and global level to provide a seamless set of services. And because Cable started out as an international company, the building blocks are now in place. It is just a case of making them more effective, of knitting them together to become an effective global player and not just a local one. In the words of chief executive, James Ross, we want the company to become more valuable than the sum of its parts, and this will be achieved by unlocking the potential of alliances and harnessing their strengths. Examples of this policy during the last year include Cable’s purchase of a 40% shareholding in Baltic Communications Ltd, a St Petersburgh-based international telecommunications firm; and of a 20% stake in Japan-based OmniTRACS Corp, which provides mobile data communications via satellite in Japan. Nonetheless, over the past five years, the company has seen the domestic market grow considerably due to the influence of Mercury, which became cash generative for the first time this year. The UK and Europe now generates 35% of group turnover compared with 19% five years ago, mainly at the expense of the Asia Pacific region, which has seen its share of the total decrease from 58% to 44%. Despite a flat economy and pressure on margins due to heavy price competition from BT, Mercury snatched 2% UK market share from its rival, bringing its total to 10.5%. This was due in particular to the firm’s success in the residential sector – it doubled the number of lines here to 474,000. And it aims to have 2m customers of any description using its services by the mid-1990s. Mercury’s sales were up 31% to UKP1,199m, while operating profit rose 24% to UKP192m. Cable’s other major growth area, geographically, is the Asia Pacific. And China is one of the key elements of this growth – it now represents 44% of all international traffic in the region. And while there are 25m telephone lines in the country today, the government wants 100m to be in place by the year 2,000. Although it has ruled out any possibility of foreign participation in this, executive director of Asia Mike Gale reckons it won’t be able to
do it alone. In which case, he says, 57%-owned HongKong Telecom is well placed to step in. Turnover in Asia and the Pacific rose 20% to UKP1,701m, while operating profit increased 16% to UKP563m. The Middle East, Indian Ocean and Africa benefitted from reduced losses in Pakistan, and strong growth in Yemen due to reunification and increased traffic volumes as a result of its new cellular service. Revenues grew 14% to UKP83%, or 2% of the total, while operating profits were up 38% to UKP18m. But, the Western Hemisphere saw mixed fortunes. Although Jamaica’s currency is now stable against the US dollar, the rest of the Caribbean suffered from continuing recession in the US. Conversely, the US market saw switched traffic increase by 20%. Turnover here grew 19% to UKP708m, but operating profit fell 21% to UKP80m – Telecoms of Jamaica’s figures were restated, however, following the devaluation of the Jamaican dollar. So, all in all, Lord Young is happy that Cable can maintain growth – happy enough perhaps not to take things to seriously. When asked if his company had ever made contributions to UK Conservative Party funds, he replied, No, we have never given money to any political party – and my watch is my own too.