A certain defensiveness was apparent at the Cable & Wireless Group interim report yesterday over the performance for the six months of its wholly-owned subsidiary, Mercury Communications. After Cable & Wireless’ Rod Olson had given a quick run-through of the results turned in by the group as a whole, Gordon Owen, who represented Mercury, started […]
A certain defensiveness was apparent at the Cable & Wireless Group interim report yesterday over the performance for the six months of its wholly-owned subsidiary, Mercury Communications. After Cable & Wireless’ Rod Olson had given a quick run-through of the results turned in by the group as a whole, Gordon Owen, who represented Mercury, started by claiming that the general impression of disappointment concerning Mercury that had been propagated by the financial press was unjustified, and that in fact Mercury would be seen as one of the success stories of the 1980s. Nonetheless, he went on to give a number of reasons for the relatively low profit-turnover ratio experienced by Mercury, which reported a net operating profit of UKP14m after depreciation charges of UKP23m for the six months to September 30, a period in which calls made on the 2100, 2200 and 2300 services had each more than doubled. Apart from the obvious negative effect on profits resulting from the the large payments that had to be made to British Telecommmunications and foreign telecommunications companies, Owen explained that the return traffic on international calls, where most profits are to be made, had been small, so restricting income in this important area. Furthermore, the losses incurred by new services such as paging and Callpoint had been incorporated into the profit figures. When asked if the growth in Mercury service use was perhaps not high enough, given his claim that the demand for it was there in bounteous quantities, Owen replied that Mercury, as a business operation, was obliged to adopt a different strategy to that of British Telecom when it was in the process of building up its telephone network: as a state-owned company, British Telecom’s prime concern 90 years ago was to make the telephone as widely available as quickly as possible; Mercury, with a responsibility to shareholders and a need for profitability, had to make sure it didn’t run so fast it fell over. Finally, Owen stated that the nature of Mercury’s business, which called for a large initial investment before a later period when the services were established and revenues began to roll in, meant that profits would in future grow exponentially. The figures for Cable & Wireless as a whole were not accompanied by the same lengthy justifications; Rod Olson pointed out that Cable & Wireless’ general strategy to create a more even distribution of revenues throughout the world, and particularly to increase the significance of sterling profits, was working, with the UK now accounting for 24% of worldwide profits, up from 8% last time. Profit for the six months had been further increased by the consolidation of the figures of Telecommunications of Jamaica, which was now treated as a subsidiary since Cable & Wireless had increased its holding in it to 59%. As far as the future was concerned, particularly in reference to recent developments in China and implications that may arise in 1997 for Hong Kong, where Cable & Wireless’ has a significant interest, Olson stated that the fact that Cables had just secured a Triple A rated loan, put at $200m, over a minimum of 10 years, was proof enough that there was no reason for concern. Despite the company reporting a 22% jump in overall pre-tax profits to UKP241m, the shares shed eightpence to 483 pence.