DBRS Updates Benchmark Report On Cable & Wireless PLC
6/13/02
DOMINION BOND RATING SERVICE LTD. ("DBRS-T") CABLE & WIRELESS PLC ("CWP-BHDNX3") - DBRS Updates Benchmark Report On Cable & Wireless PLC Cable & Wireless plc ("C&W" or "the Company") has seen its financial risk decline substantially, but this has come at the cost of increased business risk over the last two years. During this period, C&W sold its incumbent operations in the U.K., Hong Kong, and Australia, and generated substantial cash proceeds, resulting in a current net cash position of 2.6 billion.
C&W's remaining incumbent operations generate strong operating cash flow, contributing 100% of C&W Regional's 2002 EBITDA and remaining free cash flow positive. Going forward, growth in cash flow from this segment is expected to be in the mid-single digits, attributable to mobility and DSL services in the Caribbean, Panama and Macau. However, the Company's shift in strategic focus from traditional incumbent operations towards IP, data, Web-hosting and voice services targeting business customers has negatively impacted overall cash flow from operations.
Cash flows from the Global segment have not grown at the rates anticipated, with EBITDA declining to virtually zero in fiscal 2002, attributable to: (1) declining prices for all services due to excess capacity; and (2) decreased demand for data services related to the economic slowdown. Although the Company has reduced capex, free cash flow deficits from the Global segment still exceed 1 billion. Even so, C&W Global's free cash flow deficit will likely be reduced in fiscal 2003, while the revenue outlook remains uncertain. The Company still plans to spend 650 million on capex in this segment, a figure that appears to be exorbitant given that: (1) C&W just wrote off 4 billion in fixed assets and goodwill pertaining to the Global segment; (2) entire networks are being auctioned for less than 650 million (e.g. Global Crossing and KPNQwest); and (3) the Company's focus is suppose to be on on-net sales.
Instead of spending on additional network infrastructure, the Company should be focusing on gaining a substantial customer base to fill its existing capacity and possibly complement its existing Regional operations. C&W is likely to be one of the survivors in the alternative carrier industry, but the uncertainty concerning how the industry will rationalize means continued high business risk. Although C&W has a strong balance sheet and not much financial pressure, it is not immune to the operational issues that face the industry. TEL: 416-593-5577 ext.2268 Rory Buchalter EMAIL: rbuchalter@dbrs.com TEL: 416-593-5577 ext.2242 Chris Diceman |
