Cable & Wireless Posts 1st-Half Loss, Plans Buyback (Update5)
By Dex McLuskey
London, Nov. 14 (Bloomberg) -- Cable & Wireless Plc had a record fiscal first-half loss, hurt by lower sales of phone and Web services to smaller businesses. The U.K. company plans to buy back as much as 15 percent, or about $2 billion, of its stock.
The company, this year's worst performer on the FT-SE 100 index, had a loss of 1.4 billion pounds ($2 billion) before asset sale gains in the six months ended Sept. 30, compared with profit of 296 million pounds in the year-ago period. Revenue at the Global unit, the company's biggest, fell 5 percent, matching its forecast.
Cable & Wireless sold more than 23.6 billion pounds of consumer- related assets in the past four years to focus on the Internet, though competition and excess network capacity have forced down prices for data services. Investors have pushed Chief Executive Graham Wallace to return cash to shareholders or buy a rival.
``By giving the cash back, the company is admitting there's nothing out there they can buy that would make its offering more attractive,'' said Neil Massie, who helps manage 90 million pounds in phone shares, including Cable & Wireless, at LeggMason Investors.
The shares, down 59 percent this year, rose as much as 29 pence, or 8.4 percent, to 375p after Cable & Wireless also said it will pay a special dividend of 11.5p a share in March.
The stock buyback is the first for London-based Cable & Wireless, whose customers include H.J. Heinz Co. and Walt Disney Co.
`Plenty of Money'
Assets that were sold by Cable & Wireless included its stake in Australia's No. 2 phone company, Optus, to Singapore Telecommunications Ltd. for $7.3 billion.
The first-half gains totaled 836 million pounds this year and 3.8 billion pounds in 2000, said Peter Eustace, company spokesman. Including the gains, the final loss was 567 million pounds, or 20.2 pence a share, compared with a profit of 4.1 billion pounds, or 143p.
Cable & Wireless, with 4.7 billion pounds of cash at the end of September, will spend as much as 1.4 billion pounds on the buyback and 300 million pounds on the special dividend, Wallace said on a conference call. It will then have about 3 billion pounds left.
``The buyback and special dividend is a half-hearted policy, which suggests they haven't got an acquisition target,'' said Cyrus Mewawalla, an analyst at Nomura International who rates the stock ``sell.''
Shareholders should have all the cash returned to them, Mewawalla said.
Acquisitions
Part of the remaining cash may be used for acquisitions, Wallace said. Cable & Wireless will only mull buying companies with data networks in Europe, the U.S., or Japan, he said. He declined to comment on reports the company may buy rival Colt Telecom Group Plc.
Total revenue fell 25 percent to 3.3 billion pounds. That includes 1.85 billion pounds from the unprofitable Global unit, which runs voice and data networks in the U.S., Japan and the U.K. Cable & Wireless has said that Global's revenue will probably also fall 5 percent in the second half.
The unit's earnings before interest, tax, depreciation and amortization fell to 51 million pounds from 245 million a year ago. The so-called Ebitda margin is expected to rise to 8 percent in the second half from 3 percent in the first, the company said.
Cable & Wireless will invest another 1 billion pounds in Global before it reaches profitability, which the company expects to happen in 2003.
``We're concerned about the 1 billion going into a loss-making business,'' Mewawalla said. ``Cable & Wireless earns more from cash in the bank than it from its core business.''
Write-Downs
First-half revenue from smaller companies fell 10 percent as they pared technology investments and opted for more basic services, Cable & Wireless said.
Cable & Wireless also reduced the value of some of its assets by 839 million pounds in the half. The assets include investments in Pacific Century Cyberworks Ltd., NTL Inc. and CMGI Inc. The write- downs also reflect 264 million in costs related to the withdrawal of products in the U.S.
Other telecommunications companies, including JDS Uniphase Corp., Nortel Networks Corp., Vodafone Group Plc, Marconi Plc and British Telecommunications Plc have written down the value of purchases in the past year.
Revenue growth at Cable & Wireless's Regional division, which operates in the Caribbean and Panama, is expected to slow in the second half, the company said. Sales rose 11 percent in the first half to 717 million pounds. Digital Island, which manages Web sites for companies, had revenue of 36 million pounds.
The company, which has announced job cuts to reduce costs, will pay an interim dividend of 1.5p, compared with 10.5p a year ago. |
