Ovum comment: C&W FY 2006/7 results show signs of recovery

Today Cable & Wireless announced its results for the year ended 31 March 2007. Total revenues were up 4% year-on-year to £3.348 billion, EBITDA before exceptionals was up 20% to £492 million, and the operating profit before exceptionals was up 17% to £221 million. Despite restructuring the group into three parts (International; Europe, Asia & US; Access), a significant redundancy programme and the disposal of the UK retail broadband business, the company's cash balance remains a healthy £1 billion.

Ovum principal analayst David James comments:

The latest Cable & Wireless (C&W) transformation is now showing promising results, as it moves from Recovery phase into the final Transformation phase, following the acquisition of Energis in November 2005. The financial year 2006/7 was the first to include a full year of contributions from Energis, and the company acknowledges that this was a major contributory factor in the improved results this year.

C&W reported that the turnaround of its Europe, Asia and US business unit (formerly called UK) was ahead of schedule, with revenues up 5% to £2.116 billion, EBITDA up 7% to £159 million and operating loss cut from £214 million in 2005/6 to £17 million in 2006/7. The much heralded reduction of customer numbers is progressing, with numbers halved to about 10,000 and revenue per customer doubling. The unit plans to reduce numbers still further with an ultimate target of serving around 3,000 of the largest users of telecoms services in its Europe, Asia and the US territory. However, this reduction process will become increasingly difficult as the company seeks to step away from some of its larger customers without losing credibility in the market.

The International business unit reported revenues up 7% at constant currency to £1.1 billion. EBITDA was up 8%, although operating profit dropped 16% to £269 million. The unit is experiencing customer and revenue growth from its broadband and mobile operations in the over 30 smaller (mainly island) states around the world where it operates. The strategy going forward is to invest for further growth and productivity gains in broadband and mobile services across its market.

Following the sale of its retail broadband business to Pipex in September 2007, the C&W Access business has refocused on providing unbundled local loops to some of the largest UK broadband service providers. Revenues were up 30% to £43 million in 2006/7 despite the sale of the retail business. So far, C&W Access has unbundled over 800 of BT's exchanges, providing coverage of just over 50% of the UK population. This proposition should prove attractive to broadband service providers who want to roll-out services across the country without the expense and delays inherent in installing their own equipment in BT exchanges. Pipex was the first such customer, and earlier this week a four-year contract with cable operator Virgin Media was announced.

C&W has worked over the past year to establish firm roots for future growth - the first shoots of that growth are starting to appear.

David James has over 20 years' experience in the telecoms and IT industry. He leads Ovum's team of analysts on the [email protected] advisory service.

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