Cable hit by tough UK market

Telecoms group Cable & Wireless suffered a 23% fall in half-year profits today as it counted the cost of a difficult period for its UK business.

Underlying profits of £134m (€198m) in the six months to September 30 included a 54% year-on-year fall in the operating figure for the UK, but were still ahead of revised market expectations following a profits warning last month.

Cable blamed “challenging” conditions in the UK market as revenues in the retail sector, where it provides services for customers including Marks & Spencer, fell 13% on the prior year to £376m (€556m). Carrier services revenues of £392m (€579.8m) increased by 3% but this sector – involving work for other telecoms providers – is lower margin.

Despite the downturn, C&W said its strategy remained on track following the acquisition of broadband provider Bulldog and its deal for smaller rival Energis, which recently secured regulatory approval.

Chairman Richard Lapthorne added: “The path is clear, although the rapid rate of change in the UK may well lead to some short-term volatility in reported profits, which could well be exacerbated by timing decisions and the details of the Energis integration.”

While Cable achieved half-year revenues of £768m (€1.1bn) in the UK, it believed the business had potential to achieve a figure of around £2bn (€2.9bn) with an operating margin in the double digits.

Moves towards the latter will come through a lower cost base, including from a headcount reduction of 450 posts carried out in September. It has already warned the Energis tie-up will cost an estimated 700 jobs by 2008.

Cable said it wanted its expanded UK business to target the large corporate sector providing a “differentiated offer to this segment” while Bulldog will serve small and medium sized businesses and the consumer sector.

It added that the acquisition of Energis gave it larger scale and reduced the risk involved in rolling out a new state-of-the-art network.

The company also has a national telecoms business, with the Caribbean-focused operation achieving “satisfactory” results with revenues up 10% to £595m (€880m) and operating profits before exceptional items ahead 7% to £171m (€253m).

Cable shares recovered some of their recent weakness to climb 4% today.