Feb 20, 2002 : C&W Global Cuts Margin Forecasts

📅 February 20, 2002 - Telecom giant Cable & Wireless has cut its full-year sales and margin forecasts for its Global networking business,dropping its shares towards their lowest point in over a decade.

C&W lowered its forecast for Global's second half earnings margin by twopercentage points, blaming "continuing difficult market conditions" for thedrop in Global sales.
C&W today issued its pre-close group trading update ahead of its financialyear-end at the end of March and the announcement of its annual results onMay 15, 2002.
Graham Wallace, CEO, stated: "Despite a backdrop of continuing difficultmarket conditions expected to contribute to a 10% decline in Cable &Wireless Global's revenue, we are achieving our objectives of reducing theproportion of lower margin business and lowering the operating cost base. Asa consequence of managing the business to optimise margins rather thanmaximising revenue, Cable & Wireless Global is expected to exceed thetargeted gross margin percentage and operating cost savings in the secondhalf. This will result in an improvement in Global's EBITDA of over 80%compared to the first half."
"Actual cash at the end of Jan. was £6.6 billion with borrowings of £2.6billion having returned £0.5 billion of capital to shareholders at that timeby way of a continuing share buy-back. We continue to focus on improving theproportion of higher margin revenues and reducing capital expenditure andthe operating cost base."
Cable & Wireless Global's revenues for the full year are expected to bearound 10% lower than the previous year. The company says industry networkbuild-out is reducing or has halted, so the demand from other operators fornetwork capacity inevitably declines. The second half network capacityrevenue in Cable & Wireless Global is anticipated to be no greater than £70million compared to £180 million in the same period of last year. Thisrevenue is expected to generate £30 million of gross margin in the secondhalf compared to £102 million in the same period last year. C&W also pointsto a significant reduction in revenues from smaller business customersresulting from the company's policy to withdraw from lower margin business.
Cable & Wireless Global is also aggressively reducing its operating costbase. Operating costs in the second half are expected to be around £610million, a reduction of £80 million compared with the first half, as aresult of the cost reduction initiatives previously announced. At the end ofDecember 2001 Cable & Wireless Global staff was 11,100 compared to 18,600 inDecember 2000. EBITDA margins for the second half are expected to be around6% compared with 3% for the first half.
On a comparable basis Cable & Wireless Regional revenues for the full yearare expected to be up 7% compared to last year, despite no favourablebenefit from currency translations in the second half. Revenue growth isexpected to be strong in mobile (up 15%), domestic fixed services (up 8%)and data and Internet services (up 60%).
Cable & Wireless Global is expected to invest £1.1 billion in capitalprojects in this financial year and in Cable & Wireless Regional capitalspending is expected to be around £300 million. The Group has invested £560million in the second half on acquisitions. This amount relates to theacquisition of Exodus (£549 million) and PSINet Japan (£11 million), whichwere paid in February 2002.