Cable & Wireless warns over margins
Shares in Cable & Wireless slumped today after the telecoms giant reported a sharp slowdown in sales at its retail business in the UK.
The company, which agreed to acquire smaller rival Energis this summer, shocked analysts with the severity of its trading difficulties in the UK as tough trading conditions and pricing pressures took their toll.
Cable also warned the process of gaining regulatory approval for its £700m (€1bn) deal to buy Energis looked set to take longer than expected and that a number of cost reduction initiatives were on hold as a result.
Shares were 15% lower today after Cable said total revenues in the six months to September 30 were 6% lower at £765m (€1.1bn).
While this was in line with expectations, Cable said more of the sales were in lower-margin carrier services work, such as for other telecoms providers.
In retail, where C&W provides services for customers including Marks & Spencer, sales were 13% lower at £375m (€546m).
Investec analyst Christian Maher said: “Whilst we are not surprised by the fact that UK trading is weak, the sheer level of deterioration surprises us in the business.”
Revenues in carrier services were up 3% on the same period last year to £390m (€568m), outstripping retail sales in the UK for the first time.
In a trading update today, Cable said: “The UK revenue figure for the first half shows total UK revenue in line with management expectations, but with an overall shift in the revenue mix from retail to carrier services.”
The company added: “Although UK trading conditions remain difficult, we expect a satisfactory outcome for the full year.”
But Mr Maher said the shift in sales from retail to carrier services “was sharper than expected” and said the City was likely to downgrade final-year forecasts for underlying earnings from £200m (€291m) to around £150m (€218.6m).
Cable said there had been a “loss of momentum” in sales planning since the deal with Energis was announced.
The company also revealed the deal was still awaiting approval from the OFT, which has outlined a number of potential issues.
Cable said: “This step neither increases nor decreases the likelihood of referral but simply reflects the wealth of information that has to be assimilated by the OFT in order that it can reach an informed decision.
“It is therefore possible that the approval process will take longer than originally anticipated with a corresponding potential delay to completion.”
Together, Cable and Energis could generate annual sales in the UK of around £2.3bn (€3.3bn), much of it from providing telecoms services to large companies.
