15 November 2011:
- Trading performance in line with market expectations, trading cash flow up 19%
- Underlying margin and EBITDA stable year on year
- Package of measures announced aimed at reducing costs, improving marketplace performance and ensuring a strong and resilient balance sheet
- Gavin Darby to join as Chief Executive Officer on 28 November 2011 – John Pluthero to leave the business in March 2012
Financial highlights
- EBITDA £190 million (H1 2010/11: £214 million), underlying performance stable
- Gross margin £511 million (H1 2010/11: £522 million), underlying flat
- Trading cash flow strengthened by 19% to £38 million
- Exceptional items – goodwill impairment (£436 million), deferred tax asset write down (£146 million) and the write off of obsolete assets (£42 million) totalling £624 million
- Agreement concluded with pension fund trustees, initial payment of £100 million, £125 million of available resources released
- Interim dividend of 0.75 pence per share to be paid in January 2012 at a cost of £20 million. Future dividends suspended to improve balance sheet strength
Trading highlights
- UK Enterprise – recent contract wins to restart hosting growth
- Renewal and extension of framework Government contract, providing greater opportunities to engage with UK public sector
- Progressing global markets – 7% enterprise margin growth
- Extra 35% of data centre capacity commissioned – to start to come on stream in H2
New Chief Executive
- The Board has appointed Gavin Darby as Chief Executive Officer with effect from 28 November 2011
- John Pluthero will leave the Board in December 2011. He will stay with the business to effect an orderly handover and will leave the business in March 2012
John Barton, Chairman, said:
“At the end of a turbulent period for Cable&Wireless Worldwide, we are pleased to announce trading results in line with market expectations. The Board has appointed Gavin Darby as Chief Executive Officer. Gavin will provide the longevity of leadership required, energy and fresh insight for the future. We are delighted to have secured such a high quality candidate to lead the business into the next phase of its development.
“Alongside Gavin’s appointment we are also announcing a package of measures aimed at reducing costs, improving marketplace performance and ensuring a strong and resilient balance sheet. The Board has reached agreement with the pension trustees to a forward funding plan which, in return for a £100 million contribution, reduces annual contributions and frees up £125 million of resources. The interim dividend of 0.75 pence per share will be paid but going forward, the Board intends that future dividends will be suspended to improve balance sheet strength and to enable investment in the business. Dividends will only be paid in the future when covered by free cash flow.
“Taken together, we believe that the measures we have announced today will provide a robust platform to allow Gavin and his team to continue the programme commenced by John Pluthero.”
CHIEF EXECUTIVE OFFICER’S REVIEW
Trading Commentary
During the first six months of this year there has been considerable market uncertainty and global economic conditions continue to look challenging. This has resulted in corporate customers adopting a more cautious approach to their ICT spend and the payback required from any investment made.
In UK Enterprise we won several significant new contracts including Bravura and large national bookmaker to deliver hosting solutions and in the UK Public Sector the renewal and extension of the Government Secure Intranet Convergence Framework provides us with an excellent opportunity to work more closely with Government to support their ICT agenda. Globally, demand in emerging markets continues to be encouraging, although pricing is increasingly keen.
Within this set of results the underlying performance of voice has been stronger than our medium term guidance. This reflects our improved management of the portfolio.
Pricing pressure on data connectivity continued to be a feature both in the UK and internationally albeit partially offset by increased volumes. Excluding one-offs in the prior period the underlying IP and data margin was down 1%. We continue to sell a range of managed services to customers, which act as a key point of differentiation.
In hosting and applications we delivered one-off project work which drove margins up by 17% to £103 million. However underlying growth was constrained by a lack of available capacity. As previously announced, investment to expand our data centre capacity is underway and is due to be come on stream in early 2012. This will support our sales pipeline which continued to grow as more customers, both current and potential, seek to outsource their communications infrastructure.
Operating costs were higher by £13 million in the period, largely reflecting one-off rebates recognised in the prior year.
Our people
Our colleagues are central to the success of Cable&Wireless Worldwide. Despite tough market conditions our colleagues have continued to demonstrate the skills and commitment required to deliver high levels of customer service.
Resetting the business
We still see significant opportunities for growth in our marketplaces although our recent delivery has not been as good as it needs to be. There are several specific factors for that, in some places capacity, in others a lack of clear approach. There is considerable potential for simple, effective and efficient ways of working to enable us to exploit market trends and grow the business.
The Board has agreed a package of measures to address this under performance, reduce costs and improve balance sheet resilience and strength.
1. Improving marketplace performance
This involves two main areas of activity:
Performance improvement in voice and data
Voice and data currently contributes 80% of our gross margin. Although the continued pricing pressure on these products is unlikely to change we remain underrepresented in these core markets and therefore, there remains an opportunity to increase our market share. The focus in these markets is to improve competitiveness and effectively manage price erosion. This will be achieved with a change in management approach, effective targeting of wholesale markets and revised pricing methodologies.
Purposeful growth plans
Across the business we have an attractive range of growth opportunities from hosting through to the carrier market. Hosting and the move towards cloud represent clear opportunities and we are investing accordingly. Continued growth in this area will be achieved through targeted investment in our capabilities, data centre capacity and products, where we can deliver sustainable return on this investment. There are also targeted market share opportunities across the other markets in which we operate.
2. Reduce the cost base without jeopardising delivery
We continue to see inflationary pressure in our cost base which is not reflected in market prices for our products and services. We have started a cost reduction programme to partially offset this inflationary pressure and fund some of the investment required in the business. The main focus of this programme is reducing support function costs and overheads and in rationalising our supply chain. We aim to protect customer facing areas in order to maintain our service proposition.
We are also carrying out a review of our capital expenditure programme with the aim of cancelling unattractive programmes, redirecting spend to more value adding initiatives and exploring partnerships and collaboration to reduce the capital strain on the business.
3. Improving balance sheet resilience and strength
In the light of heighted macroeconomic uncertainty and increased market volatility, the Board has prioritised
balance sheet strength. A number of actions have been agreed:
Pension
We have agreed with the pension trustees a new funding plan which involves an initial payment of £100 million in the second half in return for reduced annual contributions together with the termination of the contingent funding agreement which required us to ring-fence £125 million of available resources.
Dividend
The interim dividend of 0.75 pence per share will be paid at a cost of £20 million. The Board intends to suspend dividend payments going forward until a point when free cash flow comfortably covers proposed dividends.
Outlook
The business continues to trade in line with expectations. As a result of the implementation of our new plans we anticipate a moderate increase in operational expenditure in the second half of 2011/12.
The underlying business is strong, we are retaining customers whilst winning new ones, and we plan to capitalise on and grow what we have today. Our focus is designed to maximise the benefits from our voice and data businesses whilst generating strong growth, in the medium term, from our attractive range of opportunities.
John Pluthero
Chief Executive Officer
~ end of summary, see attached document for further details ~
Contacts:
Matt Hotson
Cable&Wireless Worldwide
Director, Investor Relations and Corporate Affairs
+44 (0)7822 873 039
Investor Relations:
Roy Teal
Cable&Wireless Worldwide
Investor Relations Manager
+44 (0)7822 820 762
Media Relations:
James Melville-Ross
FTI Consulting
+44 (0)7909 684 467
Cable&Wireless Worldwide will hold its 2011/12 interim results presentation for analysts and institutional investors at 10.00am (GMT) on Tuesday 15 November 2011. A live audio webcast of the presentation and the presentation slides will be available at www.cw.com. A live audio broadcast of the presentation will also be available for both UK and International on: +44 (0)20 3059 5845. To access this audio conference, you will need to quote confirmation password – ‘results’.
A replay will be available on: +44 (0)12 1260 4861 code confirmation: 2225394#
A recorded video webcast of the presentation will be accessible at www.cw.com
For any further information or queries, please email ir@cw.com
Financial Calendar
- Ex-dividend date for 2011/12 interim dividend: 23 November 2011
- Record date for 2011/12 interim dividend: 25 November 2011
- Payment date for 2011/12 interim dividend: 26 January 2012
About Cable&Wireless Worldwide
Cable&Wireless Worldwide (LSE: CW.) is a global telecoms company providing a wide range of high-quality managed voice, data, hosting and IP-based services and applications to large multinational companies, governments, carrier customers and resellers across the UK, Asia Pacific, India, Middle East & Africa, Continental Europe and North America. Established in the 1860s, Cable&Wireless Worldwide helps more than 6,000 organisations deliver their goals. The Group’s vision is to be the first choice for mission critical communications.
Reaching 20,500km in length, Cable&Wireless Worldwide owns the UK’s largest fibre network dedicated to business users of telecoms, and provides ubiquitous nationwide access through a combination of fibre, digital, microwave, radio and leased circuits. The network has presence in over 400 towns and cities in the UK, with 864 unbundled exchanges covering 56% of the population.
Internationally, Cable&Wireless Worldwide’s global next-generation network (NGN) stretches to more than 425,000km, including interests in 60 global cable systems, enabling connectivity to more than 150 countries. The Group’s IP-based Multi-Service Platform operates at the core of our NGN, offering a single environment on which voice and data applications can be converged to drive business efficiencies. Cable&Wireless Worldwide’s network is uniquely designed with inbuilt resilience.
With more than 6,000 colleagues globally, Cable&Wireless Worldwide is committed to delivering exceptional customer service and developing long term partnerships with its customers.
To find out more, visit www.cw.com
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