C&W cuts earnings guidance

Thu 05 Nov, 2009 09:18

By Kate Holton

LONDON (Reuters) - Telecoms group Cable & Wireless (C&W) cut its full-year earnings guidance on Thursday due to weakness in the Caribbean but said stabilising conditions elsewhere would allow it to push ahead and demerge.

Analysts said they had expected the cut in earnings guidance, as falling tourist numbers in the Caribbean resulted in less demand for its services, but added that the comments on a demerger did not really add anything new.

The announcement also accompanied first-half results which missed targets for group revenue but beat earnings forecasts due to cost cuts and a stronger performance in the Worldwide division. Shares in the group were down 7 percent by 9:10 a.m.

The group, Britain's second biggest corporate telecoms provider after BT Group , had previously announced its intention to demerge but put the plans on hold a year ago due to volatile market conditions.

But the group said on Thursday it now planned to relaunch the plans and split into two operating businesses between Worldwide, which offers business communications across Europe, Asia and the United States, and International, which provides fixed-line and mobile services in the Caribbean, Macau, Panama and others.

"As a result of the emerging signs of more settled conditions in financial markets, we are now moving forward to list the two businesses as independent, publicly-quoted companies," Chairman Richard Lapthorne said.

"The Board believes that a demerger is the right structure to drive further growth and value for shareholders by enabling both businesses to pursue their strategies independently, and it is keen to push ahead as quickly as possible."

The news may help offset C&W's announcement that it had also revised down its forecast for earnings before interest, tax, depreciation and amortisation (EBITDA) at International due to the deteriorating economy in the Caribbean.

"We are resetting our full year CWI EBITDA guidance in the range of $880 million (532 million pounds) to $900 million, a net reduction of $35 million - $55 million," it said.

Earnings for the group were revised down to a range of 989 million pounds to 1 billion pounds, from an earlier target of 1.03 billion pounds.

For the first half, C&W posted group EBITDA of 463 million pounds, up 30 percent and ahead of a Reuters poll expecting 454 million pounds, while revenues missed forecasts at 1.86 billion pounds, compared to a forecast of 1.92 billion pounds.

BofA Merrill Lynch analyst Wilton Fry said the earnings performance helped hide the "terrible revenue picture."

(Reporting by Kate Holton; Editing by Jon Loades-Carter)