Cable & Wireless Plc’s chief executive James Ross predicted that last year would be remembered as the year in which Mercury Communications Ltd stumbled, but he said that the current year would see the UK subsidiary back in the black. When asked about a possible alliance between Cable & Wireless, Veba AG and Sprint Corp, if the Sprint Atlas venture with France Telecom and Deutsche Telekom AG falls through (CI No 2,666), Ross said that it was one of many possibilities being considered but refused to comment further. The London-based telecommunications group saw pre-tax profits down 22% at ú844m, after one-off charges totalling ú300m. Turnover rose 9% to ú5,133m. Excluding Mercury and the effects of exchange rates, underlying pre-tax profit and turnover rose 18% and 13% respectively. The underlying earnings per share growth was nil, and executive chairman Lord Young conceded that was a disappointing result and not one we intend to repeat. Mercury – 80% owned by the group – increased its turnover by 12% to ú1,645m, but operating profits fell by 17% to ú203m. During the year it started its restructuring programme that has so far cost ú122m.
Share its trenches
Broken down, ú60m was the result of redundancies, ú18m came mainly from Mercury’s withdrawal from public pay phones with the balance from the disposal of fixed assets. By the end of calendar 1995 the headcount will be down by 2,500. Mercury chief executive Duncan Lewis said that the company would aim for a 2% to 3% better return on capital from the current 12%, by outsourcing and spreading risks wherever possible. He cited the recent outsourcing of its directory enquiry service as a good example, and said that in the future Mercury would outsource its data centres, share its trenches when cabling and sell 25 of its properties to cut costs. During the second half, Mercury saw its biggest increase in line volume and call minutes increased by 19% in the year. The One-2-One mobile telephone business – 50% owned by Mercury – incurred losses of ú61.3m for the group, but Ross said that last year was the trough and losses would be cut this time. It is on target for profitability in 1996-97, according to the company. He said lessons learned from Mercury would be applied around what he grandly called the Federation. He said though that the group would avoid surgery and take medicine in good time. Losses in the rest of Europe were cut slightly, and in future all German operations will be included in the figures of the Vebacom GmbH venture, in which the British group holds a 45% interest. Hong Kong Telecom was once again the largest contributor, bringing in operating profits up 10% at ú810m from turnover up 8% at ú2,244m. It added 76,000 new digital mobile customers in the year, bringing the total to more than 160,000, or 34% of the market. Land line growth was 5% and international call minutes were up by 18%. The Caribbean has seen the fastest growth for Cable & Wireless over the years, and operating profits grew by 11% on a 4% increase in turnover to ú498m. However the region was the hardest hit by currencies. North American growth rates were solid, turnover up 10% to ú422m and operating profits up 48% to ú38m. Ross said that BCE Inc’s 20% stake in Mercury has brought benefits from the access it gives to Bell Northern Research laboratories and expertise in network management in what has appeared at times a somewhat dormant relationship. A final of 6.2 pence will be paid, making 9.1 pence for the year, a 9.7% rise.
