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June 24, 1987

CABLE & WIRELESS LOOKS FOR MERCURY COMMUNICATIONS TO MOVE INTO PROFIT THIS YEAR

By CBR Staff Writer

The building of the soon-to-be-completed Mercury Communications fibre optic figure of eight network in the UK represents one of the industrial feats of the century, according to Mercury boss Gordon Owen. And, he says, the network, which is due for completion before the end of 1987, will help Mercury move into profit in the next six months. Already, it has the mark of a profitable enterprise, with the current order book exceeding costs. In the year to March 31, despite heavy demand from the City following Big Bang, Mercury lost UKP19m and combined with an adverse currency swing of 10% – UKP34m – helped restrict Cable and Wireless Plc’s pre-tax profits increase to 15%. The final pre-tax figure of UKP340m was substantially below some market forecasts, but according to group finance director Rod Olsen it represents underlying growth in the business of 25% once Mercury and the currency movements are excluded. The Hong Kong Telephone Company, in which Cable and Wireless has a 79.4% stake, helped the Asia and Pacific parts of the business to profits of UKP235m, from UKP198m last year, on turnover 6.7% ahead at UKP525m. And director Brian Pemberton, chairing the presentation in the absence overseas of chairman and chief executive Sir Eric Sharp, is hopeful of progress in the next few months in Japan. He says that while the merger talks between the IDC consortium, of which Cable and Wireless is a member, and the rival ITJ group are a facade, Prime Minister Nakasone appeared ready at the recent Venice economic summit to contemplate two licences. In the Middle East, Cable and Wireless’s performance was hit by the Iran-Iraq war, and the devaluation of the Yemeni riyal. Turnover in the region dropped by over 25% to UKP59m and profits by 23% to UKP27m. In addition, the Bahrain associate company suffered a 33% profits drop due to the reduction in tariffs and brought in only UKP26m against UKP39m last year. The Western Hemisphere division saw a healthy traffic growth in Bermuda and the Caribbean but margins in the US came under pressure from increased competition. That leaves the UK, where turnover plummeted 17.5% to UKP94. Mercury lost UKP19m but, according to Pemberton, met all expectations of turnover, while turnkey projects and marine activities contributed UKP15m, leaving the region’s loss unchanged at UKP4m. Where is the company heading? Pemberton, Rod Olsen and Grodon Owen were very reticent when it came to talking about prospects excluding Mercury for 1987-88 and rumours of a Cazenove prediction of flat profits for the coming year set the shares into free fall, down 24 pence in what was otherwise an extremely strong market after a chirpy opening ahead of the figures. Until there is some real news on Japan, or until the directors adopt the glasnost policy taken up so successfully by Racal’s board on Tuesday, the rating is unlikely to change markedly between now and the interims.

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