Cable & Wireless Worldwide, the badly named telecoms business which has the bulk of its business in the UK, has seen its profits rise despite a tough year.
Profits climbed 23% to £143m, with a dividend payout of 4.5p for the year despite some concern about a cut. In its first year as a separate company after being demerged from Cable & Wireless, the company immediately ran into a severe cost cutting programme in its key UK public sector market. As chief executive Jim Marsh put it:
We expected the new government would scrutinise budgets and put in place spending reductions, but we did not anticipate the immediacy and depth of the cuts. Although the UK public sector remained relatively subdued for the rest of the year, we did win key data contracts which were tendered.
Outside government it also extended corporate relationships with the likes of Babcock and Boots. Marsh said he expected earnings for the coming year to be at similar levels to 2010/11, but with no further grim news after March's warning about higher costs and tougher competition in voice and data services, the company's shares have climbed 2.59p to 52.25p. Investec said:
The headlines all came in at or above consensus expectations. The full year dividend has been held at 4.5p despite some anticipation in the market of a possible cut, and the outlook is unchanged. There are no major catalysts here, but no disasters either, and on that basis alone, we expect a positive reaction today.
But the company's announcement it had turned cashflow positive for the first time since demerger cut little ice with Liberum:
Amidst results that were broadly in line with consensus, we note comments that "this year we passed the important milestone of turning cash positive for the first time with free cashflow generation of £61m". We are less enamoured by its cash generation than the management. On our numbers, 2011 free cash flow was just £11m: not sufficient, in our view, to justify either the share price or management's commitment to paying an uncovered dividend. The main item we should highlight is the £58m of capex that was funded by finance leases in the period. There's absolutely nothing wrong with that – and disclosure is fine, but it bypasses the cashflow statement and needs to be adjusted for in our view.
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