Cable & Wireless Share Discussion Threads

[7kiwi] 22/5/2012 06:48

djwr,

Given today's financial information, can anyone see a valid reason for splitting the company 'to increase shareholder value'?>

For some time the international business (CWC) was subsidising the UK business (CW.). It made sense form CWC's perspective to demerge CW. but they needed to get CW. into shape such that it was generating cash. It seems they underestimated how much cash it was capable of generating.

Does the financial situation of this company justify the rewards that the management have benefited from?

In my view: No.

I mean has this demise suddenly happened, or should it have been apparent some time ago, when the split was being organised?

CW. was on an upward trend (from a low base) after the Energis deal. But they haven't improved enough, or quickly enough. The issues in the business have been apparent for some time.

Alternatively, did the split make take-over of some of the company easier, and, by chance, included a bonus for those that arranged it?

Yes. Really CW. is sub-scale in the UK, and it needs a bigger player to make a go of it. Not sure about the "included a bonus" part of your question.

[djwr100] 21/5/2012 22:17

Given today's financial information, can anyone see a valid reason for splitting the company 'to increase shareholder value'?

Does the financial situation of this company justify the rewards that the management have benefited from?

I mean has this demise suddenly happened, or should it have been apparent some time ago, when the split was being organised?

Alternatively, did the split make take-over of some of the company easier, and, by chance, included a bonus for those that arranged it?

[7kiwi] 21/5/2012 22:08

No.

It will take quite some time to return the ~£1bn outlay. Quite a long time.

[thehairydagger] 21/5/2012 20:52

kiwi, do you mean VOD will make a profit from day 1 after the take over of CW.

[7kiwi] 21/5/2012 18:16

From the offer doc:

"The plan is based on a number of market growth assumptions, including market growth over the medium term of between 1 per cent. and 3 per cent. per annum for IP and data, 12 per cent. per annum for hosting and applications, and a reduction of 12 per cent. per annum in voice and legacy. In addition, the generation of significant value growth under the plan is dependent on CWW outperforming these market growth assumptions over the medium and long-term. The CWW Board does not expect to outperform market growth assumptions in the current financial year."



In other words, IP and data will likely shrink in FY12/13; hosting and apps will grow less strongly than 12% (say 10%) and voice and legacy will shrink faster than 12%.

In the year just gone, voice and legacy revenue and GM shrank by 15% and 8% respectively. They seem to be forecasting faster shrinkage in FY12/13.

IP and data revenue shrank by 1.8% last year, and GM by 6.2%.

Hosting grew by 11.7% (revenue) and GM by 7.8%.

They are also forecasting above inflation increases in costs.

So, in short if the deal wasn't to go ahead, FY12/13 will be tricky and they hope the actions they take will bring success in future years.

[dickbush] 21/5/2012 18:16

7kiwi

I agree with everything you say except the conclusion. Colt has a 22% EBITDA Margin despite being spread through Europe with insufficient customers throughout. I see absolutely no reason why a geographically concentrated company like CW. cannot achieve the same margins which, alone, would go a very long way to repay the CB's.

In any event, CW.'s net debt, including the pension deficits is 0.7 times EBITDA. Bankers don't get the jitters until a company is closing in on 3 times EBITDA. So there is no reason to believe that more borrowing is a problem.

What this company needs, and has not had for two decades at least, is good management. I don't know about the new CEO and the FD, but the rest of the BoD need tossing out and replacing with people with knowledge of the telecom business and/or connections to business and government.

[7kiwi] 21/5/2012 17:54

Take a look at the cash flow on p9.

For FY11/12 free cashflow was £-71m. Now add back the one-off pension payment of £127m, and then take off £15m for the current year contribution, and you get an estimate of the "normalised" free cash flow for the year: £41m. This is a decrease from the prior year of ~£20m.

The pressures on the business of price erosion in the legacy voice and data businesses seem to indicate that this free cashflow may drop further this year, despite cutting the dividend to zero.

Then take a look at the balance sheet. Net current liabilities of £250m, an increase from the net liabilities of £97m in the prior year. And net debt has increased dramatically too (largely as a result of making the big payment into the pension scheme, but also the divis that have been paid in the year just completed).

Then look at the £230m of CB's that need re-financing by June 2014 - it seems the revolving credit facility is contingent upon that re-financing happening.

The management performance for this business has been poor for years. Recovery in the numbers relies upon the new management being able to deliver where the old one couldn't.

The business is in slow motion free-fall; and needs VOD to put it out of its misery to deliver cost savings and revenue growth.

[dickbush] 21/5/2012 17:53

RMS

It certainly isn't the comment re Pluthero, but

A better comparison of who is doing a good job:

EBITDA Margin

Colt 22% ex a recent loss-making acquisition.

CW. 17.6%

BT 33.0%

Note also that Colt has tons of net cash and CW. doesn't.

[7kiwi] 21/5/2012 17:44

RMS,

What cashflow did Colt generate?

[rogermauricesmith] 21/5/2012 17:31

CW's annual results

Chew on this quick analysis:

CW made ebitda of £378 million on a capital base of £775 million - a return of 47.5%.

Colt, a virtually identical business to CW, made £265 million ebitda on a capital base of £1.158 billion - return of 22%.

Put it another way:

CW achieved annual sales of £2.149 billion on a capital base of £775 million - a ratio of 300%.

Colt achieved annual sales of £1.243 billion on a capital base of £1.158 billion - a ratio of 107%.

Just do the maths - either CW is run by exceptional managers and John Pluthero was really a mangement genius or, CW's assets have been over-depreciated by around £900 million.

[dickbush] 21/5/2012 16:35

Latest results put the company on an EV/EBITDA multiple of 3.2 times, including the pension fund deficits. 3.4 times @ 38p. Still a steal.

[jacks13] 21/5/2012 16:34

All those shocking exceptionals do you mean?

[solomon9] 21/5/2012 15:52

well is any one under any illusions about these results?

they were shocking.

[careful] 21/5/2012 15:33

vod will be a huge influence.
orbis with 19% of borrowed shares is.
vod with over 50% will run the company effectively.

[djwr100] 21/5/2012 15:18

But many shareholders will retain their holding too, if they vote 'no' to the offer.

Can vodafone force the smaller shareholders to sell?

If they can't, and they do not get their 75% then how to they take control of the company? Surely, shares stay in issue, and are traded, or not, in the market.

Can vodafone buy more, then, at the going rate, and if so how many do they need to take over the company?

[cyan] 21/5/2012 14:47

I understand that VOD will give an update tomorrow on the progress with the offer. Looks like Orbis are going to retain their holding in the hope of a later better return. Amazing share price considering the 38p offer. Seems unstoppable now.

[careful] 21/5/2012 12:55

65m operating profit became into a loss of 540m after exceptions.
but after a pmt the pension fund deficit is all but eliminated.

vods offer seems about right for both parties.
no doubt CW. needs millions of investment going forward.

[ch1ck] 21/5/2012 12:22

Results look fine with extra data capacity comming on line later this year. It look to me as if the opening statement is designed to show what a great job the board have done to sell at 38p with out any fight.

I truly believe that with out the pantomime of the CEO arrival and take-over bid the share would be higher to day than it is now even with a fall in the market. This has been manipulated lower to full fill Vodafones plan.

[uxb_steve] 21/5/2012 12:22

What is happening with the scheme documents?

[skinny] 21/5/2012 12:19

From the results.


On 23 April 2012, the Board recommended a cash offer for the company from Vodafone of 38p per share. The Board had to weigh up the transformative nature of the long term plan and potential upside it could deliver against the risks associated with the plan and the timescale required. Given this the Board believes the Vodafone offer represents an excellent opportunity for shareholders to realise an attractive valuation in cash today.

[plastow] 21/5/2012 12:14

no real problems as far as i can see

[rovernut] 21/5/2012 09:07

Results at High Noon today.

[7kiwi] 21/5/2012 08:56

So, where's the results and the scheme document?


Edit: just noted the recent RNS said the results will be out at midday.

[buywell2] 20/5/2012 19:29

Problem is for CW. a lot of it's FTN is clapped out

This kit has a life span of circa 10 years