Cable and Wireless tries to untangle itself from Macau

 
Marc Sidwell
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CABLE and Wireless Communications (CWC) has lived through huge historical shifts since its beginnings in a company developing the world’s telegraph cable infrastructure. Today, once again it finds itself, like so many others, running to keep up with the pace of technological change.

The firm has survived this long by being adaptable. Its current, ongoing strategic shift, emphasised by its sale yesterday of its Macau operation, shows it maintains a commendable flexibility. But keeping on course will require even more.

CWC entered its latest incarnation only a few years ago, with the demerger of Cable and Wireless in 2010. But in the 20th century it has been through merger (as telegraph cables began to be challenged by short-wave radio, the 4G of the 1900s), post-war nationalisation in 1950 and then the groundbreaking privatisation of Cable and Wireless by the Thatcher government in 1981. Today it faces the tectonic shift in communications from voice to data. It is in part to address that reality that it has chosen to refocus its geographic attention.

That is a brave move, for CWC is certainly not getting out of Macau because the headline numbers are bad. Its half-yearly report in November announced another good performance in Macau, which comes on the back of nine successive years of record profits.

However, dig a little deeper and you get some sense of why CWC is looking to grow in Central America and the Caribbean. In Macau, according to the 2011-12 annual report, its Ebitda measure of earnings was $165m (£102m) and its operating cash flow $127m. By contrast, in Panama and the Caribbean, while operating cash flow is similar, Ebitda is significantly higher: in Panama, $131m in operating cash flow, but $256m in Ebitda; in the Caribbean, $120m and $284m.

Will the shift of emphasis help CWC as its industry endures tumultuous change? Its shares have traded down since its demerger, and its performance has been flat of late, with revenues static year-on-year for the six months to September 2012. But profit before tax for the six months to September 2012 was up 13 per cent. If it can continue to adapt itself, this step might be the beginning of a whole new chapter in its long history.

BONUS BLUES
With bonus season, it seems, comes a round of muttered speculation about bonuses before they are even awarded. While there are clearly cases where the gap between corporate performance and a senior executive’s reward deservedly excites comment, there is too often a searching around for any substantial bonus on the presumption that whomever’s it may be, it must be too much. But bonuses exist to tie pay more closely to performance. That’s good for companies and investors alike. We should be exercised by the cases where that connection fails but we should not hate the idea of rewarding achieved excellence.