Cable and Wireless plc Full Year Results 26 May 2005: Cable and Wireless plc Full Year Results 26 May 2005 Richard Lapthorne
Chairman
Cable and Wireless plc Full Year Results 26 May 2005: Cable and Wireless plc Full Year Results 26 May 2005 Charles Herlinger
Chief Financial Officer
Financial overview: Financial overview Delivered a robust financial performance whilst investing in Bulldog:
38% growth in operating profit
31% growth in free cash flow
Achieved 16% growth in EPS
Increased full year dividend by 21% to 3.8 pence
Financial highlights Continuing businesses1: Financial highlights Continuing businesses1 (£ million) H1 H2 1 2004/5 excluding C&W Japan; 2003/4 excluding C&W Japan, US domestic business and TeleYemen
2 Excludes JVs & associates and amortisation of goodwill
All figures shown are before exceptional items 38% Op profit (4)% Revenues - % 53% 25% (3)% - % 38% 314 3,130 3,012 1,596 1,503 125 153 1,509 103 161 1,534 228 284 149 135 3,023 1,507 1,516 2003/4 2004/5 2004/5 excluding Bulldog 2003/4 2004/5 2004/5 excluding Bulldog 2 Reported change: CC change:
Financial highlights Continuing businesses1: Capex Free cash flow 326 305 127 199 159 114 137 167 191 52 62 75 332 144 118 129 214 15 Financial highlights Continuing businesses1 2003/4 2004/5 2004/5 excluding Bulldog 2003/4 2004/5 2004/5 excluding Bulldog 57% (6)% (1)% 81% 13% 2% 8% 31% H1 H2 1 2004/5 excluding C&W Japan; 2003/4 excluding C&W Japan, US domestic business and TeleYemen
All figures shown are before exceptional items (£ million) Reported change: CC change:
Net cash: movements in year Group: Net cash: movements in year Group 1,448 1,342 237 (73) (100) (74) 107 (97) 55 (35) £m (126) Gross
Cash
£2,367m Gross
Cash
£2,166m 1100 1200 1300 1400 1500 1600 1700 1 April '04 Operating cash flow less capex Net exceptionals Dividends Share buy back Pension contribution C&W Japan & Intelsat disposals Monaco Telecom & Bulldog acquisitions Cash acquired with Monaco Telecom Tax & other 31 March '05
Summary profit & loss Continuing businesses: Summary profit & loss Continuing businesses Revenue
Operating costs
Depreciation
Operating profit 3
Profit before tax
Tax
Profit after tax
Underlying EPS 4
Dividend (per share) 1,516 (1,287) 1,507 (1,260) 1 Includes Monaco Telecom and Bulldog; Excludes C&W Japan
2 Excludes US domestic business, TeleYemen and C&W Japan
3 Excludes JVs & associates and amortisation of goodwill
4 Excludes amortisation of goodwill
All figures shown are before exceptional items (94) (98) 169 192 135 149 3,023 (2,547) (192) 361 284 3,130 (2,677) (225) 319 228 134 152 262 286 1.16p 2.64p 3.15p 3.8p 4.9p 8.0p 4.4p 9.3p (35) (40) (57) (75) H1
£m H2
£m 2004/5 FY
£m 2003/4 2 1 1 FY
£m 1
Exceptional items Group: Exceptional items Group (96) (69) (87) (54) - (21) 42 - 6 (18) (14) (502) 66 235 Redundancy
Property
Hurricane Ivan
US exit
Disposal of IDC
Sale of trade investment
Group fixed asset impairment
Other
Before tax
Tax on exceptionals
Exceptional tax credit
After tax 16 - 4 73 75 (429) 85 - - (536) (3) - (9) 67 (66) (54) (12) (1) 16 - - - - - 85 4 - 42 (9) 15 (100) 86 86 (11) H1
£m H2
£m 2004/5 FY
£m 2003/4 FY
£m
Capital expenditure Continuing businesses: Capital expenditure Continuing businesses By type By geography IT/Other Mobile Service delivery/product portfolio Network build Macau, Panama, Rest of World, Monaco Telecom Caribbean UK £m £m £118m £332m £214m £326m £118m £332m £214m £326m Bulldog Others
UK: review of performance: UK: review of performance 810 (4) (2) 792 1,602 1,661 Revenue Operating profit Operating profit margin % 43 nm 9 47 90 33 5.9 5.3 5.6 2.0 26 (47) (14) (91) - (101) 12 (138) Free cash flow Capex (37) (94) UK1 1 Excluding Bulldog
All figures shown are before exceptionals nm nm H2
£m H1
£m 2004/5 FY
£m 2003/4 FY
£m FY vs FY
% H2 vs H1
% Operating costs Depreciation 7 12 (737) (30) (715) (30) (1,560) (68) - (1,452) (60) 3
Reorganisation: cost benefits: Reorganisation: cost benefits UK and Corporate Centre
Europe
Total 2004/5
£m 2005/6
£m P&L impact Exceptional cash costs UK and Corporate Centre
Europe
Total 5 25 - 10 15 25 March 2006
run rate
£m 35 15 40 25 Total
£m 5 35 50 20 45 65 5 20 Additional £50m cost savings identified in UK outpayments and network costs by March 2006
Bulldog: review of performance: 1 Excludes amortisation of goodwill
2 Free cash flow = Operating profit plus depreciation less cash capital expenditure
All figures shown are before exceptionals Bulldog H2
£m 7 (31) (2) (26) (23) Bulldog: review of performance H1
£m 2004/5 4 (8) - (4) (4) (47) (8) FY
£m 11 (39) (2) (30) (27) (55) Revenue
Operating costs
Depreciation
Operating loss1
Capex
Free cash flow2
Total National Telcos: summary: 1 Excludes exceptionals, JVs & associates and amortisation of goodwill
2 2004/5 excludes Hurricane Ivan and Tsunami impact; 2003/4 excludes one-off items
3 Free cash flow = Operating profit plus depreciation less cash capital expenditure
4 At constant currency
All figures shown are before exceptionals Total National Telcos: summary 10 (11) 8 18 25 576 (358) (66) 152 153 (65) 23 26.4 615 (406) (62) 147 113 (96) 25 23.9 1,187 (757) (153) 277 235 (195) 42 23.3 Total
National Telcos 10 (17) 3 - 12 1,191 (764) (128) 299 266 (161) 48 25.1 26.6 25.4 25.9 26.0 9 (53) 23 (24) Revenue
Operating costs
Depreciation
Operating profit 1
Reported margin %
Underlying margin % 2
JVs & Associates
Capex
Free cash flow 3 FY vs FY
% H2 vs H1
% 4 4 H2
£m H1
£m 2004/05 FY
£m 2003/04 FY
£m
Caribbean: review of performance: 1 Excludes exceptionals, JVs & associates and amortisation of goodwill
2 2004/5 excludes Hurricane Ivan impact; 2003/4 excludes one-off items
3 Free cash flow = Operating profit plus depreciation less cash capital expenditure
4 At constant currency
All figures shown are before exceptionals Caribbean: review of performance (3) 2 15 - (31) 276 (188) (32) 56 46 (42) 12 20.3 274 (200) (26) 48 30 (44) 7 17.5 633 (442) (76) 115 57 (134) 30 18.2 Caribbean 3 (11) 15 (11) (39) 550 (388) (58) 104 76 (86) 19 18.9 20.9 20.1 21.2 20.5 29 (9) 47 (32) Revenue
Operating costs
Depreciation
Operating profit 1
Reported margin %
Underlying margin % 2
JVs & Associates
Capex
Free cash flow 3 FY vs FY
% H2 vs H1
% 4 4 H2
£m H1
£m 2004/05 FY
£m 2003/04 FY
£m
National Telcos (excluding Caribbean): review of performance: National Telcos (excluding Caribbean): review of performance 26 (30) 1 31 nm Revenue
Operating costs
Depreciation
Operating profit 2
Reported margin %
Underlying margin %
JVs & Associates
Capex
Free cash flow 3 341 (206) (36) 99 83 (52) 18 29.0 554 (315) (77) 162 178 (61) 12 29.2 National Telcos1 16 (24) (9) 6 68 641 (376) (70) 195 190 (75) 29 30.4 32.0 107 300 96 (34) (170) 11 (23) 1 Macau, Panama, Rest of World and Monaco Telecom
2 Excludes JVs & associates and amortisation of goodwill
3 Free cash flow = Operating profit plus depreciation less cash capital expenditure
4 At constant currency
All figures shown are before exceptionals 29.9 31.3 30.9 32.0 nm (35) (20) 16 H2
£m H1
£m 2004/05 FY
£m 2003/04 FY
£m FY vs FY
% H2 vs H1
% 4 4
Guidance 2005/6: Guidance 2005/6 Operating cost reductions:
£25m in the UK and corporate
£10m in Europe
£50m in outpayments and network costs to protect margins
Group depreciation charge of £240m including NGN and Bulldog
Group capex £435m to £455m, including:
£70m on Bulldog and
£65m on Next Generation Network
Operating loss of £90m in Bulldog
Effective tax rate of 15%
Financial overview: Financial overview Delivered a robust financial performance whilst investing in Bulldog:
38% growth in operating profit
31% growth in free cash flow
Achieved 16% growth in EPS
Increased full year dividend by 21% to 3.8 pence
Cable and Wireless plc Full Year Results 26 May 2005: Cable and Wireless plc Full Year Results 26 May 2005 Francesco Caio
Chief Executive Officer
Delivery to date: Delivery to date Solid financial performance
+38% increase in Group operating profit
+31% increase in Group free cash flow
Net cash of £1.3 billion, after:
£75 million share repurchase
£100m pension contribution
Funding Bulldog rollout
Investment in GSM rollout Figures are quoted on a continuing business basis before exceptionals and at constant currency
Delivery to date: Delivery to date Executing against plan
Exited US and Japan
New UK organisation
Head office
cost reduction
relocation
Refocusing Europe
on track to reduce headcount from 500 to 220 by H1 2005/6
Delivery to date: Delivery to date Mobile and broadband focus in National Telcos
Bulldog investment and rollout
Next Generation Network (NGN) investment commitment Clear path
to the future
Profit drivers for an infrastructure-based Telco: Profit drivers for an infrastructure-based Telco Managing margins in legacy Investing for growth in new services Scale
Access network
Serving business and residential
Branded franchise based on innovation, marketing, distribution and customer care
National Telcos: 2004/5: Drive change and performance
Shift mix to new services
Protect margins and cashflow National Telcos: 2004/5 Priorities Performance* *All figures quoted in constant currency Proactive attitude to competition
New leadership team Mobile revenue up 26%
Data and IP revenue up 13% Stable underlying operating margin
Free cashflow up 23%
National Telcos: cost initiatives: National Telcos: cost initiatives Caribbean mobile
supply chain Caribbean property
rationalisation IT & Network standardisation 2004/5 Initiatives: 2005/6 Initiatives: Outsourced mobile supply chain
Lead-time: 8 weeks to 6 days
Inventory reduced by 50%
Availability @ POS up to 97% Target inventory reduction 85%
Roll-out in Panama and TSTT Sold 9 properties
Fleet size reduced by 40% Lease disposals across NT
Consolidate data centres (from 4 to 2) Implemented CIS converged billing solution (Caribbean)
Standard SAP, supply chain & procurement systems (Jamaica) Roll-out across NT
National Telcos: mobile initiatives 2004/5: National Telcos: mobile initiatives 2004/5 Continued investment in Caribbean GSM coverage
Increased capacity in Panama
Improved coverage in Maldives Marketing
&
distribution Service
offering Network
operations Network
build Centrally managed network performance
Convergent billing platform in Monaco Enhanced roaming across National Telcos
Retention package for high ARPU customers in Macau New store formats across portfolio
Launched Blackberry services in 17 markets
Launched and rolled out Caribbean bmobile brand
Caribbean: product launches: Caribbean: product launches bmobile launched July 2004
New pan-Caribbean mobile brand including global text messaging and enhanced roaming coverage Home fone launched August 2004
Jamaican residential fixed line offering including SMS NetSpeak launched May 2005
Cayman low cost international calls via VoIP Max launched December 2004
Personal internet communicator – surf, email, download, music, games
National Telcos: mobile & broadband performance: National Telcos: mobile & broadband performance 6% 228,000 44 Macau 22% 35,000 19 Monaco 25% 634,000 77 Panama 20% 1,367,000 142 Caribbean 44% 285,000 69 Rest of World Mobile revenue £m Subscriber growth Subscriber 61% 50,000 30% 8,000 154% 38,000 142% 38,000 122% 7,000 Broadband subscribers Subscriber growth Mobile 88% of National Telco revenues come from liberalised markets
Profit drivers for an infrastructure-based Telco – C&W UK: Profit drivers for an infrastructure-based Telco – C&W UK Managing margins in legacy Investing for growth in new services Scale
Access network
Serving business and residential
Branded franchise based on innovation, marketing, distribution and customer care
Profit drivers for an infrastructure-based Telco - the role of Bulldog : Profit drivers for an infrastructure-based Telco - the role of Bulldog Scale
Access network
Serving business and residential
Branded franchise based on innovation, marketing, distribution and customer care Managing margins in legacy Investing for growth in new services
Profit drivers for an infrastructure-based Telco – role of NGN: Profit drivers for an infrastructure-based Telco – role of NGN Scale
Access network
Serving business and residential
Branded franchise based on innovation, marketing, distribution and customer care Managing margins in legacy Investing for growth in new services NGN
UK segment economics: 161 22% 150 20% 67% UK segment economics Revenue
Voice %
Cost of sales
Gross margin
Gross margin %
Channel margin
Channel margin %
Shared costs:
Network and operations
G&A opex
EBITDA Enterprise Business Carrier
Services Total 1,602 (958) 644 40% 502 31% (251) (101) 150 475 (174) 301 63% 213 45% 394 (212) 182 46% 139 35% 733 (572) Note: Margins are determined through internal management allocations
Enterprise: Enterprise 30% of UK revenue base
Embedded position in major corporates with strong competitive services and international reach
Upselling to increase % spend with existing customers
Growth from IP services (10% H1; 13% FY) Voice 54% Data 33% IP 13%
Enterprise: growing IP spend in corporate accounts: Enterprise: growing IP spend in corporate accounts Extending reach of their networks
Enhancing network control
Lowering their cost base
Access to quality customer service and managed service capabilities New IP
contracts Customer
benefits
Business: Business 25% of UK revenue base
2,000 customers spend > £20k
20,000 customers spend < £2k
78% of customers currently take only one service
Focus on top tier customers with product differentiation Voice 39% Data 49% IP 12%
Business: H2 initiatives: Launched StraightTalk
Launched 3 new VoIP products – 2 trials underway
Differentiated IP bundled packages including VoIP and broadband services Business: H2 initiatives New churn management and retention process
New dedicated top-tier account management
Developing third party channels to market
Focus on customer service improvements Products Customer
management
Carrier Services: Carrier Services International voice
25% National
Voice 45% Data & IP
9% Mobile
21% 46% of UK revenue base
Serves a wide range of customer segments, including international carriers
Increasing focus on margins
Offset price decline with increased volumes
Regulatory mobile termination rates changes impact H2 revenue
Offering value added services
Carrier Services: Carrier Services Continue to exploit international reach
Focus on cash margins Innovative
offerings 2005/6
priorities Carrier IP MPLS - 8 signed carriers
VoIP breakouts - Skype
Carrier GRX - 50 signed mobile carriers
UK: operating in today's market: UK: operating in today's market
Bulldog Start-Up: progress against initial plan: 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 Jan Feb Mar Apr May 0 50 100 150 200 250 300 350 400 450 Bulldog Start-Up: progress against initial plan LLU customer orders Exchanges unbundled 89 113 252 373 400 Customer orders per month Unbundled Exchanges (cumulative) Management team recruited and ready for full commercial launch Additional DSLAM installed in 90 exchanges based on demand
Automated connections process with BT on 16 May - rate of connections materially accelerating
Bulldog: next priorities: Bulldog: next priorities Building brand awareness and multi-channel sales
Innovative first to market offerings supported by end-to-end network control
Speed
e.g. first with 4Mbit
Services
e.g. first DSL double play
Features
e.g. up to 8 VoIP lines, data, fast internet access through single pipe due to launch June ‘05
Customer segmentation
e.g. pay as you go
Bulldog: European broadband growth: Bulldog: European broadband growth DSL penetration –
% of households with DSL Q4 2004 Source: Informa. Penetration data for Sweden relates to Q3 2005 and growth rate to Q2-Q3 2004. In Q3 2004 the UK’s penetration rate was 13% DSL growth –
subscriber growth Q3-Q4 2004 25% 8% 13% 10% 13% 20% UK Sweden Germany Italy France Netherlands 16% 17% 17% 18% 26% 25% UK Sweden Germany Italy France Netherlands
Bulldog: extended plan – 800 exchanges: Bulldog: extended plan – 800 exchanges 5,500 BT exchanges in total in the UK
Expansion criteria
density of demand
proximity to C&W network
Footprint approx. 800 exchanges
52% UK coverage
Bulldog: indicative 2005/6: Bulldog: indicative 2005/6 Total exchanges unbundled (additional 200) Operating loss Cash capex Investment phase – 2005/6 600 £(90) million £70 million Double Play
Rollout of network from October 2005
Further 200 exchanges to be unbundled in H1 2006/7 taking total to 800
Increased marketing and advertising budget in 2005/6 ahead of 52% coverage plus additional resources allocated to provisioning and customer care
UK NGN: the rationale: UK NGN: the rationale Lower costs and capex: supporting multiple services over single platform
Customer-driven investment: supporting demand for new services
Consistent with our broadband strategy
Key element of a viable UK infrastructure-based player
Blue print for network architecture for all our operations
NGN: UK financial case: NGN: UK financial case Legacy capex
avoidance Net opex
savings £15m £60m £80m - £6m £22m £m £80m £50m £60m Total capex of £190m for UK Next Generation Network and operations capex (incremental spend of £35m) 0 10 20 30 40 50 60 70 80 90 2005/06 2006/07 2007/08
UK Next Generation systems and processes: UK Next Generation systems and processes Legacy Transport platforms 5 Core nodes Legacy switches Collector nodes 30 100 70 NGN 1 10 80 10 (metro nodes) (soft switches)
UK Next Generation: enhance customer processes: UK Next Generation: enhance customer processes Provisioning
Systems Single flow-through provisioning system
Processed in minutes Billing
Systems Single bill with multi-service packaging and discounting schemes Monitoring /
Reporting Self-service web systems for reporting/monitoring of network performance and operation
Broadband LLU and NGN for C&W: Broadband LLU and NGN for C&W Structural change in the industry
decline of legacy voice and data
migration from legacy services to IP
Local Loop Unbundling
regulatory review C&W clear path to the future
creating infrastructure-based competition
scale and access separates C&W from traditional “Altnet” model
building for sustainable returns Creating opportunities
Summary: Summary Solid financial performance
Reinforced competitive position
National Telcos gaining momentum in mobile and broadband
Defined and building a clear path to the future