With its competitors dialling up restructuring plans and profit warnings, communications group Cable & Wireless sent a buzz through the stock market this week as it unveiled a 46 per cent rise in operating profit in the six months ending September.

Admittedly, Cable & Wireless also announced plans to cut 700 jobs following its recent acquisition of smaller rival Thus but the UK’s second-biggest telephone company was the envy of the marketplace when it stated the current trading environment had yet to impact its business.

Indeed, so confident is Cable & Wireless for the future, chief executive John Pluthero increased guidance for earnings before interest, tax, depreciation and amortisation (Ebitda) for the year to March 2009 to at least £780 million, compared to an earlier forecasted range of £702 to £725 million.

But this guidance is based on a conservative exchange rate of $1.88 to the pound, and Cable & Wireless could exceed these targets if the currency markets move in its favour. In the six months to September, Ebitda rose 26 per cent to £357 million.

It was a very different story two years ago when Mr Pluthero announced a restructuring plan, which separated Cable & Wireless into two distinct units, and a proposal to demerge its domestic division this year.

That plan has now been put on hold – while Cable & Wireless may be unaffected by the marketplace, it recognises that the value of any sale would be – but the tidying up process over the past two years is the key to its current success.

Cable & Wireless International and the misleadingly named Cable & Wireless Europe, Asia & US (because it is predominantly UK-based) have been refocused and revamped. Both are now lean businesses, with low costs, wide margins and relevant strategies.

Cable & Wireless International, which recorded a 5 per cent increase in revenues to $1.3 billion over the six months, operates in 39 countries, stretching from the Isle of Man, Ghana and the Caribbean.

In 19 of these countries, it is the market leader in mobile phones, in 26 it is the fixed line leader and 28 the broadband king. But in the Falkland Islands, it is the only telecommunications provider.

A different approach is taken to suit each country. In flagship market Panama, for example, Cable & Wireless International increased revenues by 9 per cent to $337 million (£221 million) and margins by 10 per cent to $220 million despite a 19 per cent rise in operating costs.

The increased expenditure was necessary. Panama’s government recently sold licences to two mobile competitors that become operational in the first half of 2009. In preparation, Cable & Wireless has expanded its network to cover 90 per cent of the population, opened 50 new distribution outlets and remodelled one third of its high street stores.

In Macau, where the economic growth rate is forecast to slow from 27.3 per cent last year to around 10 percent, Cable & Wireless is the exclusive provider of fixed line and broadband connections to the country’s 32 casinos, which are attracting record numbers of tourists from China.

A restructuring of the Caribbean operations began in May to reduce overheads and overlap. Uneconomic customer services were withdrawn in Jamaica, for example, which impacted revenues, but the region still generated gross margins representing 74 per cent of revenues.

Cable & Wireless Europe, Asia & US has faced different issues. It has withdrawn from highly unprofitable services, such as home broadband and personal mobile telecommunications, and now focuses on servicing major corporate clients.

Today, it has 6,500 clients having dropped almost 25,000 customers that generated no money. The company has also become more efficient at collecting bill payments, improving its working capital performance and producing a positive trading cash flow of £10 million.

Two years ago, Cable & Wireless completed a new network, the next generation Multi Service Platform, which competitors are now scrambling to emulate, and since April has signed several new clients to this service, including a three-year deal with The Environmental Agency, while retaining others, such as BSkyB. (It is always cheaper to keep an existing client than to recruit a new one.)

On October 1, Cable & Wireless acquired Glasgow-based Thus for £329 million, whose 4 percent share of the marketplace lifts its total share to almost 20 percent. Integration is already moving ahead at speed, with total EBITDA capital expenditure synergies of £82 million to be realised within two years.

But Thus, which counts HSBC Holdings and Standard Life amongst its clients, is not going to be subsumed into Cable & Wireless. Its major clients (and the staff that serve them) will migrate across to Cable & Wireless, while Thus will concentrate on mid-market corporates. It will pay a market rate to Cable & Wireless for services, and on-sell these to its clients. Perhaps unsurprisingly, Thus has been dubbed “Mini Me”.

As Robert Grindle, analyst at Deutsche Bank, puts it: “Given a good first half update, improved guidance and evidence of management optimism in spite of a deteriorating macro-economic environment, and recent share price weakness, I feel the risk-reward balance is now significantly weighted to the upside for Cable & Wireless.”

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