Cable & Wireless’s UK division will reach a key £2 billion revenue target one year early, it is expected to say next week, potentially hastening a break-up of the business telecoms group.

John Pluthero, head of the group’s UK unit, is expected to indicate that a target of hitting £2 billion revenues and double-digit operating profit margin will be met in 2010.

A turnaround of the loss-making UK business — which on Thursday lost out to BT on a big contract to supply the Post Office with broadband — is critical in enabling the group to move towards a full demerger of its two businesses.

Cable & Wireless’s UK and international businesses operate separately, but the City expects a full demerger to take place once Mr Pluthero can demonstrate that the UK operation is self-sustaining.

Success in meeting the revenue target will ultimately increase the likelihood of a large bonus payout for Mr Pluthero.

Last year Richard Lapthorne, the chairman of the group, introduced a controversial £220 million private equity-style incentive scheme aimed at reviving the fortunes of the struggling group. Under the scheme, Mr Pluthero and John Harris, head of the international business, will receive £22 million each if a series of targets are hit. Cable & Wireless, the main challenger to BT in the business telecoms market, has endured a long run of disappointing performance. Last year it issued two profit warnings in four months.

Its woes resulted in part from fierce competition and overcapacity in the UK business telecoms sector.

Mr Pluthero said last year that he aimed to create “a leaner, fitter business generating £2 billion of revenue and double-digit operating profit margin” by 2011 at the latest.

Analysts at Morgan Stanley said in a note yesterday that they would “not be surprised” if the group hit its UK targets one year early.

At the group’s full-year results presentation next Thursday the prospects for its wholesale business will also be under the spotlight.

If the division is to reach break-even, the group needs about 500,000 customers.

Despite announcing a significant contract win with Virgin Media this week, it lost out to BT on the Post Office contract and on a contract for work with Vodafone.

Analysts expect Cable & Wireless to report earnings before interest, tax, depreciation and amortisation of £456 million. Revenues are expected to rise to £3.41 billion.

Sceptics point out that, despite some consolidation — including Cable & Wireless’s acquisition of its smaller rival Energis — the sector remains tough.

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