A demerger of Cable & Wireless's UK and international divisions may take place this financial year after the group beat forecasts with a 23 per cent rise in underlying earnings.

Tony Rice, the finance director of C&W, said that the group was looking at three options. “There is a demerger, rationalisation of the portfolio or leveraging and returning capital to shareholders, and we're looking at all of those,” he said. “We're talking about doing something in 2008 and 2009.”

The group's turnaround has been driven by its Europe, Asia and United States (EAU) business, formerly known as the UK division, where underlying earnings increased by 161 per cent. It saw a return to revenue growth and has a positive cashflow for the first time in 16 years.

John Pluthero, the group managing director and head of C&W's UK and international businesses, said: “In the EAU we've got some real wind in our sails. The business is really starting to show and realise some real ambition for the first time in a long time.”

The international arm dragged down the results, returning a 3 per cent growth in ebitda. Mr Pluthero said that the group was considering a bid for Vanco, the troubled telecoms carrier, which is expected to be put up for sale in the next couple of weeks. He said that C&W had “had a dialogue with the company” but did not elaborate.

A further £27 million has been put towards the controversial long-term incentive plan (LTIP), doubling the size of the bonus pool for about 50 executives to £54 million. The scheme is tied to share performance. At its annual meeting last July, shareholders voted to remove caps on Mr Pluthero's bonus. Present management has added about £1.2 billion to the market value of the company since the LTIP was launched on April 1, 2006. The first payment in the four-year scheme is due next year.

Analysts welcomed the results as an indication that C&W was back on track. Shares have been recovering slowly after they fell by 13 per cent in March, closing up by 2.69 per cent yesterday at 156.6p.

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