Cable & Wireless Worldwide Earnings Call Insights: Growth Trend Drivers, New Data Center
On Monday, Cable & Wireless Worldwide PLC (LSE:CW.L) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.
Growth Trend Drivers
Robert Grindle – Deutsche Bank: Just a couple of questions on the trading with regard to enterprise you flagged that conditions remained very tough, was it more of the same as to what you saw in H1, and did you get any sense that customers were put off, finding opportunity or seek – and try to seek better terms because of the weak share price at the end of the first half and because of the bid, so any sign that the sort of customers were sort of putting more pressure on you than usual or is it just a general competitive environment? Then secondly, carrier revenues seem to be less bad in the U.K. at least the growth trend was less bad in the U.K. in H2 and actually bumped up to positive in the second half globally. I just wondered what that was driven by.
Gavin Darby – CEO and Executive Director: Let me handle, Robert, the first one and then I’ll ask Ian to talk specifically carrier revenues. I think the clear answer to your first question is that it was more of the same. I didn’t feel absolutely any material negative impact on the businesses. At that point, in the second half of the year or the four months of the second half of the year that the business, (half of the business) was with regard to getting revenue and then enterprise (buzzing). I think the market is challenging. It was throughout ’11-’12 and feels the same now as it did several months ago. Ian, in terms of carrier revenues?
Ian Gibson – CFO and Executive Director: We don’t see any – if you remember in some of the U.K. carrier, important point to remember in the first half of the year, we had a decline at revenue margin due to the (indiscernible) contract we did in the prior year. That was about GBP 17 million of margin on that and that was in the first half of the prior year, obviously not in the first half of this year. So there is a bigger decline in the first half year-on-year. In the second half, margin was so broadly flat for the U.K. carrier. In terms of internationally, international carrier the full year margin was down by GBP 3 million, GBP 4 million down in half two, one half of the prior year and broadly flat in the first half this year. So, we haven’t really seen any significant change in global carrier between the first half and the second half of the prior year.
New Data Center
Gavin Pickett – Orbis: It’s Gavin here from Orbis. Two from me. Please can you confirm how the new owned data center space impacts the average age of your state? Would it be wrong to assume tenure around a 10-year cash payback and an IRR of 15% on that? Also, your new medium-term assumptions resulted in an increase in the assessment of the recoverable amount on CWW CDU, can you say whether the recoverable amount with reference to the Vodafone offer was the same as the March ’12 one?
Gavin Darby – CEO and Executive Director: If I could deal with the second point first, in terms of recover the amounts, we carry – if you’re looking at impairment calculations here, that we carried out further impairment test at March ’12 following the calculation we did at September ’11, no change in the – there’s no further impairment at March ’12 effectively. So, there’s little change in the recoverable amounts when you compare back to September.
Gavin Pickett – Orbis: Is there any change at all between the one you did for April 23, referencing the March ’12 one?
Gavin Darby – CEO and Executive Director: April ’12 you’re talking about?
Gavin Pickett – Orbis: The results discussed that you also made a separate assessment with relation to the Vodafone offer, and I’m trying to find out whether your assessment of the recover amount changed at all from the one you conducted in March 2012 for the full year results?
Gavin Darby – CEO and Executive Director: No, there’s no change in that.
Gavin Pickett – Orbis: The next question is around data center (indiscernible) et cetera?
Gavin Darby – CEO and Executive Director: Yes. On the new Southern data center that we are investing in is going to go live early in the second half of this financial year, and that’s going to add just over 4 megawatts of capacity first when the new one is up and running. So, as you’ll probably recall from when we talked about this at the half year, this is going to be on a lease arrangement, a 15 year lease. So, that will run out – it’s a slightly different model to what we used in the past, but traditionally, we acquired the data centre, we did do a – signed a leaseback transaction on the data centers we acquired in the past, but historically we might have built or bought them. In this case, we are renting the data center and we are paying that rent over 15 years. So, it’s a slightly different model, but it’s less cash…
Gavin Pickett – Orbis: Does that relate to the one in Swindon too?
Gavin Darby – CEO and Executive Director: No. So this is the new Southern Data Center at Heathrow that is coming up this year.
Gavin Pickett – Orbis: So my question relates to the Swindon capacity?
Gavin Darby – CEO and Executive Director: Yes. So in Swindon, we’ve added 4,000 square feet of capacity in the second half of this year. I mean on another phase which adds further capacity around October this year. It’s a similar amount, actually just a little bit more coming on in – it’s around October actually, about (0.7) megawatts coming on in October compared to the 4,000 square feet, which is around (0.3) megawatts in H2 just gone.
Gavin Pickett – Orbis: Can you talk about the cash flow dynamics from the new states, just so I can get a flavor?
Gavin Darby – CEO and Executive Director: On the new data center?
Gavin Pickett – Orbis: On the new space that you are adding to your existing owned centers.
Gavin Darby – CEO and Executive Director: With the new space that we are adding which is, just to give you the complete picture, we’ve got the new space in Swindon, the new data center coming on in October, the 4.3 megawatts, and we are also building out leads that got through our data center, and that’s adding about 9.5 megawatts and that’s coming on in the first quarter of this new financial year. But the new capacity comes in stages. In terms of the cash, the return and the cash flow dynamics, the key assumption or key factor you need to consider is the mix of managed sourcing versus collocation and that, as you know those products have slightly different dynamics in terms of profile. If you run out a similar profiles what we have today, and which is about 25% co-los, 75% managed at the moment, and we would expect a similar margin on that capacity going forward as we have had historically.