Cable and Wireless Hit By Accounting Worries

Cable and Wireless Plc.

C&W, dealing in high-speed global communications, has come under fire for booking certain transactions as revenue, unsettling investors on red alert for accounting scares after the collapse of energy giant Enron.

The company said the capacity sales in question, in which network access is sold to third parties, were a normal part of the business and accounted for only a small share of turnover. After tumbling as much as 8 percent, the shares trimmed some of the loss and were down 5.6 percent.

C&W has been the worst-performing stock in the FTSE 100 so far this year, losing a third of its value on persistent worries about its prospects as rivals stumble into bankruptcy due to lack of demand for telecoms capacity.

C&W will give a trading update in March.

ABN Amro described the C&W accounting matter as a "storm in a tea cup" which did not affect the fundamental valuation of the company, with capacity sales making up only 4.5 percent of group sales in the first half to September 2001.

The stock was trading at a substantial discount to its fair value, with no value at all being attributed to the company's core Global network business, the investment bank added.

C&W has used the same accounting methods for several years. Capacity sales accounted for 369 million pounds in the last full-year, and while UK rules allow them to be included, U.S. rules do not.

C&W's capacity sales treatment had attracted criticism from the Australian Securities and Investments Commission before C&W sold its Australian unit Optus to SingTel last year.

GLOBAL CROSSING FALLOUT

One analyst, who declined to be identified, said investor scepticism was justified following the announcement of the U.S. Securities and Exchange Commission's investigation into bankrupt phone company Global Crossing.

Global Crossing said on Friday the SEC was investigating the company after a letter from a former employee raised concerns about its accounting practices.

C&W shares had fallen on Tuesday because of the accounting issue, and a report in Wednesday's Financial Times newspaper said C&W admitted it had booked notional profits.

C&W insisted all the practices were legal and the FT quoted it as saying some swaps did not involve cash changing hands.

But in a statement on Wednesday, C&W said: "Capacity sales are only treated as such where cash consideration passes and are separately reported in the company's published accounts."

A spokesman declined to comment further.

"C&W looks to be suffering from a bear raid and little more. We are happy with their assertion they have not been making 'hollow' transactions," said Raj Karia, a European telecoms analyst with Canaccord.

"It is not illegal to book notional profits; they have been doing this for several years, it may not be prudent but that is another matter," he added.

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