A tale of two countries:C&WJ performance diverged from Panama operations

Published: Wednesday September 10, 2008

Telecom provider Cable & Wireless Jamaica (C&WJ) currently earns one-sixth of what its Panama counterpart earns, but six years ago they were virtually twins.

Back then their earning (before subtracting loan interest, depreciation and amortisation or EBITDA) were less than seven per cent apart at £145 million, with Jamaica actually ahead. Panama earned US$254 million versus US$39.1 million for Jamaica in 2007/8 financial year. Jamaica and Panama contribute the most to C&W's international division, but competition has hurt the local operations more than Panama resulting in the change of three Jamaican CEOs in the process.

But the two countries were so similar that Panama serves as a benchmark for where C&WJ could have been today.

"The last year has been one of real contrasts - the performances of Panama and Macau were little short of spectacular. Jamaica was a disappointment, although in the second half, with new management, we saw a noticeable improvement in its performance," said John Pluthero, executive chairman C&W International, commenting on 2008 year-end results.

Jamaica and Panama both have:
. roughly the same population at 2.8 million;
. same per capita GDP at US$2,500 in 2002;
. similar work complement of 2,795 versus 2,470 as Jamaica in 2002;
. both entered full liberalisation in 2003; and
. they both had two main rivals, and since May, rival Digicel has entered the Panama market.

Digicel will pump US$334 million into its Panama-based operations and increase competition for Panama. Last year C&W Panama mobile customers grew by 50 per cent and 24 per cent the year before that.

Jamaica and Panama's earnings are bound by regional targets set for the overseas divisions.

"We expect EBITDA for 2008/09 to increase by eight per cent to 10 per cent to between US$895 million and US$910 million," said Pluthero, "and our EBITDA margin to be approximately 35 per cent."

It means that Panama EBITDA target is US$279 million, whilst Jamaica's target is US$43 million.

C&WJ's first-quarter results show that it is on track with EBITDA up 17 per cent, even though it posted a $27.4 million loss.

Phil Green, new C&WJ president, inherited a bad situation from his predecessor, Rodney Davis. Davis infused the company with a cool factor but revenues fell by $2 billion during the 2006/7 year. Much of the loss was due to a prepaid landline policy which significantly contributed to a $2 billion drop in annual revenues to $22.8 billion to March. Green is banking on recouping these lost billions, having recently reorganised the prepaid landline service. If he can build back those revenues and keep expenses at bay, then he will meet the target.

None of Green's three predecessors have been able to consistently meet the C&W International EBITDA margin target since 2004. They include Gary Barrow who left in 2004, exceeded targets up to 2002/3; Jaqueline Holding, who left in 2005; and Davis, who left in 2007. The international division wanted EBITDA margins between 34 to 37 per cent for its subsidiaries between 2004 to date. Jamaica's EBITDA margin was consistently below at: 27.9 per cent in 2004; 29 per cent in 2005; 29.3 in 2006; 28.2 per cent in 2007; and 12.1 per cent in 2008.

Green is the second president in recent times to be transferred from the Pacific Islands. Jacqueline Holding was the first. Green comes having attained EBITDA of 53 per cent in 2005/6. He was aided by the bustling economies of the islands growing at 8-10 per cent. Holding's performance in the Pacific Islands was similarly exemplary, however her stint at C&WJ did not last a year.

C&WJ is currently embarking on a 'Transformation Plan'. The highlights are:
. introduction of a 3G wireless network;
. a new mobile calling plan;
. prepaid BlackBerry service;
. fixed voice services over our mobile network;
. improved customer service metrics;
. implementation of a cost reduction programme to mitigate rising inflation and fuel costs.

Green expects results by mid-year in an attempt to redirect the Jamaican operations, now the black sheep, back to its darling position beside Panama.


Source: Jamaica Observer
http://www.jamaicaobserver.com/magazines/Business/html/20080909T230000-0500_139986_OBS_A_TALE_OF_TWO_COUNTRIES.asp