Interim pretax profits at Cable & Wireless, the British telecommunications group, rose 1 per cent to GBP1.12 billion (about HK$14.42 billion), following a sluggish performance by Hongkong Telecom in which it has a 54.5 per cent stake. Before exceptional items, however, profits at constant exchange rates were up 12 per cent to GBP878 million. C&W said it was determined to continue diluting its reliance on Hongkong Telecom. In previous years, Hongkong Telecom has contributed as much as 70 per cent of C&W's operating profit, but yesterday the group said its operating profits in Hong Kong were down 6 per cent to GBP508 million, or 56 per cent of the group's operating profit of GBP902 million. 'We have made great strides in rebalancing away from dependence on revenues from Hong Kong and traditional international telephony revenues,' C&W chief executive Richard Brown said. 'Revenues outside Hong Kong now represent almost 70 per cent of the total revenues, and non-international revenues have risen 20 per cent to 64 per cent of total revenues. 'Earnings are being impacted by difficult trading conditions in Hong Kong.' Turnover for the group reached GBP3.62 billion, up 7 per cent from last year, but turnover in Hong Kong dropped 4.5 per cent to GBP1.33 billion, or 36.5 per cent of overall turnover. Mr Brown insisted the group had delivered a 'sturdy performance' during a period of difficult economic conditions in Asia, substantial investment, and a high value of sterling. But C&W conceded Hongkong Telecom's contribution would continue to fall as several of C&W's other businesses started making a stronger contribution. 'We are very proud of Hong Kong's performance and we believe strongly in Hong Kong and Hongkong Telecom but the rebalancing has been a strategic initiative,' finance director Robert Lerwill said. The group's British cable services provider, C&W Communications, was delivering strong profit growth as was its Panama operations and C&W Optus of Australia. Its purchase this year of the Internet backbone service of MCI of the United States would further boost non-Hong Kong profits. The group said it was also seeking ways to break into Europe, and an announcement is expected next week, which will not involve Telecom Italia, the Italian telecoms group which C&W launched a global partnership with earlier this year. It also denied it had succumbed to political pressure by agreeing to talk to union organisations over Hong Kong Telecom's proposed 10 per cent wage cut. The group, which suspended plans to implement the cuts after the move sparked outrage from its 13,900 staff, reiterated it was in a consultative period with labour organisations in a bid to find a mutually-acceptable solution. 'We don't allow governments to run our businesses for us,' Mr Lerwill said. He also rejected criticism Hongkong Telecom had made a 'gaffe' by first announcing the cuts and then being shepherded into the talks. 'Wait until the process is completed . . . at the moment it is not appropriate to comment on any agreement or outcome,' Mr Lerwill said. Hongkong Telecom chief executive Linus Cheung Wing-lam, who also sits on the C&W board was in London yesterday to approve C&Ws interim results, and was said to have made no indication as to when the talks might conclude. But Mr Lerwill defended the decision to make the cuts and suggested that other companies may be forced down a similar route. 'Hongkong Telecom is at the forefront of business driven into looking at ways to reduce the employee count,' he said. 'I would be surprised if when people look back at this they don't say we were the first to take such action.'