LONDON (Bloomberg) ? Cable & Wireless Plc, the UK's second-biggest phone company, said fiscal first-half profit fell 65 percent on costs to cut jobs. The stock rose as much as 5.6 percent as earnings beat analysts' estimates.

Net income for the six months ended September 30 dropped to ?31 million ($59.1 million), or 1.3 pence a share, from ?91 million, or 3.8 pence, a year earlier, the company said in a statement yesterday. Analysts had predicted profit of 22 million pounds, or 1.1 pence a share, the median estimate of eight analysts surveyed by Bloomberg showed.

Cable & Wireless said yesterday that phone-services provider Energis Plc, which it bought last year for ?631 million, drove revenue growth. The Bracknell, England-based company has focused on high-margin clients and overseas growth to spur sales.

"Cable & Wireless raised their UK guidance and people were not expecting an upgrade," said Christian Maher, an analyst at London-based Investec. The company has a new management, which is performing better than anticipated, and the restructuring of the company has further to go, he said.

Cable & Wireless shares rose as much as 8.5 pence to 159.5 pence, the biggest gain since June 9, and traded at 157 pence at 1.12 p.m. in London. Before yesterday, the stock has risen 27 percent this year, valuing the company at ?3.6 billion.

The gain in the stock is fuelled by the "transformation" of the UK business and new initiatives, Investec's Maher said. He rates the stock "buy" with a price target of 170 pence.

The company's integration with Europe has gone "relatively well," said Ian Watt, an analyst at London-based researcher Enders Analysis. The restructuring is advancing, though the headcount needs to be reduced further, he said. The international business is going "reasonably well", and the wholesale business needs more big customers, he said.

Sales climbed 16 percent to ?1.72 billion, the company said. Analysts had predicted sales would rise 14 percent to ?1.69 billion from ?1.48 billion a year earlier.

The integration of Energis is completed and plans for the recovery of the UK unit have begun, the company said.

"The group has made good progress in the first half," Chairman Richard Lapthorne said. "The international business continues to perform well and the UK is executing its turnaround plan successfully. We expect to see further progress in the second half."

Customer numbers were 14,566 on September 30, beating the company's target of reducing the number to 18,000. Cable & Wireless aims to focus on 3,000 customers comprising large corporations, carriers and public institutions.

The acquisition of Energis spurred group revenue and the international business recorded "strong revenue performance," where rises in mobile and broadband revenue made up for the shift away from fixed-line services, the company said.

The company's wholesale broadband service provider Cable & wireless Access is being integrated into the main business to cut costs, UK chairman John Pluthero said in a conference call. "Rapid change" has been pushed through and the unit is improving its customer service, he said.

"We are very much on track, but have a tough six months ahead of us," Pluthero said. He restated the UK unit's sales target of ?2 billion and "double-digit" operating profit.

Cable & Wireless said its fixed-line phone unit faces "challenges" and is under pressure from competitors and customers switching to mobile services. Broadband customer growth has been "significant" and the company said it remains the market leader in all 27 of its broadband markets.

"This period represents a solid financial performance with strong growth in our strategic areas of mobile and broadband," chief executive officer Harris Jones said. The company will continue to invest to improve market share and increase network reach in existing and new markets, he said.

An interim dividend of 1.7 pence a share was proposed, a 21 percent increase from a year earlier, reflecting the "confident outlook" and progress made in the period, the company said.

In February, Cable & Wireless said it would cut as many as 3,000 jobs, following declining traditional phone service sales. It had 5,179 employees on September 30, a reduction of 435 since March 31. Monthly operating costs for the UK operation are ?4.4 million, down from ?7.1 million six months earlier.

"By repositioning the customer base and simultaneously cutting cost we can see a route to achieving targets for the UK," Citigroup analyst Michael Williams wrote in an October 16 report. "The company's new restructuring plan appears viable."

As part of the plan to boost sales and profit growth, Cable & Wireless said in September it would expand overseas through acquisitions. Cable & Wireless may purchase companies with annual sales of as much as $300 million, the company said at the time, pointing to its $205 million July offer to buy rival KeyTech Ltd. in Bermuda. That offer remains on the table, but KeyTech has said it is too low and the Bermuda Government has objected to the deal.