LONDON, Oct. 20, 2004 (PRIMEZONE) -- 20 October 2004
COLT TELECOM GROUP PLC ANNOUNCES RESULTS FOR THE
THREE AND NINE MONTHS ENDED 30 SEPTEMBER 2004
COLT Telecom Group plc (COLT), a leading pan-European provider of business communications solutions and services said today that during the third quarter it continued to grow turnover and reduce losses in line with market expectations. COLT also said that it would be announcing separately today its strategic direction for profitable growth - "Future in Focus" - which it expects will enhance its prospects and position in the marketplace.
Highlights of the quarter (1) include:
- Turnover of GBP303.7 million, up 7% (2) on a constant currency basis - Gross margin before depreciation of 31.6% - EBITDA (3) decreased by 23% from GBP43.3 million to GBP33.4 million - Loss for the period (4) decreased by 11% from GBP35.7 million to GBP31.8 million - Strong financial position with cash and liquid resources of GBP791.4 million - Early redemption of GBP324 million of bonds, transaction completed on 19 October - Proforma cash and liquid resources of GBP467.4 million post redemption of the bonds - Further strengthening of top management team - COLT wins World Communication Award for Customer Care for fourth successive year
Barry Bateman, Chairman, said:
"During the third quarter COLT contined to grow revenues and margins were broadly in line with the second quarter. However price erosion across a number of products and pressure on costs combined to lead to a disappointing decline in EBITDA. Nevertheless, COLT's underlying financial position remains strong: losses are reducing and we have taken action to reduce interest payments through the early redemption of some of our bonds, reflecting our confidence in the future. Our financial performance needs to improve further to enable us to achieve a satisfactory return on capital and to this end, we have strengthened our senior management team during the quarter and are setting a future direction for profitable growth which builds on the core strengths of our pan-European backbone, 32 metropolitan area networks with fibre access and best-in-industry customer service."
Jean-Yves Charlier, Chief Executive Officer, said:
"COLT made further progress in a difficult quarter by growing revenues and reducing losses. We further reinforced our reputation for best-in-industry customer service by winning the prestigious World Communication Award for Customer Care for the fourth successive year.
"Despite these achievements, the revenue mix was not what it needs to be and we continue to be challenged by the market environment and by pressures on our cost base. We have taken action to strengthen our senior management team in sales and marketing as well as in our key markets of France and the UK. Furthermore, after a strategy review, we are implementing an enhanced set of strategic initiatives - "Future in Focus" - designed to re-establish the company as an innovator and as one of the top three players in each of the metropolitan markets in which it operates across Europe.
"To renew with innovation, we are also announcing today our SecureIT service for SME customers, the first in a portfolio of new services to extend COLT's IP management services to the LAN and desktop environment."
(1) Comparison with equivalent quarter of the prior year.
(2) Excluding Fitec, which was disposed of in December 2003.
(3) EBITDA is earnings before interest, tax, depreciation, amortisation, foreign exchange and exceptional items.
(4) Before exceptional items.
KEY FINANCIAL DATA Three months Nine months ended
ended 30 September 30 September
2003 2004 2003 2004
GBP m GBP m GBP m GBP m
Turnover 295.4 303.7 860.1 906.1
Interconnect
and network costs (193.3) (207.8) (569.3) (610.9)
Gross profit
before depreciation 102.1 95.9 290.8 295.2
Gross profit before
depreciation % 34.5% 31.6% 33.8% 32.6%
Network depreciation (54.0) (46.6) (154.0) (139.2)
Gross profit 48.1 49.3 136.8 156.0
Loss for the period
(before exceptional (35.7) (31.8) (111.1) (77.8)
items)
Loss for the period
(after exceptional (35.7) (31.5) (103.6) (77.6)
items)
EBITDA (1) 43.3 33.4 115.2 118.1
(1) EBITDA is earnings before interest, tax, depreciation, amortisation, foreign exchange and exceptional items.
Financial Review
Unless otherwise stated all comparisons are between the three and nine months ended 30 September 2004 and 30 September 2003.
Turnover
Turnover for the three months ended 30 September 2004 was GBP303.7 million (2003: GBP295.4 million). This was an increase of 7% on a constant currency basis and excluding the turnover contributed by Fitec (which was disposed of in December 2003). Turnover for the nine months ended 30 September 2004 was GBP906.1 million (2003: GBP860.1 million). This was an increase of 9% on a constant currency basis and excluding the turnover contributed by Fitec. The increase in turnover was driven by demand for COLT's services from existing and new customers and new service introductions.
Corporate
Turnover from corporate customers for the three months ended 30 September 2004 decreased by 2% to GBP173.6 million (2003: GBP177.2 million). Turnover from corporate customers for the nine months ended 30 September 2004 increased by 1% to GBP518.4 million (2003: GBP511.3 million). Turnover from corporate customers represented 57% of total turnover in the three and nine months ended 30 September 2004 (2003: 60% and 59%). Switched turnover for the three months decreased by 5% to GBP81.0 million (2003: GBP85.4 million) and for the nine months increased by 1% to GBP250.9 million (2003: GBP248.8 million). Non-switched turnover for the three months decreased by 1% to GBP90.7 million (2003: GBP91.2 million) and for the nine months increased by 1% to GBP265.1 million (2003: GBP261.6 million).
Wholesale
Turnover from wholesale customers for the three months ended 30 September 2004 increased by 10% to GBP130.2 million (2003: GBP118.2 million). Turnover from wholesale customers for the nine months ended 30 September 2004 increased by 11% to GBP387.6 million (2003: GBP348.7 million). Turnover from wholesale customers represented 43% of total turnover in the three and nine months ended 30 September 2004 (2003: 40% and 41%).
Switched turnover for the three months increased by 13% to GBP103.8 million (2003: GBP91.5 million) and for the nine months increased by 16% to GBP309.0 million (2003: GBP265.9 million). Non-switched turnover for the three months decreased by 1% to GBP26.3 million (2003: GBP26.7 million) and for the nine months decreased by 5% to GBP78.5 million (2003: GBP82.5 million).
Cost of Sales
Cost of sales for the three months ended 30 September 2004 increased by 3% to GBP254.4 million (2003: GBP247.3 million). Cost of sales for the nine months ended 30 September 2004 increased by 4% to GBP750.1 million (2003: GBP723.3 million).
Interconnection and network costs for the three months ended 30 September 2004 increased by 7% to GBP207.8 million (2003: GBP193.3 million). Interconnection and network costs for the nine months ended 30 September 2004 increased by 7% to GBP610.9 million (2003: GBP569.3 million). The increases reflected the overall increase in switched revenues.
Network depreciation for the three months ended 30 September 2004 decreased by 14% to GBP46.6 million (2003: GBP54.0 million). Network depreciation for the nine months ended 30 September 2004 decreased by 10% to GBP139.2 million (2003: GBP154.0 million). The decreases reflected the effect of some assets being fully depreciated, partially offset by further investment in fixed assets to support the growth in demand for services and new service developments.
Operating Expenses
Operating expenses for the three months ended 30 September 2004 increased by 2% to GBP69.9 million (2003: GBP68.5 million). Operating expenses for the nine months ended 30 September 2004 decreased by 3% to GBP199.2 million (2003: GBP204.8 million).
Selling, general and administrative (SG&A) expenses for the three months ended 30 September 2004 increased by 6% to GBP62.5 million (2003: GBP58.8 million). SG&A expenses for the nine months ended 30 September 2004 increased by 1% to GBP177.0 million (2003: GBP175.6 million). SG&A expenses as a proportion of turnover for the three and nine months was 20.6% and 19.5% (2003: 19.9% and 20.4%). The increases in SG&A expenses reflected the initial costs associated with the establishment of COLT's presence in India and increased personnel costs.
Other depreciation and amortisation for the three months ended 30 September 2004 decreased by 25% to GBP7.3 million (2003: GBP9.8 million). Other depreciation and amortisation for the nine months ended 30 September 2004 decreased by 24% to GBP22.1 million (2003: GBP29.2 million). The reductions reflected the effect of some assets being fully depreciated, partially offset by increased investment in customer service and other support systems.
Interest Receivable, Interest Payable and Similar Charges
Interest receivable for the three months ended 30 September 2004 decreased by 7% to GBP5.6 million (2003: GBP6.0 million). Interest receivable for the nine months ended 30 September 2004 decreased by 18% to GBP16.6 million (2003: GBP20.2 million). The decreases were as a result of reduced average balances of cash and investments in liquid resources following the purchase and redemption of GBP144.5 million of the Company's outstanding notes during 2003.
Interest payable and similar charges for the three months ended 30 September 2004 decreased by 24% to GBP16.9 million (2003: GBP22.1 million). Interest payable and similar charges for the nine months ended 30 September 2004 decreased by 24% to GBP51.5 million (2003: GBP67.3 million). These decreases were due primarily to the reduction in debt levels following the purchase and redemption of GBP144.5 million of the Company's outstanding notes during 2003.
Interest payable and similar charges for the three months included GBP8.4 million (2003: GBP8.6 million) of interest and accretion on convertible debt and GBP8.7 million (2003: GBP12.9 million) of interest and accretion on non-convertible debt. Interest payable and similar charges for the nine months included GBP25.2 million (2003: GBP25.8 million) of interest and accretion on convertible debt and GBP26.1 million (2003: GBP39.4 million) of interest and accretion on non-convertible debt. In the three and nine months there was also GBP(0.2) million and GBP0.1 million respectively of other interest and unwinding of discounts on provisions. Interest payable and similar charges for the quarter comprised GBP11.2 million and GBP5.7 million of interest and accretion respectively.
Gain on Purchase of Debt
Gains arising on the purchase of GBP13.2 million of debt during the three months ended 30 September 2004 were GBP0.2 million (2003: nil). Gains arising on the purchase of GBP13.2 million of debt during the nine months ended 30 September 2004 were GBP0.2 million (2003: GBP7.6 million).
Exchange Gains
For the three months ended 30 September 2004 there were exchange gains of GBP0.1 million (2003: GBP0.9 million). For the nine months ended 30 September 2004 there were exchange gains of GBP0.2 million (2003: GBP4.1 million). The exchange gains in the prior year were due primarily to movements in the British pound relative to the U.S. dollar on cash and debt balances denominated in U.S. dollars.
Tax on Loss on Ordinary Activities
COLT had no taxable profits in the nine months ended 30 September 2003 and 2004.
Financial Needs and Resources
FREE CASHFLOW Three months ended Nine months ended
30 September 30 September
2003 2004 2003 2004
GBP m GBP m GBP m GBP m
EBITDA 43.3 33.4 115.2 118.1
Changes in working
capital and 1.9 2.9 (2.2) 6.3
provisions
Interest paid (net) (3.2) (4.8) (21.3) (17.7)
Capital expenditure (32.9) (32.5) (108.3) (89.4)
Free cash inflow (outflow) 9.1 (1.0) (16.6) 17.3
There was a free cash outflow of GBP1.0 million in the three months ended 30 September 2004 (2003: inflow of GBP9.1 million). For the nine months ended 30 September 2004 there was an inflow of GBP17.3 million (2003: outflow of GBP16.6 million). The improvement in free cash flow for the nine months was driven by reduced capital expenditure, lower payments against provisions and reduced interest payments.
Net cash outflows from financing for the three months ended 30 September 2004 were GBP13.2 million (2003: inflow of GBP0.5 million). Net cash outflows from financing for the nine months ended 30 September 2004 were GBP12.7 million (2003: outflow of GBP23.3 million). COLT had balances of cash and investments in liquid resources at 30 September 2004 of GBP791.4 million compared with GBP802.4 million at 31 December 2003.
On 19 October 2004 all of the outstanding DM600 million 2% Senior Convertible Notes due August 2005 and the EUR368 million 2% Senior Convertible Notes due December 2006 were redeemed. The redemptions were at the accreted principal amount of the Notes plus accrued interest and were funded out of cash and liquid resources. The aggregate amount payable was GBP324 million.
Consolidated Profit and Loss Account
Three months ended 30 September
2003 2004 2004 2004 2004
Before Exceptional After After
Exceptional Items Exceptional Exceptional
Items Items Items
GBP'000 GBP'000 GBP'000 GBP'000 $'000
Turnover 295,368 303,710 -- 303,710 549,411
Cost of
sales
Inter
connect
and (193,322) (207,813) -- (207,813) (375,934)
network
Network (53,977) (46,611) -- (46,611) (84,319)
deprecia
tion
(247,299) (254,424) -- (254,424) (460,253)
Gross
profit 48,069 49,286 -- 49,286 89,158
Operating
expenses
Selling,
general (58,790) (62,522) -- (62,522) (113,102)
and
admini
strative
Other
deprecia
tion (9,756) (7,337) -- (7,337) (13,273)
and
amortisa
tion
(68,546) (69,859) -- (69,859) (126,375)
Operating
loss (20,477) (20,573) -- (20,573) (37,217)
Other
income
(expense)
Interest 6,010 5,600 -- 5,600 10,130
receivable
Gain on
purchase -- -- 205 205 371
of debt
Interest
payable (22,139) (16,882) -- (16,882) (30,540)
and
similar
charges
Exchange
gain 880 104 -- 104 188
(15,249) (11,178) 205 (10,973) (19,851)
Loss on
ordinary (35,726) (31,751) 205 (31,546) (57,068)
activities
before
taxation
Taxation -- -- -- -- --
Loss for
period (35,726) (31,751) 205 (31,546) (57,068)
Basic
and
diluted GBP(0.02) GBP(0.02) GBP0.00 GBP(0.02) $(0.04)
loss
per share
There is no difference between the loss on ordinary activities before taxation and the retained loss for the periods stated above, and their historical cost equivalents. All of the Group's activities are continuing. The basis on which this information has been prepared is described in Note 1 to these financial statements.
Consolidated Profit and Loss Account
Nine months ended 30 September
2003 2003 2003
Before Exeptional After
Exceptional Items Exceptional
Items Items
GBP'000 GBP'000 GBP'000
Turnover 860,055 -- 860,055
Cost of sales
Interconnect and (569,265) -- (569,265)
network
Network (154,039) -- (154,039)
depreciation
(723,304) -- (723,304)
Gross profit 136,751 -- 136,751
Operating expenses
Selling, general (175,589) -- (175,589)
and
administrative
Other (29,247) -- (29,247)
depreciation and
amortisation
(204,836) -- (204,836)
Operating loss (68,085) -- (68,085)
Other income
(expense)
Interest 20,186 -- 20,186
receivable
Gain on purchase -- 7,589 7,589
of debt
Interest payable (67,307) -- (67,307)
and similar
charges
Exchange gain 4,058 -- 4,058
(43,063) 7,589 (35,474)
Profit (loss) on (111,148) 7,589 (103,559)
ordinary
activities
before taxation
Taxation -- -- --
Loss for (111,148) 7,589 (103,559)
period
Basic and GBP(0.07) GBP0.00 GBP(0.07)
diluted loss per
share
2004 2004 2004 2004
Before Exceptional After After
Exceptional Items Exceptional Exceptional
Items Items Items
GBP'000 GBP'000 GBP'000 $'000
Turnover 906,053 -- 906,053 1,639,050
Cost of sales
Interconnect and (610,931) -- (610,931) (1,105,174)
network
Network (139,155) -- (139,155) (251,731)
depreciation
(750,086) -- (750,086) (1,356,905)
Gross profit 155,967 -- 155,967 282,145
Operating expenses
Selling, general (177,023) -- (177,023) (320,235)
and
administrative
Other (22,129) -- (22,129) (40,031)
depreciation and
amortisation
(199,152) -- (199,152) (360,266)
Operating loss (43,185) -- (43,185) (78,121)
Other income
(expense)
Interest 16,637 -- 16,637 30,096
receivable
Gain on purchase -- 205 205 371
of debt
Interest payable (51,477) -- (51,477) (93,122)
and similar
charges
Exchange gain 222 -- 222 402
(34,618) 205 (34,413) (62,253)
Profit (loss) on (77,803) 205 (77,598) (140,374)
ordinary
activities
before taxation
Taxation -- -- -- --
Loss for (77,803) 205 (77,598) (140,374)
period
Basic and GBP(0.05) GBP0.00 GBP(0.05) $(0.09)
diluted loss per
share
There is no difference between the loss on ordinary activities before taxation and the retained loss for the periods stated above, and their historical cost equivalents. All of the Group's activities are continuing. The basis on which this information has been prepared is described in Note 1 to these financial statements.
Consolidated Statement of Total Recognised Gains and Losses
Three months ended Nine months ended
30 September 30 September
2003 2004 2004 2003 2004 2004
GBP'000 GBP'000 $'000 GBP'000 GBP'000 $'000
Loss for (35,726) (31,546) (57,068) (103,559) (77,598)(140,374)
period
Exchange 3,473 7,371 13,335 28,968 (11,869) (21,471)
differences
Total (32,253) (24,175) (43,733) (74,591) (89,467)(161,845)
recognised
losses
Consolidated Reconciliation of Changes in Equity Shareholders' Funds
Three months ended 30 September
2003 2004 2004
GBP'000 GBP'000 $'000
Loss for (35,726) (31,546) (57,068)
period
Issue of 610 -- --
share capital
Shares to be (117) -- --
issued
Transfer -- -- --
investment in
own shares
Exchange 3,473 7,371 13,335
differences
Net changes (31,760) (24,175) (43,733)
in equity
shareholders'
funds
Opening 912,562 797,933 1,443,461
equity
shareholders'
funds
Closing equity 880,802 773,758 1,399,728
shareholders'
funds
Nine months ended 30 September
2003 2004 2004
GBP'000 GBP'000 $'000
Loss for (103,559) (77,598) (140,374)
period
Issue of 612 742 1,342
share capital
Shares to be (229) (215) (389)
issued
Transfer -- (195) (353)
investment in
own shares
Exchange 28,968 (11,869) (21,471)
differences
Net changes (74,208) (89,135) (161,245)
in equity
shareholders'
funds
Opening 955,010 862,893 1,560,973
equity
shareholders'
funds
Closing equity 880,802 773,758 1,399,728
shareholders'
funds
Consolidated Balance Sheet
At 31 At 30 September 2004
December
2003
GBP'000 GBP'000 $'000
Fixed assets
Intangible fixed
assets (net) 9,493 7,691 13,913
Tangible fixed
assets (cost) 2,934,503 2,951,025 5,338,404
Accumulated depreciation (1,590,218) (1,701,121) (3,077,328)
Tangible fixed
assets (net) 1,344,285 1,249,904 2,261,076
Investments in
own shares 195 -- --
Total fixed assets 1,353,973 1,257,595 2,274,989
Current assets
Trade debtors 199,849 194,269 351,433
Prepaid expenses
and other 66,834 46,444 84,017
debtors
Investments in
liquid resources 742,143 736,077 1,331,563
Cash at bank and in hand 60,239 55,290 100,020
Total current assets 1,069,065 1,032,080 1,867,033
2,423,038 2,289,675 4,142,022
Capital and reserves
Called up share capital 37,754 37,776 68,337
Share premium 2,315,904 2,316,624 4,190,773
Merger reserve 27,359 27,359 49,492
Shares to be issued 215 -- --
Profit and loss account (1,518,339) (1,608,001) (2,908,874)
Equity shareholders'
funds 862,893 773,758 1,399,728
Provisions for
liabilities and 62,860 48,966 88,579
charges
Creditors
Amounts falling due within
one year
Convertible debt -- 315,866 571,402
Other 352,736 351,952 636,681
Amounts falling due after
more than one year
Convertible debt 700,131 367,110 664,102
Non-convertible debt 444,418 432,023 781,530
Total amounts falling due 1,144,549 799,133 1,445,632
after more than one year
Total creditors 1,497,285 1,466,951 2,653,715
Total liabilities,
capital and 2,423,038 2,289,675 4,142,022
reserves
Consolidated Cash Flow Statement
Three months ended 30 September
2003 2004 2004
GBP'000 GBP'000 $'000
Net cash inflow from 45,264 36,354 65,765
operating activities
Returns on investments
and servicing of
finance
Interest received 6,023 5,550 10,040
Interest paid, finance (9,251) (10,378) (18,774)
costs and similar
charges
Net cash outflow from (3,228) (4,828) (8,734)
returns on investments
and servicing of
finance
Capital expenditure and
financial investment
Purchase of tangible (32,909) (32,574) (58,926)
fixed assets
Sale of tangible fixed -- 86 155
assets
Net cash outflow from (32,909) (32,488) (58,771)
capital expenditure
and financial
investment
Management of liquid 3,816 (4,170) (7,544)
resources
Financing
Issue of ordinary 473 -- --
shares
Purchase of convertible -- (1,635) (2,958)
debt
Purchase of -- (11,612) (21,006)
non-convertible debt
Net cash inflow 473 (13,247) (23,964)
(outflow) from
financing
Increase (decrease) 13,416 (18,379) (33,248)
in cash
Nine months ended 30 September
2003 2004 2004
GBP'000 GBP'000 $'000
Net cash inflow from 112,951 124,385 225,012
operating activities
Returns on investments
and servicing of
finance
Interest received 20,277 15,902 28,767
Interest paid, finance (41,546) (33,639) (60,853)
costs and similar
charges
Net cash outflow from (21,269) (17,737) (32,086)
returns on investments
and servicing of
finance
Capital expenditure and
financial investment
Purchase of tangible (108,300) (93,345) (168,860)
fixed assets
Sale of tangible fixed -- 3,970 7,182
assets
Net cash outflow from (108,300) (89,375) (161,678)
capital expenditure
and financial
investment
Management of liquid 46,659 (8,075) (14,608)
resources
Financing
Issue of ordinary 474 527 953
shares
Purchase of convertible (14,166) (1,635) (2,958)
debt
Purchase of (9,606) (11,612) (21,006)
non-convertible debt
Net cash inflow (23,298) (12,720) (23,011)
(outflow) from
financing
Increase (decrease) 6,743 (3,522) (6,371)
in cash
Notes to Financial Statements
1. Basis of presentation and principal accounting policies
COLT Telecom Group plc ("COLT" or the "Company"), together with its subsidiaries, is referred to as the Group. Consolidated financial statements have been presented for the Group for the three and nine months ended 30 September 2003 and 2004.
The financial statements for the three and nine months ended 30 September 2003 and 2004 are unaudited and do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. In the opinion of management, the financial statements for these periods reflect all the adjustments necessary to present fairly the financial position, results of operations and cash flows for the periods in conformity with generally accepted accounting principles in the U.K. All adjustments, with the exception of the exceptional items described in Note 4, were of a normal recurring nature. The balance sheet at 31 December 2003 has been extracted from the Group's 2003 statutory accounts.
Accounting policies and presentation applied are consistent with those applied in preparing the Group's financial statements for the year ended 31 December 2003 except for the adoption of UITF 38 "Accounting for ESOP trusts". Applying the UITF has resulted in the balance sheet reclassification of the GBP195,000 investment in own shares from fixed assets to the profit and loss account.
Certain British pound amounts in the financial statements have been translated into U.S. dollars at 30 September 2004 and for the periods then ended at the rate of $1.809 to the British pound, which was the noon buying rate in the City of New York for cable transfers in British pounds as certified for customs purposes by the Federal Reserve Bank on such date. Such translations should not be construed as representations that the British pound amounts have been or could be converted into U.S. dollars at that or any other rate.
2. Segmental information
North Region comprises Belgium, Denmark, Ireland, The Netherlands, Sweden and UK. Central Region comprises Austria, Germany and Switzerland. South Region comprises France, Italy, Portugal and Spain.
Switched turnover comprises services that involve the transmission of voice, data or video through a switching centre. Non-switched turnover includes managed and non-managed network services, and bandwidth services.
Wholesale turnover includes services to other telecommunications carriers, resellers and internet service providers (ISPs). Corporate turnover includes services to corporate and government accounts.
For the three months ended 30 September 2003 and 2004, turnover by segment was as follows:
Three months ended 30 September 2003
North
Corporate Wholesale Region
GBP'000 GBP'000 GBP'000
Switched 85,428 91,469 52,271
Non-switched 91,202 26,695 41,720
Other 533 41 --
Total 177,163 118,205 93,991
Three months ended 30 September 2003
Central South
Region Region Total
GBP'000 GBP'000 GBP'000
Switched 82,566 42,060 176,897
Non-switched 41,594 34,583 117,897
Other 574 -- 574
Total 124,734 76,643 295,368
Three months ended 30 September 2004
North
Corporate Wholesale Region
GBP'000 GBP'000 GBP'000
Switched 81,000 103,813 52,404
Non-switched 90,727 26,343 40,726
Other 1,827 -- 159
Total 173,554 130,156 93,289
Three months ended 30 September 2004
Central South
Region Region Total
GBP'000 GBP'000 GBP'000
Switched 95,578 36,831 184,813
Non-switched 43,293 33,051 117,070
Other 1,228 440 1,827
Total 140,099 70,322 303,710
For the nine months ended 30 September 2003 and 2004, turnover by segment was as follows:
Nine months ended 30 September 2003
North
Corporate Wholesale Region
GBP'000 GBP'000 GBP'000
Switched 248,796 265,904 155,527
Non-switched 261,609 82,483 123,944
Other 909 354 79
Total 511,314 348,741 279,550
Nine months ended 30 September 2003
Central South
Region Region Total
GBP'000 GBP'000 GBP'000
Switched 238,255 120,918 514,700
Non-switched 120,181 99,967 344,092
Other 905 279 1,263
Total 359,341 221,164 860,055
Nine months ended 30 September 2004
North
Corporate Wholesale Region
GBP'000 GBP'000 GBP'000
Switched 250,908 308,979 161,889
Non-switched 265,114 78,536 122,116
Other 2,403 113 275
Total 518,425 387,628 284,280
Nine months ended 30 September 2004
Central South
Region Region Total
GBP'000 GBP'000 GBP'000
Switched 280,956 117,042 559,887
Non-switched 126,168 95,366 343,650
Other 1,352 889 2,516
Total 408,476 213,297 906,053
3. Loss per share
Three months ended
30 September
2003 2004 2004
GBP'000 GBP'000 $'000
Loss for period (35,726) (31,546) (57,068)
Weighted average 1,508,037 1,511,021 1,511,021
number of
ordinary
shares ('000)
Basic and diluted GBP(0.02) GBP(0.02) $(0.04)
loss per share
Nine months ended
30 September
2003 2004 2004
GBP'000 GBP'000 $'000
Loss for period (103,559) (77,598) (140,374)
Weighted average 1,507,463 1,510,784 1,510,784
number of
ordinary
shares ('000)
Basic and diluted GBP(0.07) GBP(0.05) $(0.09)
loss per share
4. Exceptional items
Gain on purchase of debt
During the three and nine months ended 30 September 2004, the Group purchased some of its debt for a cash outlay of GBP13.2 million, resulting in an exceptional gain of GBP0.2 million. There were no purchases of debt in the three months ended 30 September 2003. Exceptional gains arising on the purchase of debt during the nine months ended 30 September 2003 amounted to GBP7.6 million.
5. Cash flow reconciliations
5a. Reconciliation of operating loss to net cash inflow from operating activities
Three months ended
30 September
2003 2004 2004
GBP'000 GBP'000 $'000
Operating loss (20,477) (20,573) (37,217)
Depreciation and 63,733 53,948 97,592
amortisation
Exchange (19) (846) (1,530)
differences
Decrease in debtors 11,206 272 492
(Decrease) increase (935) 6,856 12,403
in creditors
Movement in (8,244) (3,303) (5,975)
provisions for
liabilities and
charges
Net cash inflow 45,264 36,354 65,765
from operating
activities
Nine months ended
30 September
2003 2004 2004
GBP'000 GBP'000 $'000
Operating loss (68,085) (43,185) (78,121)
Depreciation and 183,286 161,284 291,762
amortisation
Exchange 123 56 101
differences
Decrease in debtors 15,020 21,465 38,830
(Decrease) increase 3,325 (2,477) (4,481)
in creditors
Movement in (20,718) (12,758) (23,079)
provisions for
liabilities and
charges
Net cash inflow 112,951 124,385 225,012
from operating
activities
5b. EBITDA reconciliation
Three months ended
30 September
2003 2004 2004
GBP'000 GBP'000 $'000
Net cash inflow 45,264 36,354 65,765
from operating
activities
Adjusted for:
Exchange 19 846 1,530
differences
Movement in (11,206) (272) (492)
debtors
Movement in 935 (6,856) (12,403)
creditors
Total working (10,271) (7,128) (12,895)
capital
adjustments
Movement in 8,244 3,303 5,975
provisions
for liabilities
and charges
EBITDA 43,256 33,375 60,375
Nine months ended
30 September
2003 2004 2004
GBP'000 GBP'000 $'000
Net cash inflow 112,951 124,385 225,012
from operating
activities
Adjusted for:
Exchange (123) (56) (101)
differences
Movement in (15,020) (21,465) (38,830)
debtors
Movement in (3,325) 2,477 4,481
creditors
Total working (18,345) (18,988) (34,349)
capital
adjustments
Movement in 20,718 12,758 23,079
provisions
for liabilities
and charges
EBITDA 115,201 118,099 213,641
6. Changes in cash and investments in liquid resources
Three months ended 30 September
2003 2004 2004
GBP'000 GBP'000 $'000
Beginning 920,519 793,976 1,436,303
of period
Net (decrease) (3,816) 4,170 7,544
increase in
investments
in liquid
resources before
exchange
differences
Effects of 4,715 10,467 18,935
exchange
differences
on
investments
in liquid
resources
Net 13,416 (18,379) (33,248)
increase
(decrease)
in cash
before
exchange
differences
Effects of (430) 1,133 2,049
exchange
differences
on cash
End of 934,404 791,367 1,431,583
period
Nine months ended 30 September
2003 2004 2004
GBP'000 GBP'000 $'000
Beginning 934,882 802,382 1,451,509
of period
Net (decrease) (46,659) 8,075 14,608
increase in
investments
in liquid
resources before
exchange
differences
Effects of 37,268 (14,141) (25,581)
exchange
differences
on
investments
in liquid
resources
Net 6,743 (3,522) (6,371)
increase
(decrease)
in cash
before
exchange
differences
Effects of 2,170 (1,427) (2,582)
exchange
differences
on cash
End of 934,404 791,367 1,431,583
period
7. Summary of differences between U.K. Generally Accepted Accounting Principles ("U.K. GAAP") and U.S. Generally Accepted Accounting Principles ("U.S. GAAP")
a. Effects of conforming to U.S. GAAP - impact on net loss
Three months ended
30 September
2003 2004 2004
GBP'000 GBP'000 $'000
Loss for period (35,726) (31,546) (57,068)
Adjustments:
Deferred (292) 441 798
compensation (i),
(ii)
Amortisation of 544 502 908
intangibles (iii)
Capitalised (715) (810) (1,465)
interest, net of
depreciation (iv)
Profit on sale of 262 261 472
IRUs (v)
Warrants (vi) 140 (352) (637)
Installation 773 855 1,547
revenue (vii)
Direct costs (1,401) (796) (1,440)
attributable to
installation
revenue (vii)
Impairment (viii) (2,805) (2,805) (5,073)
Loss for period (39,220) (34,250) (61,958)
under US GAAP
Weighted 1,508,037 1,511,021 1,511,021
average
number of
ordinary
shares ('000)
Basic and diluted GBP(0.03) GBP(0.02) GBP(0.04)
loss per share
Nine months ended
30 September
2003 2004 2004
GBP'000 GBP'000 $'000
Loss for period (103,559) (77,598) (140,374)
Adjustments:
Deferred (815) 310 561
compensation (i),
(ii)
Amortisation of 1,612 1,508 2,728
intangibles (iii)
Capitalised (2,268) (2,816) (5,094)
interest, net of
depreciation (iv)
Profit on sale of 783 783 1,416
IRUs (v)
Warrants (vi) 127 (929) (1,681)
Installation 2,044 4,252 7,692
revenue (vii)
Direct costs (2,672) (4,180) (7,562)
attributable to
installation
revenue (vii)
Impairment (viii) (8,416) (8,415) (15,223)
Loss for period (113,164) (87,085) (157,537)
under US GAAP
Weighted 1,507,463 1,510,784 1,510,784
average
number of
ordinary
shares ('000)
Basic and diluted GBP(0.08) GBP(0.06) GBP(0.10)
loss per share
(i) The Group acquired ImagiNet in July 1998 and Fitec in July 2001. The consideration for both of these purchases included deferred shares and payments. The final elements of the consideration were paid in July 2003.
Under U.K. GAAP, the deferred shares and payments were included in the purchase consideration. The excess purchase consideration over the fair value of assets and liabilities acquired was attributed to goodwill and is being amortised over its estimated economic life.
Under U.S. GAAP, these deferred shares and payments were excluded from the purchase consideration and recognised as compensation expense in the profit and loss account over the period in which the payments vested. Total compensation charge for the three and nine months ended 30 September 2003 was GBPnil million and GBP0.3 million respectively. Because no payments were outstanding in the nine months to 30 September 2004, the total compensation charge for the period was GBPnil.
(ii) The Group operates an Inland Revenue approved Savings-Related Share Option Scheme ("SAYE Scheme"). Under this scheme, options may be granted at a discount of up to 20%. Under U.K. GAAP no charge is taken in relation to the discount. Under U.S. GAAP, the difference between the market value of the shares on the date of grant and the price paid for the shares is charged as a compensation cost to the profit and loss account over the period over which the shares vest.
Also under U.S. GAAP, an employer's offer to enter into a new SAYE contract at a lower price causes variable accounting for all existing awards subject to the offer. Variable accounting commences for all existing awards when the offer is made, and for those awards that are retained by employees because the offer is declined, variable accounting continues until the award is exercised, forfeited or expires unexercised. New awards are accounted for as variable to the extent that the previous, higher priced options are cancelled.
The total expected compensation cost is recorded within equity shareholders' funds as unearned compensation and additional paid in share capital, with unearned compensation being charged to the profit and loss account over the vesting period. The total compensation cost for the three and nine months ended 30 September 2003 was a charge of GBP0.3 million and GBP0.5 million respectively and for the three and nine months ended 30 September 2004 was a credit of GBP0.4 million and GBP0.3 million respectively.
(iii) Under U.S. GAAP, goodwill with an indefinite useful life is not amortised but is tested for impairment annually. Under U.K. GAAP goodwill is amortised on a straight line basis over its useful economic life.
The Group had unamortised goodwill of GBP8.1 million at 30 September 2004, which is no longer amortised under U.S. GAAP but will be assessed for impairment annually. Amortisation expense related to goodwill, under U.K. GAAP, was GBP0.5 million and GBP1.6 million for the three and nine months ended 30 September 2003 and for the three and nine months ended 30 September 2004 was GBP0.5 million and GBP1.5 million respectively.
(iv) Adjustment to reflect interest amounts capitalised under U.S. GAAP, less depreciation for the period.
(v) In 2000 and 2001 the Group concluded a number of infrastructure sales in the form of 20-year indefeasible rights-of-use ("IRU") with characteristics which qualify the transactions as outright sales under U.K. GAAP. Under U.S. GAAP, these sales are treated as 20-year operating leases. The adjustment reflects the recognition of profit under U.S. GAAP on the sale of IRUs concluded in prior years.
(vi) The Group has received warrants from certain suppliers in the ordinary course of business. Under U.K. GAAP, warrants are treated as financial assets and recorded at the lower of cost or fair value. Hence for U.K. GAAP purposes the warrants have been recognised at nil. Under U.S. GAAP, the warrants are recorded at fair value with unrecognised gains and losses reflected in the profit and loss account.
(vii) In accordance with SAB 101 "Revenue Recognition in Financial Statements", for the three and nine months ended 30 September 2003 and 2004, customer installation revenues together with attributable direct costs are recognised over the expected customer relationship period. At 30 September 2004, the cumulative increase in net losses under SAB 101 was GBP0.7 million, representing cumulative deferred installation revenues of GBP69.1 million and costs of GBP68.4 million.
(viii) During the quarter ended 30 September 2002, the Group recorded charges of GBP443.8 million under U.S. GAAP to reflect the impairment of goodwill, network and non-network fixed assets, resulting in a GAAP difference of GBP107.2 million at that time. For the three and nine months ended 30 September 2004 depreciation in the amount of GBP2.8 million and GBP8.4 million was recorded in respect of the assets which had not been impaired for U.S. GAAP purposes.
(ix) The Group operates a number of employee share schemes on which it incurs employer payroll taxes. Under U.K. GAAP, the cost of employer payroll taxes is recognised over the period from the date of grant to the end of the performance period. Under U.S. GAAP, the cost is recognised when the tax obligation arises.
b. Effects of conforming to U.S. GAAP - impact on net equity
At 30 September 2004
GBP'000 $'000
Equity shareholders' funds under 773,758 1,399,728
U.K. GAAP
U.S. GAAP adjustments:
Adjustment for deferred (10,456) (18,915)
compensation (i), (ii)
Unearned compensation (i), (ii) (25) (45)
Additional paid in share 10,481 18,960
capital (i), (ii)
Amortisation of intangibles 7,524 13,611
(iii)
Warrants (vi) 122 220
Payroll taxes on employee share 385 696
schemes (ix)
Impairment (viii) 84,754 153,320
Profit on sale IRUs (v) (16,940) (30,644)
Capitalised interest, net of 35,064 63,431
depreciation (iv)
Deferred profit on (690) (1,248)
installations (vii)
Approximate equity shareholders' 883,977 1,599,114
funds under U.S. GAAP
(i) - (ix) See note a. for description and adjustment.
c. Effects of conforming to U.S. GAAP - stock options
At 30 September 2004 the Group had certain options outstanding under its Option Plan. As permitted by SFAS No.123, "Accounting for Stock-Based Compensation", the Group elected not to adopt the recognition provisions of the standard and to continue to apply the provisions of Accounting Principles Board Opinion No.25, "Accounting for Stock Issued to Employees," in accounting for its stock options and awards. Had compensation expense for stock options and awards been determined in accordance with SFAS No.123, the Group's loss for the three months ended 30 September 2004 would have been GBP36.5 million ($66.1 million).
Additional Information
Constant currency turnover analysis
Turnover for the three months ended 30 September 2004, compared to the three months ended 30 June 2004 and 30 September 2003 and after excluding the impact of foreign exchange, is shown below:
Compared to Q2 2004
Q3 2004 Q3 2004 % Growth
GBP'000 GBP'000
Actual Adjusted Actual Adjusted
(1) (1)
Corporate
Switched 81,000 80,516 0.8% 0.2%
Non-switched 92,554 92,009 1.9% 1.3%
and Other
Total 173,554 172,525 1.4% 0.8%
Wholesale
Switched 103,813 103,137 (3.3%) (4.0%)
Non-switched 26,343 26,188 16.3% 15.6%
and Other
Total 130,156 129,325 0.1% (0.6%)
Total
Switched 184,813 183,653 (1.5%) (2.2%)
Non-switched 118,897 118,197 4.7% 4.1%
and Other
Total 303,710 301,850 0.8% 0.2%
Compared to Q3 2003
Q3 2004 % Growth
GBP'000
Adjusted Actual Adjusted
(2) (2)
Corporate
Switched 83,434 (5.2%) (2.3%)
Non-switched 95,442 0.9% 4.0%
and Other
Total 178,876 (2.0%) 1.0%
Wholesale
Switched 107,510 13.5% 17.5%
Non-switched 27,178 (1.5%) 1.7%
and Other
Total 134,688 10.1% 13.9%
Total
Switched 190,944 4.5% 7.9%
Non-switched 122,620 0.4% 3.5%
and Other
Total 313,564 2.8% 6.2%
(1) Q3 2004 turnover has been restated using Q2 2004 exchange rates, and compared to turnover which was reported in Q2 2004
(2) Q3 2004 turnover has been restated using Q3 2003 exchange rates, and compared to turnover which was reported in Q3 2003
Q3 03 Q2 04 Q3 04 Gro Gro
-wth -wth
Q3 04 Q3 04
-Q2 04 -Q3 03
Customers (at end of quarter)
North Region 5,334 5,736 5,724 0% 7%
Central 6,466 7,929 7,960 0% 23%
Region
South Region 5,605 5,940 6,041 2% 8%
17,405 19,605 19,725 1% 13%
Customers (at end of quarter)
Corporate 16,532 18,432 18,518 0% 12%
Wholesale 873 1,173 1,207 3% 38%
17,405 19,605 19,725 1% 13%
Switched minutes (million) (for
quarter)
North Region 1,519 1,489 1,425 (4%) (6%)
Central 2,969 3,593 3,580 0% 21%
Region
South Region 1,010 1,114 1,060 (5%) 5%
5,498 6,196 6,065 (2%) 10%
Private wire VGEs (000) (at end
of quarter)
North Region 10,125 11,737 12,619 8% 25%
Central 10,621 13,013 15,623 20% 47%
Region
South Region 4,432 5,642 6,431 14% 45%
25,178 30,392 34,673 14% 38%
Headcount (at end of quarter)
North Region 1,597 1,568 1,603 2% 0%
Central 1,461 1,361 1,330 (2%) (9%)
Region
South Region 1,114 928 956 3% (14%)
4,172 3,857 3,889 1% (7%)
North Region comprises Belgium, Denmark, Ireland, The Netherlands, Sweden and UK. Central Region comprises Austria, Germany and Switzerland. South Region comprises France, Italy, Portugal and Spain. Customers represent the number of customers who purchase network and data solutions products. Headcount comprises active employees excluding temporary and contract workers.
Forward Looking Statements
This report contains "forward looking statements" including statements concerning plans, future events or performance and underlying assumptions and other statements which are other than statements of historical fact. COLT Telecom Group plc wishes to caution readers that any such forward looking statements are not guarantees of future performance and certain important factors could in the future affect the Group's actual results and could cause the Group's actual results for future periods to differ materially from those expressed in any forward looking statement made by or on behalf of the Group. These include, among others, the following: (i) any adverse change in the laws, regulations and policies governing the ownership of telecommunications licenses, (ii) the ability of the Group to expand and develop its networks in new markets, (iii) the Group's ability to manage its growth, (iv) the nature of the competition that the Group will encounter and (v) unforeseen operational or technical problems. The Group undertakes no obligation to release publicly the results of any revision to these forward looking statements that may be made to reflect errors or circumstances that occur after the date hereof.
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