LONDON, Feb. 26, 2003 (PRIMEZONE) -- Colt Telecom Group PLC (Nasdaq:COLT) announces results:
HIGHLIGHTS
- Turnover exceeds GBP1 billion
- Turnover up 13.9% (excluding infrastructure sales in 2001)
to GBP1,027.2 million
- Turnover up 9.3% to GBP263.2 million in fourth quarter
- Gross margin before depreciation improves from 28.7% to 33.2% in
fourth quarter
- Bond buyback exceptional gain of GBP101.7 million
- Exceptional non-cash impairment charge of GBP551.0 million in 2002
- EBITDA (1) in 2002 up 190% (excluding infrastructure sales in 2001)
to GBP71.5 million
- EBITDA (1) up 290% to GBP27.7 million in fourth quarter
- Net cash inflow from operating activities in 2002 up 251% to
GBP139.3 million
- Strong liquidity position with cash and liquid resources of
GBP934.9 million
- Directly connected network and eBusiness customers up 36% to 15,523
- Staff levels including temporary and contract workers reduced by
nearly 15% to 4,855
Commenting on the results COLT Telecom Group Chairman Barry Bateman said: "While the operating environment has been, and remains, challenging COLT has continued to make progress.
"2002 was a milestone year for COLT with turnover breaking the billion pound barrier. Turnover at GBP1,027.2 million for the year and GBP263.2 million for the fourth quarter increased by 13.9%, excluding infrastructure sales in 2001, and 9.3% respectively. The combination of turnover growth and ongoing cost containment resulted in improved gross margins before depreciation and exceptional items of 30.5% and 33.2% for the year and quarter respectively. We achieved an almost three-fold increase in EBITDA(1) to GBP71.5 million for the year and an almost four-fold increase in EBITDA(1) to GBP27.7 million for the fourth quarter.
"Capital expenditure was GBP412.1 million for the year, including GBP72.4 million for the fourth quarter, compared with GBP804.3 million for 2001 and GBP219.1 million in the fourth quarter of 2001. This substantial reduction reflects the completion of the infrastructure construction phase of our development. We anticipate capital expenditure during 2003 to be between GBP220 million and GBP270 million.
"We do not underestimate the challenges we will face in 2003. However, with GBP934.9 million of cash and liquid resources at the end of the year, our reputation for excellent customer service and the action we have taken to refocus COLT for its next phase of growth, we are well positioned to make further progress. We remain on track to achieve our objective of becoming free cash flow positive during 2005."
Steve Akin, COLT's President and Chief Executive Officer added: "During 2002 we saw further belt tightening by our customers as they adjusted their spending on telecommunication services reflecting their own business prospects and the economic outlook generally. "Nonetheless COLT continued to make progress in growing revenues, improving margins and winning new customers.
"COLT continues to be recognised as a company which excels in customer service. We now have 15,523 directly connected and eBusiness customers, an increase during 2002 of 36%. Another measure of our success was that we connected a further 1,395 buildings to our networks bringing the total to 9,238. We also grew our high bandwidth services increasing private wire VGEs by 33%. We have continued to expand our IPVPN customer base and at the end of the year had 433 customers and served 1,989 sites. However, as well as winning new business we have reduced our exposure to business that was not producing the desired level of margin, particularly in the wholesale switched segment.
"Among major customer wins during the fourth quarter were SWIFT, the supplier of secure messaging services to the financial industry, Zurich Financial Services and Banco de Portugal. COLT has also provided an IPVPN solution for SwapsWire, creating the world's first IP-based electronic dealing network for the OTC derivatives market. An important new customer for COLT's range of very highbandwidth services including SDH links from 155Mb/s to 2.5Gb/s and Ethernet links from 10 Mb/s up to 1 Gb/s was Atos Origin, the IT services provider. A contract for the provision of a 140 site IPVPN was awarded by HVB Info, a subsidiary of Hypovereinsbank, the second largest bank in Germany. COLT also continued to achieve success in the government sector with an important new contract with the French Ministry of Agriculture for video streaming services.
"We have repositioned COLT to ensure that we have the right organisation structure, systems and people to deliver the returns on the investment that has been made in our network infrastructure and existing customer base. At the same time we are ensuring that we can continue to grow and take advantage of the opportunities in this tough but exciting market place. We have refocused the organisation from one which was right and necessary as we entered new geographic markets and built out our network infrastructure to one that is more suited to harvesting that infrastructure; developing our portfolio of advanced services; extending our globalreach and growing profitable market share.
"At the same time as reorganising for the next phase of growth we have taken a long hard look at our cost structure and have identified a number of areas where we can improve efficiency as a result of the changes to the way we are running our business. From our peak staffing levels of approximately 5,700 people, including355 temporary and contract workers, we are well along the path to reducing numbers to approximately 4,300 during 2003 resulting in estimated full year savings during 2004 of approximately GBP60million. At the end of 2002 we had 4,855 employees including 171temporary and contract workers.
"2002 was a tough year and there are no signs that the going will be any easier in 2003. We will have to work harder to win new business. That said, COLT is better positioned than most. I believe we can continue to make further progress in 2003 and beyond."
KEY FINANCIAL DATA Three months ended Twelve months ended
31 December 31 December
2001 2002 2001 2002
GBP'000 GBP'000 GBP'000 GBP'000
Turnover 240.8 263.2 901.9(1) 1,027.2
Interconnect and (171.6) (175.7) (640.1)(1) (713.6)
network costs
before exceptional
items
Gross profit 69.2 87.5 261.8 313.6
before
depreciation and
exceptional items
Gross profit % 28.7 % 33.2 % 29.0 % 30.5 %
Network (120.6) (50.8) (236.8) (720.0)
depreciation
including
exceptional items
Exceptional (62.4) -- (62.4) (18.3)
interconnect and
network costs
Gross profit (113.8) 36.7 (37.4) (424.7)
(loss)
EBITDA (2) 7.1 27.7 24.6(1) 71.5
OPERATING STATISTICS
01Q4 02Q3 02Q4 Growth Growth
01Q4- 02Q3-
02Q4 02Q4
Customers (at end of
period)
North Region 3,241 3,793 4,282 32% 13%
Central Region (1) 3,501 4,698 5,255 50% 12%
South Region 3,231 4,048 4,381 36% 8%
eBusiness 1,413 1,626 1,605 14% -1%
11,386 14,165 15,523 36% 10%
Buildings Connected
(at end of period)
North Region 2,387 2,663 2,730 14% 3%
Central Region 3,428 3,747 3,784 10% 1%
South Region 2,028 2,540 2,724 34% 7%
7,843 8,950 9,238 18% 3%
Switched Minutes
(million) (for period)
North Region 2,028 1,234 1,354 -33% 10%
Central Region 2,645 2,506 2,682 1% 7%
South Region 849 852 967 14% 13%
5,522 4,592 5,003 -9% 9%
Private Wire VGEs (000)
(at end of period)
North Region 6,013 7,724 8,749 46% 13%
Central Region 7,233 8,248 8,541 18% 4%
South Region 2,066 2,769 3,133 52% 13%
15,312 18,741 20,423 33% 9%
Racks (at end
of period)
eBusiness 2,212 2,499 2,774 25% 11%
Headcount (at end
of period)
North Region 1,482 1,418 1,365 -8% -4%
Central Region 1,710 1,593 1,447 -15% -9%
South Region 920 917 916 0% 0%
eBusiness 762 537 481 -37% -10%
ENS 234 244 242 3% -1%
Group/other 237 260 233 -2% -10%
5,345 4,969 4,684 -12% -6%
North Region comprises Belgium, Denmark, Ireland, The Netherlands, Sweden and the United Kingdom. Central Region comprises Austria, Germany and Switzerland. South Region comprises France, Italy, Portugal and Spain.
(1) Central Region customer numbers have been restated reflecting the change from city to national customer management in Germany.
FINANCIAL REVIEW
Turnover
Turnover, excluding infrastructure sales, increased from GBP240.8million and GBP901.9 million for the three and twelve months ended 31December 2001 to GBP263.2 million and GBP1,027.2 million for the three and twelve months ended 31 December 2002, increases of GBP22.4million and GBP125.3 million or 9.3% and 13.9%, respectively. Turnover from infrastructure sales for the twelve months ended 31December 2001 was GBP3.8 million. There were no infrastructure sales during 2002. The increases in turnover were driven by continued demand for COLT's services from existing and new customers and new service introductions. However, the rates of growth have been affected by the slowdown in economic growth across Europe generally and reduced demand in some areas, particularly the wholesale market.
Turnover from switched network services increased from GBP142.3million and GBP532.6 million for the three and twelve months ended 31December 2001 to GBP155.1 million and GBP623.4 million for the three and twelve months ended 31 December 2002. For the three and twelvemonth periods ended 31 December 2002 compared to the equivalent periods of 2001, average switched revenue per minute increased by20% and 18%, respectively, as a result of changes in mix and a more stable pricing environment. Carrier revenues represented 33% and34% of total switched revenue for the three and twelve months ended31 December 2002 compared with 35% and 36% for the comparable periods in 2001 and 33% for the three months ended September 2002.Total wholesale (carriers, resellers and ISPs) switched revenues represented 51% and 53% of total switched revenues for the three and twelve month periods in 2002 compared with 55% and 57% in the equivalent periods in 2001.
Turnover from non-switched services, increased from GBP98.0 million and GBP366.7 million for the three and twelve months ended 31December 2001 to GBP107.8 million and GBP402.1 million for the three and twelve months ended 31 December 2002. Non-switched network services revenue increased from GBP83.4 million and GBP323.4 million in the three and twelve month periods in 2001 to GBP95.2 million and GBP350.5 million in the equivalent periods in 2002. eBusiness revenue decreased from GBP14.6 million for the three months ended 31 December2001 to GBP12.6 million for the corresponding period in 2002reflecting the impact of the mothballing of ISCs announced in February 2002. eBusiness revenue for the twelve month period ended31 December 2002 was GBP51.5 million compared with GBP43.3 million for the twelve months ended 31 December 2001. For the year, the inclusion of Fitec results following its acquisition in July 2001contributed to the increase in eBusiness revenue. Growth in non-switched network services revenue reflected the growth in demand for local, national and international bandwidth services from retail customers, partially offset by circuit cancellations from selected carriers either exiting the market or rationalising their networks. At 31 December 2002 COLT had approximately 20.4million voice grade equivalent private wires in service, an increase of 33% compared to 31 December 2001. The growth in non-switched network services revenue also reflects the growing success COLT is achieving in the provision of IPVPN services. At 31December 2002, COLT had 2,774 racks installed, an increase of 25%compared to 31 December 2001 and 1,605 eBusiness customers. Non-switched turnover from retail customers represented 75% and 72%of total non-switched turnover for the three and twelve months ended 31 December 2002 compared to 64% and 62% in the equivalent periods in 2001.
Turnover from other activities was GBP0.3 million and GBP1.8 million for the three and twelve months ended 31 December 2002 and GBP0.5million and GBP6.3 million for the equivalent periods in 2001.Turnover from other activities in 2001 included GBP3.8 million of infrastructure sales. There were no infrastructure sales during2002.
Cost of Sales
Cost of sales, before exceptional items and excluding costs associated with infrastructure sales, increased from GBP218.8 million and GBP803.5 million for the three and twelve months ended 31December 2001 to GBP226.5 million and GBP925.6 million for the three and twelve months ended 31 December 2002, increases of GBP7.7 million and GBP122.1 million or 3.5% and 15.2% respectively. Cost of sales in2001 included costs of GBP2.4 million in respect of infrastructure sales. There were no infrastructure sales during 2002.
Interconnection and network costs, before exceptional items and excluding costs associated with infrastructure sales, increased from GBP171.6 million and GBP640.1 million for the three and twelvemonths ended 31 December 2001 to GBP175.7 million and GBP713.6 million for the three and twelve months ended 31 December 2002. For the three month period the increase was primarily attributable to interconnection charges. For the year, the inclusion of Fitec results following its acquisition in July 2001, and the introduction of additional services on COLT's inter-city network contributed to the increase in interconnect and network costs.
Network depreciation before exceptional items increased from GBP47.2million and GBP163.4 million for the three and twelve months ended 31December 2001 to GBP50.8 million and GBP212.0 million for the three and twelve months ended 31 December 2002. The increases were attributable to further investment in fixed assets to support the growth in demand for services, new service developments in existing markets, expansion into new markets and the introduction of additional services on COLT's inter-city network.
For the twelve months ended 31 December 2002, exceptional charges totaling GBP18.3 million were recognised for severance provisions related to the staff reduction programmes announced in February and September 2002. For the twelve months ended 31 December 2002 an impairment charge of GBP508.0 million was recognised to ensure that the asset base remained aligned with the realities of the marketplace. See Note 4 to the Financial Statements for further details.
In 2001 an impairment charge of GBP73.4 million was recognised relating to the "mothballing" of ISCs and further charges of GBP62.4million were recorded relating to the write-down of inventory held for sale and provisions against mothballed ISC rental and other obligations.
Operating Expenses
Operating expenses, before exceptional items, decreased from GBP78.3million for the three months ended 31 December 2001 to GBP69.0million for the comparable period in 2002 and increased from GBP284.1million for the twelve months ended 31 December 2001 to GBP292.0million for same period in 2002.
Selling, general and administrative (SG&A) expenses, before exceptional items, decreased from GBP62.1 million for the three months ended 31 December 2001 to GBP59.8 million for the three months ended 31 December 2002 reflecting the cost containment measures introduced earlier in the year. SG&A expenses increased from GBP237.1million in the 12 months ended 31 December 2001 to GBP242.1 million for the comparable period in 2002. The increase was primarily due to marketing and information technology expenses associated with the expansion of COLT's customer base, new services development and expansion into new markets. SG&A as a proportion of turnover excluding exceptional items in the three and twelve months ended 31December 2002 was 22.7% and 23.6% compared to 25.8% and 26.3% in the equivalent periods of 2001.
Other depreciation and amortisation before exceptional items decreased from GBP16.2 million for the three months ended 31 December2001 to GBP9.1 million in the comparable period in 2002 reflecting the effect of the impairment provisions and the effect of other assets being fully depreciated. Other depreciation and amortisation before exceptional items increased from GBP47.0 million for the twelve months ended 31 December 2001 to GBP49.9 million in the comparable period in 2002. The increase was due mainly to depreciation on increased investment in information technology, customer service and support systems and office equipment in existing and new markets.
For the twelve months ended 31 December 2002, exceptional charges totalling GBP18.9 million were recognised for severance provisions related to the staff reduction programmes announced in February and September 2002. For the twelve months ended 31 December 2002, an impairment charge of GBP43.0 million was recognised to ensure that the asset base remained aligned with the realities of the marketplace. See Note 4 to the Financial Statements for further details.
In 2001 an impairment charge of GBP12.0 million was recorded relating to the write down in net book value of leasehold improvements in excess leased space and a further charge of GBP27.9 million was also recognised relating to provisions against future rents in the excess leased space.
Interest Receivable, Interest Payable and Similar Charges
Interest receivable decreased from GBP10.7 million and GBP60.7 million for the three and twelve months ended 31 December 2001 to GBP8.4million and GBP38.1 million for the three and twelve months ended 31December 2002 due to decreased average balances of cash and investments in liquid resources and lower rates of return during the period.
Interest payable and similar charges decreased from GBP26.8 million and GBP112.0 million for the three and twelve months ended 31December 2001 to GBP23.6 million and GBP96.3 million for the equivalent periods in 2002. The decreases were due primarily to a reduction in debt levels reflecting the cumulative purchases of GBP342.4 million accreted amount of the Company's outstanding notes.
Interest payable and similar charges for the three and twelvemonths ended 31 December 2002 included: GBP8.6 million and GBP36.1million, respectively, of interest and accretion on convertible debt; GBP13.0 million and GBP57.5 million, respectively, of interest and accretion on non-convertible debt; and GBP2.0 million and GBP2.7million, respectively, of interest, bank commitment fees and unwinding of discounts on provisions. Interest payable and similar charges for the three months ended 31 December 2002 comprised GBP17.2million and GBP6.4 million of interest and accretion, respectively.
Amounts written of investment in own shares
For the three and twelve months ended 31 December 2002 and 2001,COLT recognised a charge of GBP0.4 million and GBP2.8 million, respectively relating to the revaluation of shares held in trust for certain compensation plans.
Gain on Purchase of Debt
Gains arising on the purchase of debt for the twelve months ended31 December 2002 were GBP101.7 million compared with GBP58.8 million in2001.
Exchange Gain (Loss)
For the three and twelve months ended 31 December 2002 COLT had exchange gains of GBP2.6 million and GBP12.4 million compared with exchange losses of GBP2.8 million and GBP5.2 million in the equivalent periods in 2001. These gains and losses 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. COLT realised an exceptional exchange gain of GBP4.8 million from the unwinding of the British pounds forward contracts previously held as a condition of its bank facility which COLT terminated in June 2002.
Tax on Loss on Ordinary Activities
For the three and twelve months ended 31 December 2001 and 2002,COLT generated losses on ordinary activities and therefore did not incur a tax obligation.
Financial Needs and Resources
The costs associated with the initial installation and expansion of COLT's networks and services, including development, installation and initial operating expenses have resulted in negative cash flows. Capital expenditure has reduced in 2002 and is expected to reduce further in 2003. Negative cash flows are expected to continue until an adequate customer base and related revenue streams have been established.
Net cash inflows from operating activities were GBP33.4 million andGBP39.7 million for the three and twelve months ended 31 December2001 respectively and GBP26.9 million and GBP139.3 million for the three and twelve months ended 31 December 2002, respectively. Changes to cash flow from operations include the effect of the timing of stage billings and payments with telecommunications operators associated with the construction of the Company's inter-city network and the effects of movements in provisions. Net cash outflow from returns on investments and servicing of finance, capital expenditure and financial investment and from acquisitions and disposals decreased from GBP215.0 million and GBP780.8 million in the three and twelve months ended 31 December 2001 to GBP88.2 million and GBP439.3 million for the three and twelve months ended 31December 2002.
The decreases in net cash outflow were primarily a result of reduced purchases of tangible fixed assets, which decreased from GBP219.1 million and GBP804.3 million for the three and twelve months ended 31 December 2001 to GBP72.4 million and GBP412.1 million for the equivalent periods in 2002. Included within the returns on investments and servicing of finance for the twelve months ended 31 December 2002 was the gain of GBP4.8 million from the unwinding of the forward foreign currency contracts terminated in June 2002.
There were no proceeds from the exercise of options in the three months ended 31 December 2002, while proceeds of GBP0.1 million were raised during the twelve months ended 31 December 2002. COLT had balances of cash and investments in liquid resources at 31 December 2002 totaling GBP934.9 million compared to GBP1,304.5 million at 31 December 2001.
The full text of this release can be viewed at
http://www.colt.net/investor_relations/quarterly_results
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