LONDON, July 23, 2003 (PRIMEZONE) -- COLT Telecom Group plc (Nasdaq:COLT) (LSE:CTM)
- Turnover up 13.4% to GBP293.0 million compared to Q2 2002 - Constant currency turnover growth of 4.5% over Q2 2002 and 4% over Q1 2003 - Retail turnover up 18.4% to GBP171.3 million - Gross margin before depreciation and exceptional items improved from 29.1% to 33.3% - EBITDA (1) up 158% to GBP37.9 million - Capital expenditure GBP33.8 million - Profit on bond purchases of GBP7.2 million - Cash consumption reduced from GBP93.8 million to GBP13.3 million, excluding bond purchases - Strong liquidity position with cash and liquid resources of GBP920.5 million - 1,018 new customers added in Q2 bringing total to 17,334 - Staff levels including temporary and contract workers reduced by 145 during quarter
Commenting on the results for the quarter COLT Telecom Group Chairman Barry Bateman said: "These results demonstrate COLT's ability to continue to win new business, grow revenues and improve margins in a lacklustre market.
"Our performance reflected our focus on profitable revenue growth and tight management of operating costs and capital expenditure. It reinforces our confidence in achieving our objective of being free cash flow positive during 2005.
"Capital expenditure in the quarter was GBP33.8 million and we now expect capital expenditure for the year to be between GBP170 million and GBP200 million.
"We also continued to improve cash flow, with cash consumption reducing from GBP93.8 million in the second quarter of 2002 to GBP13.3 million in the second quarter of this year, excluding bond purchases. Our on-going success in continuing to grow; and ability to win new customers is underpinned by cash and liquid resources of GBP920.5 million.
Steve Akin, COLT's President and Chief Executive Officer added: "I am encouraged by our performance. Our success in continuing to grow despite the toughness of the economies in which we operate demonstrates the support we have from our customers and their recognition of COLT's high levels of service and competitive prices.
"Revenues grew by 13.4% to GBP293.0 million with retail revenues improving by 18.4% and wholesale by 7.1%. We have also improved our revenue mix at the product level with non-switched services accounting for 39.6% of revenues compared with 38.2% in the second quarter of 2002. Gross margin before depreciation and exceptional items improved from 29.1% in the second quarter of 2002 to 33.3% and EBITDA increased by 158% to GBP37.9 million.
"Our emphasis on deepening our relationships with current customers is reflected in the new business we have won from Oracle. We have continued to develop our preferred supplier relationship with Oracle and as well as providing a range of high bandwidth network services we have been selected as a hosting service provider for Oracle's software outsourcing service. We have also made significant progress in increasing sales with Opodo, a leading pan-European online travel service, Harvey Nash, the recruitment services Group, UBS, the major Swiss bank and Clifford Chance, the law firm, among others.
"Despite the tough conditions in the financial services market we have won a number of new contracts including Bear Stearns, a top ten U.S. investment bank and Banque Pictet. We continue to see good demand for our range of IPVPN services including new contracts with Toyota and Federal Express. We have also made good progress in the Government sector, especially in Italy, having added the Office of the Prime Minister and The Ministry of the Environment as new customers.
"We continue to tightly manage operating costs. SG&A costs were reduced from GBP60.5 million, 23.4% of revenues, in the second quarter of 2002, to GBP59.6 million, 20.3% of revenues, in the second quarter of 2003. We have reduced staff numbers by a further 145 during the quarter, including temporary/contract workers, bringing the total to 4,479. We remain on course to reduce staff numbers to approximately 4,300 before the end of the year.
"COLT is one of Europe's best in class telecommunications service companies. Our reputation for first class customer service, our extensive pan-European network coverage and our underlying financial strength leave us well positioned to achieve long term profitable growth."
KEY FINANCIAL DATA
Three months ended Six months ended
30 June 30 June
2002 2003 2002 2003
GBPm GBPm GBPm GBPm
Turnover 258.2 293.0 505.1 564.7
Interconnect and network (183.0) (195.5) (359.1) (375.9)
costs before exceptional
items
Gross profit before
depreciation and
exceptional items 75.2 97.5 146.0 188.8
Gross profit before
depreciation and
exceptional items % 29.1% 33.3% 28.9% 33.4%
Network depreciation (53.1) (51.6) (103.7) (100.1)
Exceptional interconnect
and network -- -- (5.7) --
costs
Gross profit 22.1 45.9 36.5 88.7
Loss for the period (55.6) (34.5) (129.5) (75.4)
(before exceptional items)
Loss for the period (after (16.0) (27.3) (63.7) (67.8)
exceptional items)
EBITDA (1) 14.7 37.9 24.5 71.9
OPERATING STATISTICS
Growth Growth
Q2 02 Q1 03 Q2 03 Q2 02- Q1 03-
Q2 03 Q2 03
Customers (at end of period)
North Region 3,731 4,555 5,040 35% 11%
Central Region 5,329 5,579 5,972 12% 7%
South Region 3,728 4,596 4,811 29% 5%
eBusiness 1,638 1,586 1,511 -8% -5%
14,426 16,316 17,334 20% 6%
Buildings Connected (at
end of period)
North Region 2,564 2,775 2,840 11% 2%
Central Region 3,676 3,774 3,722 1% -1%
South Region 2,368 2,867 2,985 26% 4%
8,608 9,416 9,547 11% 1%
Switched Minutes (million)
(for period)
North Region 1,307 1,444 1,490 14% 3%
Central Region 2,862 2,717 2,784 -3% 2%
South Region 949 931 971 2% 4%
5,118 5,092 5,245 2% 3%
Private Wire VGEs (000)
(at end of period)
North Region 6,913 9,104 9,526 38% 5%
Central Region 7,681 9,012 9,964 30% 11%
South Region 2,570 3,643 3,857 50% 6%
17,164 21,759 23,347 36% 7%
Racks (at end of period)
eBusiness 2,516 2,858 2,959 18% 4%
Headcount (at end of
period)
North Region 1,610 1,284 1,248 -22% -3%
Central Region 1,758 1,490 1,455 -17% -2%
South Region 952 917 878 -8% -4%
eBusiness 608 455 444 -27% -2%
Group/other 203 296 292 44% -1%
5,131 4,442 4,317 -16% -3%
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.
FINANCIAL REVIEW
Turnover
Turnover increased from GBP258.3 million and GBP505.1 million for the three and six months ended 30 June 2002 to GBP293.0 million and GBP564.7 million for the three and six months ended 30 June 2003, increases of GBP34.7 million and GBP59.6 million or 13.4% and 11.8%, respectively. Turnover also benefited from the weakness of the British pound relative to the Euro; at constant exchange rates growth over the three and six months ended 30 June 2002 was 4%. The increase in turnover was 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.
Turnover from retail customers increased from GBP144.7 million and GBP279.6 million for the three and six months ended 30 June 2002 to GBP171.3 million and GBP334.2 million for the three and six months ended 30 June 2003, increases of 18.4% and 19.3% respectively. Turnover from retail customers represented 58% and 59% of total turnover in the three and six months ended 30 June 2003 compared to 56% and 55% in the comparable periods of 2002. Switched turnover from retail customers for the three and six months ended 30 June 2003 was GBP83.8 million and GBP163.4 million, increases of 15.1% and 14.5%, respectively. Non-switched and other turnover from retail customers for the three and six months ended 30 June 2003 was GBP87.5 million and GBP170.7 million, increases of 21.7% and 24.7%, respectively.
Turnover from wholesale customers increased from GBP113.6 million and GBP225.4 million for the three and six months ended 30 June 2002 to GBP121.7 million and GBP230.5 million for the three and six months ended 30 June 2003, increases of 7.1% and 2.3%, respectively and represented 42% and 41% of total turnover compared to 44% and 45% in the comparable periods of 2002. Switched turnover from wholesale customers for the three and six months ended 30 June 2003 was GBP93.0 million and GBP174.4 million increases of 7.9% and 3.6% respectively. Non-switched and other turnover from wholesale customers for the three and six months ended 30 June 2003 was GBP28.6 million and GBP56.1 million an increase of 4.7% and decrease of 1.6% respectively.
For the three and six months ended 30 June 2003 5.2 billion and 10.3 billion switched minutes were carried compared to 5.1 billion and 10.4 billion in the equivalent periods of 2002 reflecting COLT's policy of reducing exposure to selected low margin wholesale customers. Average switched revenue per minute increased by 9% and 10% for the three and six months ended June 2003 compared to the equivalent periods in 2002 as a result of changes in mix and a more stable pricing environment.
At 30 June 2003 COLT had 23.3 million voice grade equivalent private wires in service, an increase of 36% compared to 30 June 2002. Growth in non-switched network services 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. The growth in non-switched network services also reflects the growing success COLT is achieving in the provision of IPVPN services. At 30 June 2003, COLT had 2,959 racks installed in its 11 Internet Solution Centres (ISC), an increase of 18% compared to 30 June 2002. Overall growth in racks was impacted by the closure or mothballing of 7 ISCs during 2002.
Cost of Sales
Cost of sales, before exceptional items, increased from GBP236.2 million and GBP462.8 million for the three and six months ended 30 June 2002 to GBP247.1 million and GBP476.0 million for the three and six months ended 30 June 2003, increases of GBP10.9 million and GBP13.2 million or 4.6% and 2.9%, respectively.
Interconnection and network costs, before exceptional items, increased from GBP183.0 million and GBP359.1 million for the three and six months ended 30 June 2002 to GBP195.5 million and GBP375.9 million for the three and six months ended 30 June 2003, as a result of the overall increase in business partially offset by ongoing cost containment measures.
Network depreciation decreased from GBP53.1 million and GBP103.7 million for the three and six months ended 30 June 2002 to GBP51.6 million and GBP100.1 million for the three and six months ended 30 June 2003. The decrease was primarily attributable to the impairment provisions recorded in September 2002, partially offset by further investment in fixed assets to support the growth in demand for services and new service developments.
Operating Expenses
Operating expenses, before exceptional items, decreased from GBP73.9 million and GBP149.3 million for the three and six months ended 30 June 2002 to GBP69.5 million and GBP136.3 million for the comparable period in 2003.
Selling, general and administrative (SG&A) expenses, before exceptional items, decreased from GBP60.5 million and GBP121.5 million for the three and six months ended 30 June 2002 to GBP59.6 million and GBP116.8 million for the three and six months ended 30 June 2003 reflecting ongoing cost containment measures. SG&A before exceptional items as a proportion of turnover in the three months ended 30 June 2003 was 20.3% compared to 23.4% in the equivalent period of 2002 and 21.1% in the first quarter of 2003.
Other depreciation and amortisation decreased from GBP13.4 million and GBP27.9 million for the three and six months ended 30 June 2002 to GBP9.9 million and GBP19.5 million in the comparable periods in 2003 reflecting the effect of the impairment provisions recorded in September 2002 and other assets being fully depreciated.
For the six months ended 30 June 2002, an exceptional charge of GBP6.6 million was recognised for severance provisions related to the staff reduction programmes announced in February 2002. There were no exceptional charges for the three and six months ended 30 June 2003.
Interest Receivable, Interest Payable and Similar Charges
Interest receivable decreased from GBP10.3 million and GBP20.6 million for the three and six months ended 30 June 2002 to GBP6.7 million and GBP14.2 million for the three and six months ended 30 June 2003 due to reduced average balances of cash and investments in liquid resources and lower rates of return during the period.
Interest payable and similar charges decreased from GBP24.5 million and GBP50.2 million for the three and six months ended 30 June 2002 to GBP22.7 million and GBP45.2 million for the equivalent periods in 2003. The decrease was due primarily to a reduction in debt levels reflecting the cumulative purchases of GBP373.8 million accreted amount of the Company's outstanding notes.
Interest payable and similar charges for the three and six months ended 30 June 2003 included: GBP8.7 million and GBP17.3 million respectively of interest and accretion on convertible debt; GBP13.3 million and GBP26.5 respectively of interest and accretion on non-convertible debt; and GBP.7 million and GBP1.4 million respectively of interest and unwinding of discounts on provisions. Interest payable and similar charges for the three months ended 30 June 2003 comprised GBP16.6 million and GBP6.1 million of interest and accretion, respectively.
Gain on Purchase of Debt
Gains arising on the purchase of debt for the three and six months ended 30 June 2003 were GBP7.2 million and GBP7.6 million respectively compared with GBP34.7 million and GBP73.2 million in the equivalent periods in 2002
Exchange Gain (Loss)
For the three and six months ended 30 June 2003, COLT had exchange gains of GBP5.1 million and GBP3.2 million respectively, compared with exchange gains of GBP10.5 million and GBP7.3 million in the equivalent periods in 2002. 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.
Tax on Loss on Ordinary Activities
For the three and six months ended 30 June 2002 and 2003, COLT generated losses on ordinary activities of GBP16.0 million and GBP63.7 million and GBP27.3 million and GBP67.8 million, respectively 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 in 2003 is estimated to be between GBP170 million and GBP200 million compared with GBP412.1 million in 2002. Negative cash flows are expected to continue until an adequate customer base and related revenue streams have been established.
Net cash inflow from operating activities was GBP31.4 million and GBP57.3 million for the three and six months ended 30 June 2002 and GBP37.3 million and GBP67.7 million for the three and six months ended 30 June 2003. 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 and from capital expenditure and financial investment decreased from GBP125.2 million and GBP261.8 million in the three and six months ended 30 June 2002 to GBP50.7 million and GBP93.4 million for the three and six months ended 30 June 2003.
Cash consumption, the sum of net cash inflow from operating activities less net cash outflow from returns on investments and servicing of finance and from capital expenditure and financial investment, improved from GBP93.8 million and GBP204.5 million in the three and six months ended 30 June 2002 to GBP13.3 million and GBP25.7 million for the three and six months ended 30 June 2003.
The decrease in net cash outflow was primarily a result of reduced purchases of tangible fixed assets, which decreased from GBP110.8 million and GBP249.8 million for the three and six months ended 30 June 2002 to GBP33.8 million and GBP75.4 million for the equivalent periods in 2003.
Net cash outflow from financing decreased from GBP32.1 million and GBP68.8 million in the three and six months ended 30 June 2002 to GBP23.3 million and GBP23.8 million for the three and six months ended 30 June 2003. The decrease was primarily a result of reduced bond purchases, which decreased from GBP32.1 million and GBP68.9 million for the three and six months ended 30 June 2002 to GBP23.3 million and GBP23.8 million for the equivalent periods in 2003. COLT had balances of cash and investments in liquid resources at 30 June 2003 of GBP920.5 million compared to GBP934.9 million at 31 December 2002.
The full text of this release can be viewed at: http://www.colt.net/investor_relations