RNS Number:2100R
Colt Telecom Group PLC
23 October 2003
23 October 2003
COLT TELECOM GROUP PLC ANNOUNCES RESULTS FOR THE
THREE AND NINE MONTHS ENDED 30 SEPTEMBER 2003
THIRD QUARTER HIGHLIGHTS
* Turnover up 14% to #295 million compared with Q3 2002
* Constant currency turnover growth of 6% over Q3 2002
* Corporate customer turnover up 19% to #177 million
* Wholesale customer turnover up 7% to #118 million
* Gross margin before depreciation and exceptional items improved from 31.0% to
34.5%
* EBITDA (1) up 123% to #43 million
* Capital expenditure of #33 million
* Positive free cash flow of #9.1 million
* Strong liquidity position with cash and liquid resources of #934 million
* Three new accolades for excellent customer service
* Staff levels including temporary and contract workers reduced by 126 during
the quarter to 4,353
Commenting on the results for the quarter COLT Telecom Group Chairman Barry
Bateman said:
"We have continued to make progress during the seasonally weaker third quarter.
Our success in what remains a difficult market, combined with the strength of
the Euro, has resulted in revenue growth of 14% over the third quarter of last
year.
"COLT was free cash flow positive during the quarter primarily due to
improvements in working capital and the timing of cash interest payments. This
quarter's performance further reinforces our confidence of reaching sustainable
positive free cash flow during 2005. Capital expenditure in the quarter was #33
million and we now expect capital expenditure for the year to be less than the
#170 million to #200 million range previously indicated.
"A strong cash position is an important competitive advantage in today's market
and with cash and liquid resources of #934 million COLT is well positioned to
continue to grow successfully and meet its customers' needs for high quality
advanced services."
Steve Akin, COLT's President and Chief Executive Officer added:
"As we celebrate the tenth anniversary of providing service to our first
customer, COLT is recognised as being one of Europe's best in class
telecommunications service companies. Our reputation for first class customer
service, our extensive product range, the benefits of our extensive pan-European
network coverage and our underlying financial strength are all reflected in our
third quarter performance.
"We continue to improve our position as a preferred supplier to the European
corporate market with revenues from corporate customers growing by 19% compared
with the third quarter of 2002.
"Improved revenue mix at both the customer and product level has contributed to
the improvement in gross margin before depreciation to 34.5% from 31.0 % in the
third quarter last year with EBITDA up 123% to #43 million.
"COLT has built its reputation on first class customer service. This continues
to be recognised by our customers when for the third consecutive year COLT won
the prestigious World Communication Award for Customer Care. Once again we have
been named as the number one fixed telephony and internet services company in
Switzerland by Bilanz magazine, a leading Swiss business publication. We have
also been recognised by EA Games, the leading interactive software company, as
offering the best performing hosting infrastructure for its online games in the
UK.
"Among our more significant corporate customer wins during the quarter was AGA
Gas. COLT is providing AGA with a 50 site IPVPN in Sweden, Denmark, Norway and
Finland. In the UK COLT is providing voice and data communications services into
Swiss Re's new headquarters at 30 St. Mary Axe in London. Other important new
customers include the Belgian postal service, the Portugese national railway,
the Portugese public television network and in the Netherlands, Tenovis, the
communications facilities company.
"As well as winning new customers we are growing business with existing
customers and COLT is now the majority supplier of IPVPN services to SWIFT in
Europe, serving over 60% of its sites across 13 countries.
"We continue to tightly manage operating costs. SG&A costs now represent 19.9%
of revenues compared with 23.5% in the third quarter of 2002. As part of the
reorganisation of our business over the past year we have reduced the number of
Network Operating Centres from ten to two, with one used as a back up site. To
date we have also reduced our real estate requirements by 465,000 square feet as
part of our longer term plan to reduce real estate requirements from a peak of
4.25 million square feet to 2.9 million square feet. We remain on track to
achieve our previously announced work force reduction target of 1,400 staff with
staff numbers, including temporary and contract staff, of 4,353 at the end of
the third quarter. We will continue to look at ways to further improve our
operating efficiency."
KEY FINANCIAL DATA Three months Nine months
ended ended
30 September 30 September
-------------------------------------------
2002 2003 2002 2003
# m # m # m # m
-------------------------------------------
Turnover 259.0 295.4 764.1 860.1
Interconnect and network costs before (178.8) (193.3) (537.9) (569.3)
exceptional items -------------------------------------------
Gross profit before depreciation and
exceptional items 80.2 102.1 226.2 290.8
Gross profit before depreciation and
exceptional items % 31.0% 34.5% 29.6% 33.8%
Network depreciation (57.5) (54.0) (161.3) (154.0)
Exceptional cost of sales (520.6) -- (526.3) --
-------------------------------------------
Gross profit (loss) (497.9) 48.1 (461.4) 136.8
===========================================
Loss for the period (before (61.8) (35.7) (191.3) (111.1)
exceptional items) ===========================================
Loss for the period (after (609.3) (35.7) (673.0) (103.6)
exceptional items) ===========================================
EBITDA (1) 19.4 43.3 43.9 115.2
-------------------------------------------
OPERATING STATISTICS
Q3 02 Q3 03 Growth
------------------------------------------
Customers (at end of period)
North Region 4,115 5,334 30%
Central Region 5,173 6,466 25%
South Region 4,877 5,605 15%
------------------------------------------
14,165 17,405 23%
Customers (at end of period)
Corporate 13,413 16,532 23%
Wholesale 752 873 16%
------------------------------------------
14,165 17,405 23%
Switched Minutes (million) (for period)
North Region 1,234 1,519 23%
Central Region 2,506 2,969 18%
South Region 852 1,010 19%
------------------------------------------
4,592 5,498 20%
Private Wire VGEs (000) (at end of period)
North Region 7,724 10,125 31%
Central Region 8,248 10,621 29%
South Region 2,769 4,432 60%
------------------------------------------
18,741 25,178 34%
Headcount (at end of period)
North Region 1,552 1,282 -17%
Central Region 1,699 1,461 -14%
South Region 1,214 1,114 -8%
Group/other 504 315 -38%
------------------------------------------
4,969 4,172 -16%
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.
Headcount excludes temporary and contract workers.
In previous quarters corporate customers were categorised as retail.
FINANCIAL REVIEW
Turnover
Turnover increased from #259.0 million and #764.1 million for the three and nine
months ended 30 September 2002 to #295.4 million and #860.1 million for the
three and nine months ended 30 September 2003, increases of #36.4 million and
#96.0 million or 14.0% and 12.6% respectively. Turnover also benefited from the
weakness of the British pound relative to the Euro; at constant exchange rates
growth over the three and nine months ended 30 September 2002 was 6% and 5%
respectively. 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 corporate customers increased from #148.7 million and #428.4
million for the three and nine months ended 30 September 2002 to #177.2 million
and #511.3 million for the three and nine months ended 30 September 2003,
increases of 19%. Turnover from corporate customers represented 60% of total
turnover in the three and nine months ended 30 September 2003 compared with 57%
and 56% in the comparable periods of 2002. Switched turnover from corporate
customers for the three and nine months ended 30 September 2003 was #85.4
million and #248.8 million, increases of 12% and 14% respectively. Non-switched
and other turnover from corporate customers for the three and nine months ended
30 September 2003 was #91.7 million and #262.5 million, increases of 27% and
25%, respectively.
Turnover from wholesale customers increased from #110.3 million and #335.7
million for the three and nine months ended 30 September 2002 to #118.2 million
and #348.7 million for the three and nine months ended 30 September 2003,
increases of 7% and 4% respectively and represented 40% of total turnover
compared with 43% and 44% in the comparable periods of 2002. Switched turnover
from wholesale customers for the three and nine months ended 30 September 2003
was #91.5 million and #265.9 million, increases of 13% and 7% respectively.
Non-switched and other turnover from wholesale customers for the three and nine
months ended 30 September 2003 was #26.7 million and #82.8 million, decreases of
9% and 4% respectively.
For the three and nine months ended 30 September 2003 5.5 billion and 15.8
billion switched minutes were carried compared with 4.6 billion and 15.0 billion
in the equivalent periods of 2002. Average switched revenue per minute decreased
by 6% for the three months and increased by 4% for the nine months ended
September 2003 compared to the equivalent periods in 2002 as a result of changes
in mix.
At 30 September 2003 COLT had 25.2 million voice grade equivalent private wires
in service, an increase of 34% compared to 30 September 2002. Growth in
non-switched services reflected the growth in demand for local, national and
international bandwidth services, partially offset by circuit cancellations. The
growth in non-switched services also reflects the growing success COLT is
achieving in the provision of IPVPN services.
Cost of Sales
Cost of sales, before exceptional items, increased from #236.4 million and
#699.2 million for the three and nine months ended 30 September 2002 to #247.3
million and #723.3 million for the three and nine months ended 30 September
2003, increases of #10.9 million and #24.1 million or 5% and 3% respectively.
Interconnection and network costs, before exceptional items, increased from
#178.8 million and #537.9 million for the three and nine months ended 30
September 2002 to #193.3 million and #569.3 million for the three and nine
months ended 30 September 2003 as a result of the overall increase in business
partially offset by ongoing cost containment measures.
Network depreciation decreased from #57.5 million and #161.2 million for the
three and nine months ended 30 September 2002 to #54.0 million and #154.0
million for the three and nine months ended 30 September 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.
For the nine months ended 30 September 2002, an exceptional charge of #18.3
million was recognised for severance provisions related to the staff reduction
programmes announced in February and September 2002 and an impairment charge of
#508.0 million was recognised to ensure that the asset base remained aligned
with the realities of the market place. There were no exceptional charges for
the three and nine months ended 30 September 2003.
Operating Expenses
Operating expenses, before exceptional items, decreased from #73.7 million and
#223.0 million for the three and nine months ended 30 September 2002 to #68.5
million and #204.8 million for the comparable periods in 2003.
Selling, general and administrative (SG&A) expenses, before exceptional items,
decreased from #60.8 million and #182.3 million for the three and nine months
ended 30 September 2002 to #58.8 million and #175.6 million for the three and
nine months ended 30 September 2003 reflecting ongoing cost containment
measures. SG&A before exceptional items as a proportion of turnover in the three
months ended 30 September 2003 was 19.9% compared with 23.5% in the equivalent
period of 2002.
Other depreciation and amortisation decreased from #12.9 million and #40.7
million for the three and nine months ended 30 September 2002 to #9.8 million
and #29.2 million in the comparable periods in 2003 reflecting the effect of the
impairment provisions recorded in September 2002 and other assets being fully
depreciated, partially offset by increased investment in customer service and
support systems.
For the nine months ended 30 September 2002, an exceptional charge of #18.9
million was recognised for severance provisions related to the staff reduction
programmes announced in February and September 2002 and an impairment charge of
#43.0 million was recognised to ensure that the asset base remained aligned with
the realities of the market place. There were no exceptional charges for the
three and nine months ended 30 September 2003.
Interest Receivable, Interest Payable and Similar Charges
Interest receivable decreased from #9.2 million and #29.7 million for the three
and nine months ended 30 September 2002 to #6.0 million and #20.2 million for
the three and nine months ended 30 September 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 #22.5 million and #72.7
million for the three and nine months ended 30 September 2002 to #22.1 million
and #67.3 million for the equivalent periods in 2003. The decrease was due
primarily to a reduction in debt levels reflecting the cumulative purchases of
#373.8 million accreted amount of the Company's outstanding notes.
Interest payable and similar charges for the three and nine months ended 30
September 2003 included: #8.6 million and #25.8 million respectively of interest
and accretion on convertible debt; #12.9 million and #39.4 respectively of
interest and accretion on non-convertible debt; and #0.6 million and #2.1
million respectively of interest and unwinding of discounts on provisions.
Interest payable and similar charges for the three months ended 30 September
2003 comprised #16.3 million and #5.8 million of interest and accretion
respectively.
Gain on Purchase of Debt
There were no purchases of debt in the three months ended 30 September 2003.
Gains arising on the purchase of debt during the nine months ended 30 September
2003 amounted to #7.6 million. Gains arising on the purchase of debt for the
three and nine months ended September 2002 were #28.5 million and #101.7 million
respectively.
Exchange Gain (Loss)
For the three and nine months ended 30 September 2003 there were exchange gains
of #0.9 million and #4.1 million compared with exchange gains of #2.5 million
and #9.8 million in the equivalent periods in 2002. These gains 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 nine months ended 30 September 2002 and 2003, COLT generated
losses on ordinary activities of #609.3 million and #673.0 million and #35.7
million and #103.6 million, respectively and therefore did not incur a tax
obligation.
Financial Needs and Resources
The costs associated with the construction and expansion of COLT's networks,
including development, installation and operating expenses have resulted in
cumulative negative cash flows. COLT does not expect to achieve sustainable
positive free cash flow until some time during 2005.
Net cash inflow from operating activities was #55.1 million and #112.4 million
for the three and nine months ended 30 September 2002 and #45.3 million and
#113.0 million for the three and nine months ended 30 September 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 #89.3 million and
#351.1 million in the three and nine months ended 30 September 2002 to #36.1
million and #129.6 million for the three and nine months ended 30 September
2003.
Free cash flow, 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 #34.2 million and
#238.7 million in the three and nine months ended 30 September 2002 to an inflow
of #9.1 million and an outflow of #16.6 million in the three and nine months
ended 30 September 2003 respectively.
The decrease in net cash outflow was primarily a result of reduced purchases of
tangible fixed assets, which decreased from #89.9 million and #339.7 million for
the three and nine months ended 30 September 2002 to #32.9 million and #108.3
million for the equivalent periods in 2003.
Net cash from financing improved from an outflow of #28.3 million and #97.2
million in the three and nine months ended 30 September 2002 to an inflow of
#0.5 million and an outflow of #23.3 million for the three and nine months ended
30 September 2003. The improvement was primarily a result of reduced bond
purchases, which decreased from #28.3 million and #97.3 million for the three
and nine months ended 30 September 2002 to nil and #23.8 million for the
equivalent periods in 2003. COLT had balances of cash and investments in liquid
resources at 30 September 2003 of #934.4 million compared with #934.9 million at
31 December 2002.
Consolidated Profit and Loss Account
Three months ended 30 September
------------------------------------------------------------------------------------------
2002 2002 2002 2003 2003 2003 2003
Before After Before After After
Exceptional Exceptional Exceptional Exceptional Exceptional Exceptional Exceptional
Items Items Items Items Items Items Items
#'000 #'000 #'000 #'000 #'000 #'000 $'000
------------------------------------------------------------------------------------------
Turnover 259,032 -- 259,032 295,368 -- 295,368 490,902
Cost of sales
Interconnect and (178,824) (12,640) (191,464) (193,322) -- (193,322) (321,301)
network
Network (57,511) (508,000) (565,511) (53,977) -- (53,977) (89,709)
depreciation ------------------------------------------------------------------------------------------
(236,355) (520,640) (756,975) (247,299) -- (247,299) (411,010)
------------------------------------------------------------------------------------------
Gross profit 22,697 (520,640) (497,943) 48,069 -- 48,069 79,892
(loss)
Operating
expenses
Selling, general (60,818) (12,360) (73,178) (58,790) -- (58,790) (97,709)
and
administrative
Other (12,889) (43,000) (55,889) (9,756) -- (9,756) (16,215)
depreciation and
amortisation ------------------------------------------------------------------------------------------
(73,707) (55,360) (129,067) (68,546) -- (68,546) (113,924)
------------------------------------------------------------------------------------------
Operating loss (51,010) (576,000) (627,010) (20,477) -- (20,477) (34,032)
Other income
(expense)
Interest 9,182 -- 9,182 6,010 -- 6,010 9,988
receivable
Gain on purchase -- 28,516 28,516 -- -- -- --
of debt
Interest payable (22,460) -- (22,460) (22,139) -- (22,139) (36,795)
and similar
charges
Exchange gain 2,459 -- 2,459 880 -- 880 1,462
(loss)
------------------------------------------------------------------------------------------
(10,819) 28,516 17,697 (15,249) -- (15,249) (25,345)
------------------------------------------------------------------------------------------
Profit (loss) on (61,829) (547,484) (609,313) (35,726) -- (35,726) (59,377)
ordinary
activities
before
taxation
Taxation -- -- -- -- -- -- --
------------------------------------------------------------------------------------------
Loss for (61,829) (547,484) (609,313) (35,726) -- (35,726) (59,377)
period ==========================================================================================
Basic and #(0.04) #(0.36) #(0.40) #(0.02) -- #(0.02) $(0.04)
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 Profit and Loss Account
Nine months ended 30 September
----------------------------------------------------------------------------------------------
2002 2002 2002 2003 2003 2003 2003
Before After Before After After
Exceptional Exceptional Exceptional Exceptional Exceptional Exceptional Exceptional
Items Items Items Items Items Items Items
#'000 #'000 #'000 #'000 #'000 #'000 $'000
----------------------------------------------------------------------------------------------
Turnover 764,082 -- 764,082 860,055 -- 860,055 1,429,411
Cost of sales
Interconnect and (537,916) (18,320) (556,236) (569,265) -- (569,265) (946,119)
network
Network (161,244) (508,000) (669,244) (154,039) -- (154,039) (256,012)
depreciation ----------------------------------------------------------------------------------------------
(699,160) (526,320) (1,225,480) (723,304) -- (723,304) (1,202,131)
----------------------------------------------------------------------------------------------
Gross profit 64,922 (526,320) (461,398) 136,751 -- 136,751 227,280
(loss)
Operating
expenses
Selling, general (182,280) (18,934) (201,214) (175,589) -- (175,589) (291,829)
and
administrative
Other (40,743) (43,000) (83,743) (29,247) -- (29,247) (48,608)
depreciation and
amortisation ----------------------------------------------------------------------------------------------
(223,023) (61,934) (284,957) (204,836) -- (204,836) (340,437)
----------------------------------------------------------------------------------------------
Operating loss (158,101) (588,254) (746,355) (68,085) -- (68,085) (113,157)
Other income
(expense)
Interest 29,744 -- 29,744 20,186 -- 20,186 33,549
receivable
Gain on purchase -- 101,668 101,668 -- 7,589 7,589 12,613
of debt
Interest payable (72,706) -- (72,706) (67,307) -- (67,307) (111,864)
and similar
charges
Exchange gain 9,758 4,844 14,602 4,058 -- 4,058 6,744
(loss) ----------------------------------------------------------------------------------------------
(33,204) 106,512 73,308 (43,063) 7,589 (35,474) (58,958)
----------------------------------------------------------------------------------------------
Profit (loss) on (191,305) (481,742) (673,047) (111,148) 7,589 (103,559) (172,115)
ordinary
activities
before
taxation
Taxation -- -- -- -- -- -- --
----------------------------------------------------------------------------------------------
Loss for (191,305) (481,742) (673,047) (111,148) 7,589 (103,559) (172,115)
period ==============================================================================================
Basic and #(0.13) #(0.32) #(0.45) #(0.07) #0.00 #(0.07) $(0.11)
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 30 September Nine months ended 30 September
-------------------------------------------------------------------------
2002 2003 2003 2002 2003 2003
#'000 #'000 $'000 #'000 #'000 $'000
-------------------------------------------------------------------------
Loss for the (609,313) (35,726) (59,377) (673,047) (103,559) (172,115)
period
Exchange (25,892) 3,473 5,773 26,280 28,968 48,145
differences -------------------------------------------------------------------------
Total (635,205) (32,253) (53,604) (646,767) (74,591) (123,970)
recognised
losses =========================================================================
Consolidated Reconciliation of Changes in Equity Shareholders' Funds
Three months ended 30 September Nine months ended 30 September
-------------------------------------------------------------------------
2002 2003 2003 2002 2003 2003
#'000 #'000 $'000 #'000 #'000 $'000
-------------------------------------------------------------------------
Loss for (609,313) (35,726) (59,377) (673,047) (103,559) (172,115)
period
Issue of 60 610 1,014 170 612 1,017
share
capital
Shares to be (71) (117) (194) (296) (229) (381)
issued
Charges -- -- -- 14 -- --
related to
share
schemes
Exchange (25,892) 3,473 5,773 26,280 28,968 48,145
difference -------------------------------------------------------------------------
Net changes (635,216) (31,760) (52,784) (646,879) (74,208) (123,334)
in equity
shareholders'
funds -------------------------------------------------------------------------
Opening 1,612,696 912,562 1,516,677 1,624,359 955,010 1,587,227
equity
shareholders'
funds -------------------------------------------------------------------------
Closing 977,480 880,802 1,463,893 977,480 880,802 1,463,893
equity
shareholders'
funds -------------------------------------------------------------------------
Consolidated Balance Sheet
At 31 December
2002 At 30 September 2003
#'000 #'000 $'000
------------------------------------------
Fixed assets
Intangible fixed assets (net) 10,639 9,866 16,397
Tangible fixed assets (cost) 2,695,499 2,909,095 4,834,916
Accumulated depreciation (1,316,690) (1,542,621) (2,563,836)
------------------------------------------
Tangible fixed assets (net) 1,378,809 1,366,474 2,271,080
Investments in own shares 206 204 339
------------------------------------------
Total fixed assets 1,389,654 1,376,544 2,287,816
Current assets
Trade debtors 189,788 200,183 332,704
Prepaid expenses and other debtors 74,606 62,870 104,490
Investments in liquid resources 889,590 880,199 1,462,891
Cash at bank and in hand 45,292 54,205 90,089
------------------------------------------
Total current assets 1,199,276 1,197,457 1,990,174
------------------------------------------
Total assets 2,588,930 2,574,001 4,277,990
==========================================
Capital and reserves
Called up share capital 37,688 37,711 62,676
Share premium 2,314,335 2,314,792 3,847,184
Merger reserve 27,227 27,359 45,471
Shares to be issued 454 225 374
Profit and loss account (1,424,694) (1,499,285) (2,491,812)
------------------------------------------
Equity shareholders' funds 955,010 880,802 1,463,893
Provisions for liabilities and 87,368 71,581 118,968
charges
Creditors
Amounts falling due within one 352,653 367,678 611,081
year
Amounts falling due after more than
one year
Convertible debt 639,829 689,792 1,146,434
Non-convertible debt 554,070 564,148 937,614
------------------------------------------
Total amounts falling due after more 1,193,899 1,253,940 2,084,048
than one year ------------------------------------------
Total creditors 1,546,552 1,621,618 2,695,129
------------------------------------------
Total liabilities, capital and 2,588,930 2,574,001 4,277,990
reserves ------------------------------------------
Consolidated Cash Flow Statement
Three months ended 30 September Nine months ended 30 September
----------------------------------------------------------------------
2002 2003 2003 2002 2003 2003
#'000 #'000 $'000 #'000 #'000 $'000
----------------------------------------------------------------------
Net cash inflow 55,084 45,264 75,228 112,381 112,951 187,725
from operating
activities
Returns on
investments and
servicing of
finance
Interest 9,486 6,023 10,010 30,674 20,277 33,700
received
Interest paid, (8,900) (9,251) (15,375) (46,872) (41,546) (69,049)
finance costs
and similar
charges
Gain on -- -- -- 4,844 -- --
cancellation of
forward foreign
currency
contracts ----------------------------------------------------------------------
Net cash inflow 586 (3,228) (5,365) (11,354) (21,269) (35,349)
(outflow) from
returns on
investments and
servicing of
finance
Capital
expenditure and
financial
investment
Purchase of (89,905) (32,909) (54,695) (339,722) (108,300) (179,995)
tangible fixed
assets ----------------------------------------------------------------------
Net cash (89,905) (32,909) (54,695) (339,722) (108,300) (179,995)
outflow from
capital
expenditure and
financial
investment
Management of 78,152 3,816 6,343 337,741 46,659 77,547
liquid
resources
Financing
Issue of -- 473 786 110 474 788
ordinary
shares
Issue (18,782) -- -- (64,328) (14,166) (23,544)
(purchase) of
non-convertible
debt ----------------------------------------------------------------------
Issue (9,563) -- -- (32,949) (9,606) (15,965)
(purchase) of
convertible
debt ----------------------------------------------------------------------
Net cash inflow (28,345) 473 786 (97,167) (23,298) (38,721)
(outflow) from
financing ----------------------------------------------------------------------
Increase 15,572 13,416 22,297 1,879 6,743 11,207
(decrease) 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 Company for the three and nine months ended 30
September 2002 and 2003 and at 31 December 2002 and 30 September 2003.
The financial statements for the three and nine months ended 30 September 2002
and 2003 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 U.K. generally accepted accounting
principles. All adjustments, with the exception of the separately identified
exceptional items for the three and nine months ended 30 September 2002 and
2003, were of a normal recurring nature. The Balance Sheet at 31 December 2002
has been extracted from the Group's audited statements for that period and does
not constitute the Group's statutory accounts for that period.
Accounting policies and presentation applied are consistent with those applied
in preparing the Group's financial statements for the year ended 31 December
2002.
Certain British pound amounts in the financial statements have been translated
into U.S. dollars at 30 September 2003 and for the periods then ended at the
rate of $1.6620 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 of New York 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.
Notes to Financial Statements
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.
Non-switched turnover in North, Central and South Regions includes managed and
non-managed network services data 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 2002 and 2003, turnover by region was as
follows:
Three months ended 30 September 2002
----------------------------------------------------------------------
Corporate Wholesale North Central South
Region Region Region Total
#'000 #'000 #'000 #'000 #'000 #'000
----------------------------------------------------------------------
Switched 76,270 80,892 47,679 71,284 38,199 157,162
Non-Switched 72,375 29,284 36,320 36,527 28,812 101,659
Other 97 114 12 95 104 211
----------------------------------------------------------------------
Total 148,742 110,290 84,011 107,906 67,115 259,032
======================================================================
Three months ended 30 September 2003
----------------------------------------------------------------------
North Central South
Corporate Wholesale Region Region Region Total
#'000 #'000 #'000 #'000 #'000 #'000
----------------------------------------------------------------------
Switched 85,428 91,469 52,271 82,566 42,060 176,897
Non-Switched 91,202 26,695 41,720 41,594 34,583 117,897
Other 533 41 -- 574 -- 574
----------------------------------------------------------------------
Total 177,163 118,205 93,991 124,734 76,643 295,368
======================================================================
For the nine months ended 30 September 2002 and 2003, turnover by region was as
follows:
Nine months ended 30 September 2002
----------------------------------------------------------------------
North Central South
Corporate Wholesale Region Region Region Total
#'000 #'000 #'000 #'000 #'000 #'000
----------------------------------------------------------------------
Switched 218,996 249,310 138,533 216,332 113,441 468,306
Non-Switched 208,464 85,781 104,594 105,331 84,320 294,245
Other 915 616 57 1,168 306 1,531
----------------------------------------------------------------------
Total 428,375 335,707 243,184 322,831 198,067 764,082
======================================================================
Nine months ended 30 September 2003
----------------------------------------------------------------------
North Central South
Corporate Wholesale Region Region Region Total
#'000 #'000 #'000 #'000 #'000 #'000
----------------------------------------------------------------------
Switched 248,796 265,904 155,527 238,255 120,918 514,700
Non-Switched 261,609 82,483 123,944 120,181 99,967 344,092
Other 909 354 79 905 279 1,263
----------------------------------------------------------------------
Total 511,314 348,741 279,550 359,341 221,164 860,055
======================================================================
Notes to Financial Statements
3. Profit (loss) per share
Three months ended 30 September Nine months ended 30 September
-------------------------------------------------------------------------
2002 2003 2003 2002 2003 2003
#'000 #'000 $'000 #'000 #'000 $'000
-------------------------------------------------------------------------
Profit (609,313) (35,726) (59,377) (673,047) (103,559) (172,115)
(loss)
for
period =========================================================================
Weighted 1,507,226 1,508,037 1,508,037 1,507,138 1,507,463 1,507,463
average
of
ordinary
shares
('000)
Basic #(0.40) #(0.02) $(0.04) #(0.45) #(0.07) $(0.11)
and diluted
profit (loss)
per share -------------------------------------------------------------------------
4a. Net cash inflow from operating activities
Three months ended 30 September Nine months ended 30 September
----------------------------------------------------------------------
2002 2003 2003 2002 2003 2003
#'000 #'000 $'000 #'000 #'000 $'000
----------------------------------------------------------------------
Operating (627,010) (20,477) (34,032) (746,355) (68,085) (113,157)
loss
Depreciation, 621,400 63,733 105,924 752,987 183,286 304,620
amortisation
of fixed
assets
Exchange (442) (19) (32) 520 123 205
differences
Decrease 14,485 11,206 18,624 48,860 15,020 24,964
(increase) in
debtors
Increase 26,471 (935) (1,554) 29,977 3,325 5,526
(decrease) in
creditors
Movement in 20,180 (8,244) (13,702) 26,392 (20,718) (34,433)
provision for
liabilities
and charges----------------------------------------------------------------------
Net cash 55,084 45,264 75,228 112,381 112,951 187,725
inflow from
operating
activities ======================================================================
4b. EBITDA reconciliation
Three months ended 30 September Nine months ended 30 September
----------------------------------------------------------------------
2002 2003 2003 2002 2003 2003
#'000 #'000 $'000 #'000 #'000 $'000
----------------------------------------------------------------------
Net cash 55,084 45,264 75,228 112,381 112,951 187,725
inflow from
operating
activities
Adjusted for:
Exchange 442 19 32 (520) (123) (205)
differences
Movement in (14,485) (11,206) (18,624) (48,860) (15,020) (24,964)
debtors
Movement in (26,471) 935 1,554 (29,977) (3,325) (5,526)
creditors ----------------------------------------------------------------------
Total working (40,956) (10,271) (17,070) (78,837) (18,345) (30,490)
capital
adjustments
Movement in (20,180) 8,244 13,702 (26,392) 20,718 34,433
provision
for
liabilities
and charges
Add back
Exceptional 12,640 -- -- 18,320 -- --
interconnect
and
Network
charges
Exceptional 12,360 -- -- 18,934 -- --
selling and
Administrative
charges ----------------------------------------------------------------------
EBITDA before 19,390 43,256 71,892 43,886 115,201 191,463
exceptional
items ======================================================================
Notes to Financial Statements
5. Changes in cash and investments in liquid resources
Three months ended 30 September Nine months ended 30 September
-----------------------------------------------------------------------
2002 2003 2003 2002 2003 2003
#'000 #'000 $'000 #'000 #'000 $'000
-----------------------------------------------------------------------
Beginning of 1,058,150 920,519 1,529,903 1,304,477 934,882 1,553,774
period
Net increase (78,152) (3,816) (6,343) (337,741) (46,659) (77,547)
(decrease) in
investments
in liquid
resources
before
exchange
differences
Effects of (15,761) 4,715 7,837 14,153 37,268 61,939
exchange
differences
in
investments
in liquid
resources
Net increase 15,572 13,416 22,297 1,879 6,743 11,207
(decrease) in
cash before
exchange
differences
Effects of (1,715) (430) (714) (4,674) 2,170 3,607
exchange
differences
in cash -----------------------------------------------------------------------
End of 978,094 934,404 1,552,980 978,094 934,404 1,552,980
period =======================================================================
6. 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 Nine months ended 30 September
----------------------------------------------------------------------------
2002 2003 2003 2002 2003 2003
#'000 #'000 $'000 #'000 #'000 $'000
----------------------------------------------------------------------------
Loss for (609,313) (35,726) (59,377) (673,047) (103,559) (172,115)
period
Adjustments:
Deferred (356) (292) (485) (1,617) (815) (1,355)
compensation
(i), (ii)
Amortisation 384 544 904 873 1,612 2,679
of
intangibles
(iii)
Capitalised 1,147 (715) (1,188) 4,726 (2,268) (3,769)
interest,
net of
depreciation
(iv)
Profit on 262 262 435 784 783 1,301
sale of IRUs
(v)
Warrants (154) 140 233 (1,377) 127 211
(vi)
Installation (4,043) 773 1,285 680 2,044 3,397
revenue
(vii)
Direct costs 4,043 (1,401) (2,329) (680) (2,672) (4,441)
attributable
to
installation
revenue
(vii)
Impairment 107,200 (2,805) (4,662) 107,200 (8,416) (13,987)
(viii) ----------------------------------------------------------------------------
Loss for (500,830) (39,220) (65,184) (562,458) (113,164) (188,079)
period under
US GAAP ============================================================================
Weighted 1,507,226 1,508,037 1,508,037 1,507,138 1,507,463 1,507,463
average
number of
ordinary
shares
('000) ============================================================================
Basic and #(0.33) #(0.03) $(0.04) #(0.37) #(0.08) $(0.12)
diluted loss
per share ============================================================================
(i) On 3 July 2001 the Company completed the acquisition of Fitec. A total of
1,518,792 ordinary shares and 4.04 million Euros was paid at completion, with an
additional 1.2 million Euros and 317,784 shares to be earned over the two year
period ending June 2003, subject to certain conditions being met. The final
payments were made in July 2003.
Under U.K. GAAP, the deferred shares and payments have been included in the
purchase consideration. The excess purchase consideration over the fair value
of assets and liabilities acquired is attributed to goodwill and is being
amortised over its estimated economic life.
Notes to Financial Statements
Under U.S. GAAP, these deferred shares and payments are excluded from the
purchase consideration and recognised as compensation expense in the profit and
loss accounts over the period in which the payments vest. The total
compensation charge for the three and nine months ended 30 September 2002 was
#0.2 million and #1.0 million respectively and for the three and nine months
ended 30 September 2003 nil and #0.3 million respectively.
(ii) The Company 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 are earned.
During 2002 the Company adopted the provisions of EITF 00-23, "Issues Related to
the Accounting for Stock Compensation under APB Opinion No. 25 and FIN 44". In
accordance with this, an employers 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 of 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 adoption of this
guidance has not had a material effect on the compensation charge.
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 charge for the three and nine months
ended 30 September 2002 was #0.2 million and #0.6 million respectively and for
the three and nine months ended 30 September 2003 #0.3 million and #0.5 million
respectively.
(iii) Under U.S. GAAP goodwill with indefinite useful lives 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.
At 30 September 2002, as set out in note (viii), the Company completed an
impairment review of its reporting units. As a result the goodwill and other
intangible assets attributable to Fitec were considered fully impaired and
written off. These were also written off in full for U.K. GAAP purposes.
The Company had unamortised goodwill of #6.6 million at 1 January 2003, 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 #0.4
million and #0.9 million for the three and nine months ended 30 September 2002
respectively and #0.5 million and #1.6 million for the three and nine months
ended 30 September 2003 respectively.
(iv) Adjustment to reflect interest amounts capitalised under U.S. GAAP, less
depreciation for the period.
(v) The Company has 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 revenue previously deferred.
(vi) The Company 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 2002 and 2003, customer
installation revenues together with attributable direct costs are recognised
over the expected customer relationship period. The expected relationship period
for wholesale customers was reduced during the three months ended 30 June 2002.
At 30 September 2003, the cumulative increase in net losses under SAB 101 was
#0.6 million, representing cumulative deferred installation revenues of #55.6
million and costs of #55.0 million.
(viii) During the quarter ended 30 September 2002, the Company recorded charges
of #443.8 million under U.S. GAAP to reflect the impairment of goodwill (see
note iii), network and non-network fixed assets, resulting in a GAAP difference
of #107.2 million. For the three and nine months ended 30 September 2003
depreciation in the amount of #2.8 million and #8.4 million respectively was
recorded in respect of the assets which had not been impaired for U.S. GAAP
purposes.
b. Effects of conforming to U.S. GAAP - impact on net equity
----------------------
At 30 September 2003
----------------------
#'000 $'000
Equity shareholders' funds for the Company 880,802 1,463,893
U.S. GAAP adjustments:
Adjustment for deferred compensation (10,569) (17,565)
Unearned compensation (1,708) (2,839)
Additional paid in share capital 12,277 20,404
Own shares held in trust (i) (206) (342)
Amortisation of intangibles 5,512 9,161
Warrants 979 1,627
Impairment 95,974 159,509
Deferred profit on IRUs (17,984) (29,889)
Capitalised interest, net of depreciation 38,692 64,305
Deferred profit on installations (628) (1,044)
----------------------
Approximate equity shareholders' funds under U.S. GAAP 1,003,141 1,667,220
======================
(i) Under U.K. GAAP, shares held by a QUEST, and similar employee share schemes,
are recorded as fixed asset investments at cost less amounts written off. Under
U.S. GAAP, these shares are recorded at historical cost in the balance sheet as
a deduction from shareholders' funds. The adjustment reflects the net impact on
U.S. GAAP equity after U.K. GAAP write-offs.
c. Effects of conforming to U.S. GAAP - stock options
At September 2003 the Company had certain options outstanding under its Option
Plan. As permitted by SFAS No.123, "Accounting for Stock-Based Compensation",
the Company 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 Company's loss for the three and
nine months ended 30 September 2003 would have been #43.2 million ($71.9
million) and #126.2 million ($209.8 million) respectively.
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. The
Company 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 Company's actual results and could cause the Company's actual
results for future periods to differ materially from those expressed in any
forward looking statement made by or on behalf of the Company. 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 Company to expand and develop its networks in new markets, (iii)
the Company's ability to manage its growth, (iv) the nature of the competition
that the Company will encounter and (v) unforeseen operational or technical
problems. The Company 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.
Enquiries:
COLT Telecom Group plc
John Doherty
Director Corporate Communications
Email: jdoherty@colt.net
Tel: +44 (0) 20 7390 3681
This information is provided by RNS
The company news service from the London Stock Exchange
END
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