RNS Number:8517N
Colt Telecom Group PLC
23 July 2003
23 July 2003
COLT TELECOM GROUP PLC ANNOUNCES RESULTS FOR THE
THREE AND SIX MONTHS ENDED 30 JUNE 2003
SECOND QUARTER HIGHLIGHTS
* Turnover up 13.4% to #293.0 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 #171.3 million
* Gross margin before depreciation and exceptional items improved from
29.1% to 33.3%
* EBITDA (1) up 158% to #37.9 million
* Capital expenditure #33.8 million
* Profit on bond purchases of #7.2 million
* Cash consumption reduced from #93.8 million to #13.3 million,
excluding bond purchases
* Strong liquidity position with cash and liquid resources of #920.5
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 #33.8 million and we now expect capital
expenditure for the year to be between #170 million and #200 million.
"We also continued to improve cash flow, with cash consumption reducing from
#93.8 million in the second quarter of 2002 to #13.3 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 #920.5 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 #293.0 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 #37.9 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
#60.5 million, 23.4% of revenues, in the second quarter of 2002, to #59.6
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
#m #m #m #m
Turnover 258.2 293.0 505.1 564.7
Interconnect and network costs (183.0) (195.5) (359.1) (375.9)
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 (before (55.6) (34.5) (129.5) (75.4)
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 #258.3 million and #505.1 million for the three and six
months ended 30 June 2002 to #293.0 million and #564.7 million for the three and
six months ended 30 June 2003, increases of #34.7 million and #59.6 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 #144.7 million and #279.6 million
for the three and six months ended 30 June 2002 to #171.3 million and #334.2
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 #83.8 million and
#163.4 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 #87.5 million and #170.7 million, increases of 21.7% and 24.7%,
respectively.
Turnover from wholesale customers increased from #113.6 million and #225.4
million for the three and six months ended 30 June 2002 to #121.7 million and
#230.5 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
#93.0 million and #174.4 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 #28.6 million and #56.1 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 #236.2 million and
#462.8 million for the three and six months ended 30 June 2002 to #247.1 million
and #476.0 million for the three and six months ended 30 June 2003, increases of
#10.9 million and #13.2 million or 4.6% and 2.9%, respectively.
Interconnection and network costs, before exceptional items, increased from
#183.0 million and #359.1 million for the three and six months ended 30 June
2002 to #195.5 million and #375.9 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 #53.1 million and #103.7 million for the
three and six months ended 30 June 2002 to #51.6 million and #100.1 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 #73.9 million and
#149.3 million for the three and six months ended 30 June 2002 to #69.5 million
and #136.3 million for the comparable period in 2003.
Selling, general and administrative (SG&A) expenses, before exceptional items,
decreased from #60.5 million and #121.5 million for the three and six months
ended 30 June 2002 to #59.6 million and #116.8 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 #13.4 million and #27.9
million for the three and six months ended 30 June 2002 to #9.9 million and
#19.5 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 #6.6 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 #10.3 million and #20.6 million for the three
and six months ended 30 June 2002 to #6.7 million and #14.2 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 #24.5 million and #50.2
million for the three and six months ended 30 June 2002 to #22.7 million and
#45.2 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 six months ended 30 June
2003 included: #8.7 million and #17.3 million respectively of interest and
accretion on convertible debt; #13.3 million and #26.5 respectively of interest
and accretion on non-convertible debt; and #.7 million and #1.4 million
respectively of interest and unwinding of discounts on provisions. Interest
payable and similar charges for the three months ended 30 June 2003 comprised
#16.6 million and #6.1 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 #7.2 million and #7.6 million respectively compared with #34.7 million
and #73.2 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 #5.1
million and #3.2 million respectively, compared with exchange gains of #10.5
million and #7.3 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 #16.0 million and #63.7 million and #27.3 million and
#67.8 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 #170 million and #200 million compared with #412.1
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 #31.4 million and #57.3 million
for the three and six months ended 30 June 2002 and #37.3 million and #67.7
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 #125.2 million and
#261.8 million in the three and six months ended 30 June 2002 to #50.7 million
and #93.4 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 #93.8 million and
#204.5 million in the three and six months ended 30 June 2002 to #13.3 million
and #25.7 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 #110.8 million and #249.8 million
for the three and six months ended 30 June 2002 to #33.8 million and #75.4
million for the equivalent periods in 2003.
Net cash outflow from financing decreased from #32.1 million and #68.8 million
in the three and six months ended 30 June 2002 to #23.3 million and #23.8
million for the three and six months ended 30 June 2003. The decrease was
primarily a result of reduced bond purchases, which decreased from #32.1 million
and #68.9 million for the three and six months ended 30 June 2002 to #23.3
million and #23.8 million for the equivalent periods in 2003. COLT had balances
of cash and investments in liquid resources at 30 June 2003 of #920.5 million
compared to #934.9 million at 31 December 2002.
Consolidated Profit and Loss Account
Three months ended 30 June
2002 2002 2002 2003 2003 2003 2003
Before Exceptional After Before Exceptional After After
Exceptional Items Exceptional Exceptional Items Exceptional Exceptional
Items Items Items Items Items
#'000 #'000 #'000 #'000 #'000 #'000 $'000
Turnover 258,252 -- 258,252 292,967 -- 292,967 484,245
Cost of sales
Interconnect (183,038) -- (183,038) (195,477) -- (195,477) (323,104)
and network
Network (53,117) -- (53,117) (51,616) -- (51,616) (85,316)
depreciation
(236,155) -- (236,155) (247,093) -- (247,093) (408,420)
Gross profit 22,097 -- 22,097 45,874 -- 45,874 75,825
Operating
expenses
Selling,
general (60,474) -- (60,474) (59,564) -- (59,564) (98,453)
and
administrative
Other
depreciation
and
amortisation (13,425) -- (13,425) (9,897) -- (9,897) (16,359)
(73,899) -- (73,899) (69,461) -- (69,461) (114,812)
Operating (51,802) -- (51,802) (23,587) -- (23,587) (38,987)
loss
Other income
(expense)
Interest 10,290 -- 10,290 6,705 -- 6,705 11,083
receivable
Gain on -- 34,743 34,743 -- 7,240 7,240 11,967
purchase of
debt
Interest (24,543) -- (24,543) (22,724) -- (22,724) (37,561)
payable
and similar
charges
Exchange 10,496 4,844 15,340 5,115 -- 5,115 8,455
(loss)
(3,757) 39,587 35,830 (10,904) 7,240 (3,664) (6,056)
Profit
(loss)on
ordinary
activities
before
taxation (55,559) (39,587) (15,972) (34,491) 7,240 (27,251) (45,043)
Taxation -- -- -- -- -- -- --
Loss for (55,559) 39,587 (15,972) (34,491) 7,240 (27,251) (45,043)
period
Basic and #(0.04) #0.03 #(0.01) #(0.02) #0.00 #(0.02) $(0.03)
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
Six months ended 30 June
2002 2002 2003 2003 2003 2003 2003
Before Exceptional After Before Exceptional After After
Exceptional Items Exceptional Exceptional Items Exceptional Exceptional
Items Items Items Items Items
#'000 #'000 #'000 #'000 #'000 #'000 $'000
Turnover 505,050 -- 505,050 564,687 -- 564,687 933,371
Cost of sales
Interconnect (359,092) (5,680) (364,772) (375,943) -- (375,943) (621,396)
and network
Network (103,733) -- (103,733) (100,062) -- (100,062) (165,393)
depreciation
(462,825) (5,680) (468,505) (476,005) -- (476,005) (786,789)
Gross profit 42,225 (5,680) 36,545 88,682 -- 88,682 146,582
(loss)
Operating
expenses
Selling,
general (121,462) (6,574) (128,036) (116,799) -- (116,799) (193,057)
and
administrative
Other
depreciation
and
amortisation (27,854) -- (27,854) (19,491) -- (19,491) (32,216)
(149,316) (6,574) (155,890) (136,290) -- (136,290) (255,273)
Operating (107,091) (12,254) (119,345) (47,608) -- (47,608) (78,691)
loss
Other income
(expense)
Interest 20,562 -- 20,562 14,176 -- 14,176 23,432
receivable
Gain on -- 73,152 73,152 -- 7,589 7,589 12,544
purchase of
debt
Interest (50,246) -- (50,246) (45,168) -- (45,168) (74,658)
payable
and similar
charges
Exchange 7,299 4,844 12,143 3,179 -- 3,179 5,254
(loss)
(22,385) (77,996) (55,611) (27,813) 7,589 (20,224) (33,428)
Profit
(loss)on
ordinary
activities
before
taxation (129,476) 65,742 (63,734) (75,421) 7,589 (67,832) (112,119)
Taxation -- -- -- -- -- -- --
Loss for (129,476) 65,742 (63,734) (75,421) 7,589 (67,832) (112,119)
period
Basic and #(0.08) #0.04 #(0.04) #(0.05) #0.00 #(0.05) $(0.07)
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 June Six months ended 30 June
2002 2003 2003 2002 2003 2003
#'000 #'000 $'000 #'000 #'000 $'000
Loss for the (15,972) (27,251) (45,043) (63,734) (67,832) (112,119)
period
Exchange 52,768 1,133 1,872 52,172 25,495 42,140
differences
Total 36,796 (26,118) (43,171) (11,562) (42,337) (69,979)
recognised
losses
Consolidated Reconciliation of Changes in Equity Shareholders' Funds
Three months ended 30 June Six months ended 30 June
2002 2003 2003 2002 2003 2003
#'000 #'000 $'000 #'000 #'000 $'000
Loss for (15,972) (27,251) (45,043) (63,734) (67,832) (112,119)
period
Issue of -- 1 2 110 1 2
share
capital
Shares to be (22) 55 91 (212) (112) (185)
issued
Exchange 52,768 1,133 1,872 52,172 25,495 42,140
difference
Net changes 36,774 (26,062) (43,078) (11,664) (42,448) (70,162)
in equity
shareholders'
funds
Opening 1,575,921 938,624 1,551,452 1,624,359 955,010 1,578,536
equity
shareholders'
funds
Closing 1,612,695 912,562 1,508,374 1,612,695 912,562 1,508,374
equity
shareholders'
funds
Consolidated Balance Sheet
At 31 December 2002 At 30 June 2003
#'000 #'000 $'000
Fixed assets
Intangible fixed assets (net) 10,639 10,336 17,084
Tangible fixed assets (cost) 2,695,499 2,871,620 4,746,501
Accumulated depreciation (1,316,690) (1,481,524) (2,448,811)
Tangible fixed assets (net) 1,378,809 1,390,096 2,297,690
Investments in own shares 206 206 340
Total fixed assets 1,389,654 1,400,638 2,315,114
Current assets
Trade debtors 189,788 201,625 333,266
Prepaid expenses and other 74,606 70,960 117,290
debtors
Investments in liquid 889,590 879,298 1,453,392
resources
Cash at bank and in hand 45,292 41,221 68,134
Total current assets 1,199,276 1,193,104 1,972,082
Total assets 2,588,930 2,593,742 4,287,196
Capital and reserves
Called up share capital 37,688 37,688 62,295
Share premium 2,314,335 2,314,336 3,825,366
Merger reserve 27,227 27,227 45,004
Shares to be issued 454 342 565
Profit and loss account (1,424,694) (1,467,031) (2,424,856)
Equity shareholders' funds 955,010 912,562 1,508,374
Provisions for liabilities and 87,368 79,173 130,865
charges
Creditors
Amounts falling due within one 352,653 361,120 596,895
year
Amounts falling due after more
than one year:
Convertible debt 639,829 679,295 1,122,807
Non-convertible debt 554,070 561,592 928,255
Total amounts falling due after 1,193,899 1,240,887 2,051,062
more than one year
Total creditors 1,546,552 1,602,007 2,647,957
Total liabilities, capital and 2,588,930 2,593,742 4,287,196
reserves
Consolidated Cash Flow Statement
Three months ended 30 June Six months ended 30 June
2002 2003 2003 2002 2003 2003
#'000 #'000 $'000 #'000 #'000 $'000
Net cash inflow 31,425 37,324 61,693 57,297 67,688 111,881
from operating
activities
Returns on
investments and
servicing of
finance
Interest 10,501 6,747 11,152 21,188 14,255 23,562
received
Interest paid, (29,761) (23,646) (39,085) (37,972) (32,295) (53,380)
finance costs
and similar
charges
Gain on 4,844 -- -- 4,844 -- --
cancellation of
forward foreign
currency
contracts
Net cash inflow (14,416) (16,899) (27,933) (11,940) (18,040) (29,818)
(outflow) from
returns on
investments and
servicing of
finance
Capital
expenditure and
financial
investment
Purchase of (110,764) (33,762) (55,805) (249,817) (75,391) (124,614)
tangible fixed
assets
Net cash (110,764) (33,762) (55,805) (249,817) (75,391) (124,614)
outflow from
capital
expenditure and
financial
investment
Management of 133,446 31,585 52,207 259,589 42,843 70,815
liquid
resources
Financing
Issue of -- 1 2 110 1 2
ordinary
shares
Issue (23,299) (14,166) (23,415) (45,546) (14,166) (23,415)
(purchase) of
non-convertible
debt
Issue (8,755) (9,182) (15,177) (23,386) (9,606) (15,878)
(purchase) of
convertible
debt
Net cash inflow (32,054) (23,347) (38,590) (68,822) (23,771) (39,291)
(outflow) from
financing
Increase 7,637 (5,099) (8,428) (13,693) (6,671) (11,027)
(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 six months ended 30 June
2002 and 2003 and at 31 December 2002 and 30 June 2003.
The financial statements for the three and six months ended 30 June 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 six months ended 30 June 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 June 2003 and for the periods then ended at the rate of
$1.65290 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. Non-switched turnover
in eBusiness segment includes hosting and professional services.
Wholesale turnover includes services to other telecommunications carriers,
resellers and internet service providers (ISPs). Retail turnover
includes services to corporate and government accounts.
For the three months ended 30 June 2002 and 2003, turnover by region was as
follows:
Three months ended 30 June 2002
Retail Wholesale North Central Region South Region eBusiness Total
Region
#'000 #'000 #'000 #'000 #'000 #'000 #'000
Switched 72,843 86,192 45,554 73,751 39,730 -- 159,035
Non-Switched 71,468 27,295 31,366 32,606 21,085 13,706 98,763
Other 381 73 8 312 134 -- 454
Total 144,692 113,560 76,928 106,669 60,949 13,706 258,252
Three months ended 30 June 2003
Retail Wholesale North Central Region South Region eBusiness Total
Region
#'000 #'000 #'000 #'000 #'000 #'000 #'000
Switched 83,792 93,059 53,342 82,199 41,310 -- 176,851
Non-switched 87,370 28,575 38,110 38,408 26,538 12,889 115,945
Other 142 29 36 15 120 -- 171
Total 171,304 121,663 91,488 120,622 67,968 12,889 292,967
Notes to Financial Statements
For the six months ended 30 June 2002 and 2003, turnover by region was as
follows:
Six months ended 30 June 2002
Retail Wholesale North Central Region South Region eBusiness Total
Region
#'000 #'000 #'000 #'000 #'000 #'000 #'000
Switched 142,726 168,418 90,854 145,048 75,242 -- 311,144
Non-switched 136,089 56,497 60,392 64,483 40,899 26,812 192,586
Other 818 502 45 1,073 202 -- 1,320
Total 279,633 225,417 151,291 210,604 116,343 26,812 505,050
Six months ended 30 June 2003
Retail Wholesale North Central Region South Region eBusiness Total
Region
#'000 #'000 #'000 #'000 #'000 #'000 #'000
Switched 163,367 174,435 103,255 155,688 78,859 -- 337,802
Non-switched 170,407 55,786 74,671 74,564 51,368 25,590 226,193
Other 377 315 81 332 279 -- 692
Total 334,151 230,536 178,007 230,584 130,506 25,590 564,687
3. Profit (loss) per share
Three months ended 30 June Six months ended 30 June
2002 2003 2003 2002 2003 2003
#'000 #'000 $'000 #'000 #'000 $'000
Profit (15,972) (27,251) (45,043) (63,734) (67,832) (112,119)
(loss)
for
period
Weighted 1,507,104 1,507,507 1,507,507 1,507,094 1,507,371 1,507,371
average
of
ordinary
shares
('000)
Basic #(0.01) #(0.02) $(0.03) #(0.04) #(0.05) $(0.07)
and
diluted
profit
(loss)
per
share
4a. Net cash inflow from operating activities
Three months ended 30 June Six months ended 30 June
2002 2003 2003 2002 2003 2003
#'000 #'000 $'000 #'000 #'000 $'000
Operating (51,802) (23,587) (38,987) (119,345) (47,608) (78,691)
loss
Depreciation, 66,542 61,513 101,675 131,587 119,553 197,609
amortisation
of fixed
assets
Exchange 863 (20) (33) 962 143 236
differences
Decrease 23,783 (882) (1,458) 34,375 3,814 6,304
(increase) in
debtors
Increase (6,199) 4,498 7,435 3,506 4,260 7,041
(decrease) in
creditors
Movement in (1,762) (4,198) (6,939) 6,212 (12,474) (20,618)
provision for
liabilities
and charges
Net cash 31,425 37,324 61,693 57,297 67,688 111,881
inflow from
operating
activities
Notes to Financial Statements
4b. EBITDA reconciliation
Three months ended 30 June Six months ended 30 June
2002 2003 2003 2002 2003 2003
#'000 #'000 $'000 #'000 #'000 $'000
Net cash inflow
from operating
activities 31,425 37,324 61,693 57,297 67,688 111,881
Adjusted for:
Exchange (863) 20 33 (962) (143) (236)
differences
Movement in (23,783) 882 1,458 (34,375) (3,814) (6,304)
debtors
Movement in 6,199 (4,498) (7,435) (3,506) (4,260) (7,041)
creditors
Total working (17,584) (3,616) (5,977) (37,881) (8,074) (13,345)
capital
adjustments
Movement in 1,762 4,198 6,939 (6,212) 12,474 20,618
provision
for liabilities
and charges
Add back
Exceptional -- -- -- 5,680 -- --
interconnect
and
Network charges
Exceptional -- -- -- 6,574 -- --
selling and
Administrative
charges
EBITDA before 14,740 37,926 62,688 24,496 71,945 118,918
exceptional
items
5. Changes in cash and investments in liquid resources
Three months ended 30 June Six months ended 30 June
2002 2003 2003 2002 2003 2003
#'000 #'000 $'000 #'000 #'000 $'000
Beginning of 1,154,896 953,970 1,576,817 1,304,477 934,882 1,545,266
period
Net increase (133,446) (31,585) (52,207) (259,589) (42,843) (70,815)
(decrease) in
investments
in liquid
resources
before
exchange
differences
Effects of 29,867 3,302 5,458 29,914 32,551 53,804
exchange
differences
in
investments
in liquid
resources
Net increase 7,637 (5,099) (8,428) (13,693) (6,671) (11,027)
decrease) in
cash before
exchange
differences
Effects of (804) (69) (114) (2,959) 2,600 4,298
exchange
differences
in cash
End of 1,058,150 920,519 1,521,526 1,058,150 920,519 1,521,526
period
Notes to Financial Statements
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 June Six months ended 30 June
2002 2003 2003 2002 2003 2003
#'000 #'000 $'000 #'000 #'000 $'000
Loss for (15,972) (27,251) (45,043) (63,734) (67,832) (112,119)
period
Adjustments:
Deferred (657) (253) (418) (1,261) (523) (865)
compensation
(i), (ii)
Amortisation 242 547 905 489 1,068 1,766
of
intangibles
iii)
Capitalised 1,704 (641) (1,060) 3,579 (1,553) (2,567)
interest,
net of
depreciation
(iv)
Profit on 261 261 432 522 522 863
sale of IRUs
(v)
Warrants (1,227) 141 233 (1,223) (16) (26)
(vi)
Installation 6,190 (636) (1,051) 4,723 (1,271) (2,102)
revenue
(vii)
Direct costs (6,190) 636 1,051 (4,723) 1,271 2,102
attributable
to
installation
revenue
(vii)
Unrealised (467) -- -- -- -- --
gain on
forward
foreign
exchange
contracts
(viii)
Impairment -- (2,805) (4,636) -- (5,610) (9,273)
(ix)
Loss for (16,116) (30,001) (49,587) (61,628) (73,944) (122,222)
period under
U.S. GAAP
Weighted 1,507,104 1,507,507 1,507,507 1,507,094 1,507,371 1,507,371
average of
ordinary
shares
('000)
Basic and #(0.01) #(0.02) #(0.03) #(0.04) #(0.05) #(0.08)
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.
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 six months ended 30 June 2002 was #0.4 million and #0.9
million respectively and for the three and six months ended 30 June 2003 #0.2
million 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 expire 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 six months ended
30 June 2002 was #0.2 million and #0.4 million respectively and for the three
and six months ended 30 June 2003 #0.1 million and #0.3 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 (ix), 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 #0.2
million and #0.5 million for the three and six month months ended 30 June 2002
respectively and #0.5 million and #1.1 million for the three and six month
months ended 30 June 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 six months ended 30 June 2002 and 2003, customer installation
revenues together with attributable direct costs, up to the level of the
associated revenue, 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 June 2003, the cumulative
impact on net losses under SAB 101 was nil, representing cumulative deferred
installation revenues of #56.4 million and costs of the same amount.
(viii) The Company entered into forward foreign exchange contracts for
payments relating to its U.S. dollar denominated senior discount notes, a
portion of which were purchased during the twelve months ended 31 December 2001
and 2002. The forward foreign exchange contracts were cancelled in June 2002.
Prior to June 2002, unrealised gains on the ineffective portion of the
ineffective hedge attributable to the cumulative notes purchased were recognised
through the profit and loss account.
(ix) 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 six months ended 30 June 2003 depreciation in
the amount of #2.8 million and #5.6 million respectively was recorded in respect
of the assets which had not been impaired for U.S. GAAP purposes.
Notes to Financial Statements
b. Effects of conforming to U.S. GAAP - impact on net equity
-------------------
At 30 June 2003
-------------------
#'000 $'000
Equity shareholders' funds for the Company 912,562 1,508,374
U.S. GAAP adjustments:
Adjustment for deferred compensation (10,276) (16,986)
Unearned compensation (852) (1,408)
Additional paid in share capital 11,128 18,394
Own shares held in trust (i) (206) (340)
Amortisation of intangibles 4,968 8,212
Shares to be issued (117) (193)
Warrants 836 1,382
Impairment 98,780 163,273
Deferred profit on IRUs (18,245) (30,157)
Capitalised interest, net of depreciation 39,407 65,136
Approximate equity shareholders' funds under U.S. 1,037,985 1,715,686
GAAP
(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 30 June 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
six months ended 30 June 2003 would have been #34.3 million ($56.6 million) and
#83 million ($137.2 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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