LONDON, Oct. 23, 2003 (PRIMEZONE) -- THIRD QUARTER HIGHLIGHTS
- Turnover up 14% to GBP295 million compared with Q3 2002
- Constant currency turnover growth of 6% over Q3 2002
- Corporate customer turnover up 19% to GBP177 million
- Wholesale customer turnover up 7% to GBP118 million
- Gross margin before depreciation and exceptional items improved
from 31.0% to 34.5%
- EBITDA (1) up 123% to GBP43 million
- Capital expenditure of GBP33 million
- Positive free cash flow of GBP9.1 million
- Strong liquidity position with cash and liquid resources of GBP934
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 GBP33 million and we now expect capital expenditure for the year to be less than the GBP170 million to GBP200 million range previously indicated.
"A strong cash position is an important competitive advantage in today's market and with cash and liquid resources of GBP934 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 GBP43 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 Three months ended Nine months ended
DATA 30 September 30 September
2002 2003 2002 2003
GBP m GBP m GBP m GBP m
Turnover 259.0 295.4 764.1 860.1
Interconnect (178.8) (193.3) (537.9) (569.3)
and network
costs before
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 (57.5) (54.0) (161.3) (154.0)
depreciation
Exceptional (520.6) -- (526.3) --
cost of sales
Gross profit (497.9) 48.1 (461.4) 136.8
(loss)
Loss for the (61.8) (35.7) (191.3) (111.1)
period (before
exceptional
items)
Loss for the (609.3) (35.7) (673.0) (103.6)
period (after
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 GBP259.0 million and GBP764.1 million for the three and nine months ended 30 September 2002 to GBP295.4 million and GBP860.1 million for the three and nine months ended 30 September 2003, increases of GBP36.4 million and GBP96.0 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 GBP148.7 million and GBP428.4 million for the three and nine months ended 30 September 2002 to GBP177.2 million and GBP511.3 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 GBP85.4 million and GBP248.8 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 GBP91.7 million and GBP262.5 million, increases of 27% and 25%, respectively.
Turnover from wholesale customers increased from GBP110.3 million and GBP335.7 million for the three and nine months ended 30 September 2002 to GBP118.2 million and GBP348.7 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 GBP91.5 million and GBP265.9 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 GBP26.7 million and GBP82.8 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 GBP236.4 million and GBP699.2 million for the three and nine months ended 30 September 2002 to GBP247.3 million and GBP723.3 million for the three and nine months ended 30 September 2003, increases of GBP10.9 million and GBP24.1 million or 5% and 3% respectively.
Interconnection and network costs, before exceptional items, increased from GBP178.8 million and GBP537.9 million for the three and nine months ended 30 September 2002 to GBP193.3 million and GBP569.3 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 GBP57.5 million and GBP161.2 million for the three and nine months ended 30 September 2002 to GBP54.0 million and GBP154.0 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 GBP18.3 million was recognised for severance provisions related to the staff reduction programmes announced in February and September 2002 and an impairment charge of GBP508.0 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 GBP73.7 million and GBP223.0 million for the three and nine months ended 30 September 2002 to GBP68.5 million and GBP204.8 million for the comparable periods in 2003.
Selling, general and administrative (SG&A) expenses, before exceptional items, decreased from GBP60.8 million and GBP182.3 million for the three and nine months ended 30 September 2002 to GBP58.8 million and GBP175.6 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 GBP12.9 million and GBP40.7 million for the three and nine months ended 30 September 2002 to GBP9.8 million and GBP29.2 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 GBP18.9 million was recognised for severance provisions related to the staff reduction programmes announced in February and September 2002 and an impairment charge of GBP43.0 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 GBP9.2 million and GBP29.7 million for the three and nine months ended 30 September 2002 to GBP6.0 million and GBP20.2 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 GBP22.5 million and GBP72.7 million for the three and nine months ended 30 September 2002 to GBP22.1 million and GBP67.3 million for the equivalent periods in 2003. The decrease was due primarily to a reduction in debt levels reflecting the cumulative purchases of GBP373.8 million accreted amount of the Company's outstanding notes.
Interest payable and similar charges for the three and nine months ended 30 September 2003 included: GBP8.6 million and GBP25.8 million respectively of interest and accretion on convertible debt; GBP12.9 million and GBP39.4 respectively of interest and accretion on non-convertible debt; and GBP0.6 million and GBP2.1 million respectively of interest and unwinding of discounts on provisions. Interest payable and similar charges for the three months ended 30 September 2003 comprised GBP16.3 million and GBP5.8 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 GBP7.6 million. Gains arising on the purchase of debt for the three and nine months ended September 2002 were GBP28.5 million and GBP101.7 million respectively.
Exchange Gain (Loss)
For the three and nine months ended 30 September 2003 there were exchange gains of GBP0.9 million and GBP4.1 million compared with exchange gains of GBP2.5 million and GBP9.8 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 GBP609.3 million and GBP673.0 million and GBP35.7 million and GBP103.6 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 GBP55.1 million and GBP112.4 million for the three and nine months ended 30 September 2002 and GBP45.3 million and GBP113.0 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 GBP89.3 million and GBP351.1 million in the three and nine months ended 30 September 2002 to GBP36.1 million and GBP129.6 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 GBP34.2 million and GBP238.7 million in the three and nine months ended 30 September 2002 to an inflow of GBP9.1 million and an outflow of GBP16.6 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 GBP89.9 million and GBP339.7 million for the three and nine months ended 30 September 2002 to GBP32.9 million and GBP108.3 million for the equivalent periods in 2003.
Net cash from financing improved from an outflow of GBP28.3 million and GBP97.2 million in the three and nine months ended 30 September 2002 to an inflow of GBP0.5 million and an outflow of GBP23.3 million for the three and nine months ended 30 September 2003. The improvement was primarily a result of reduced bond purchases, which decreased from GBP28.3 million and GBP97.3 million for the three and nine months ended 30 September 2002 to nil and GBP23.8 million for the equivalent periods in 2003. COLT had balances of cash and investments in liquid resources at 30 September 2003 of GBP934.4 million compared with GBP934.9 million at 31 December 2002.
Consolidated Profit and Loss Account
Three months ended 30 September
2002 2002 2002
Before After
Exceptional Exceptional Exceptional
Items Items Items
GBP'000 GBP'000 GBP'000
Turnover 259,032 -- 259,032
Cost of sales
Interconnect and (178,824) (12,640) (191,464)
network
Network (57,511) (508,000) (565,511)
depreciation
(236,355) (520,640) (756,975)
Gross profit 22,697 (520,640) (497,943)
(loss)
Operating
expenses
Selling, general (60,818) (12,360) (73,178)
and
administrative
Other (12,889) (43,000) (55,889)
depreciation and
amortisation
(73,707) (55,360) (129,067)
Operating loss (51,010) (576,000) (627,010)
Other income
(expense)
Interest 9,182 -- 9,182
receivable
Gain on purchase -- 28,516 28,516
of debt
Interest payable (22,460) -- (22,460)
and similar
charges
Exchange gain 2,459 -- 2,459
(loss)
(10,819) 28,516 17,697
Profit (loss) on (61,829) (547,484) (609,313)
ordinary
activities before
taxation
Taxation -- -- --
Loss for period (61,829) (547,484) (609,313)
Basic and diluted GBP(0.04) GBP(0.36) $(0.40)
loss per share
2003 2003 2003 2003
Before After After
Exceptional Exceptional Exceptional Exceptional
Items Items Items Items
GBP'000 GBP'000 GBP'000 $'000
Turnover 295,368 -- 295,368 490,902
Cost of sales
Interconnect (193,322) -- (193,322) (321,301)
and network
Network (53,977) -- (53,977) (89,709)
depreciation
(247,299) -- (247,299) (411,010)
Gross profit 48,069 -- 48,069 79,892
(loss)
Operating
expenses
Selling, (58,790) -- (58,790) (97,709)
general and
administrative
Other (9,756) -- (9,756) (16,215)
depreciation
and
amortisation
(68,546) -- (68,546) (113,924)
Operating (20,477) -- (20,477) (34,032)
loss
Other income
(expense)
Interest 6,010 -- 6,010 9,988
receivable
Gain on -- -- -- --
purchase of
debt
Interest (22,139) -- (22,139) (36,795)
payable and
similar
charges
Exchange gain 880 -- 880 1,462
(loss)
(15,249) -- (15,249) (25,345)
Profit (loss) (35,726) -- (35,726) (59,377)
on ordinary
activities
before
taxation
Taxation -- -- -- --
Loss for (35,726) -- (35,726) (59,377)
period
Basic and GBP(0.02) -- GBP(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
Before After
Exceptional Exceptional Exceptional
Items Items Items
GBP'000 GBP'000 GBP'000
Turnover 764,082 -- 764,082
Cost of sales
Interconnect and (537,916) (18,320) (556,236)
network
Network (161,244) (508,000) (669,244)
depreciation
(699,160) (526,320) (1,225,480)
Gross profit 64,922 (526,320) (461,398)
(loss)
Operating
expenses
Selling, general (182,280) (18,934) (201,214)
and
administrative
Other (40,743) (43,000) (83,743)
depreciation and
amortisation
(223,023) (61,934) (284,957)
Operating loss (158,101) (588,254) (746,355)
Other income
(expense)
Interest 29,744 -- 29,744
receivable
Gain on purchase -- 101,668 101,668
of debt
Interest payable (72,706) -- (72,706)
and similar
charges
Exchange gain 9,758 4,844 14,602
(loss)
(33,204) 106,512 73,308
Profit (loss) on (191,305) (481,742) (673,047)
ordinary
activities before
taxation
Taxation -- -- --
Loss for period (191,305) (481,742) (673,047)
Basic and diluted GBP(0.13) GBP(0.32) GBP(0.45)
loss per share
2003 2003 2003 2003
Before After After
Exceptional Exceptional Exceptional Exceptional
Items Items Items Items
GBP'000 GBP'000 GBP'000 $'000
Turnover 860,055 -- 860,055 1,429,411
Cost of sales
Interconnect (569,265) -- (569,265) (946,119)
and network
Network (154,039) -- (154,039) (256,012)
depreciation
(723,304) -- (723,304) (1,202,131)
Gross profit 136,751 -- 136,751 227,280
(loss)
Operating
expenses
Selling, (175,589) -- (175,589) (291,829)
general and
administrative
Other (29,247) -- (29,247) (48,608)
depreciation
and
amortisation
(204,836) -- (204,836) (340,437)
Operating (68,085) -- (68,085) (113,157)
loss
Other income
(expense)
Interest 20,186 -- 20,186 33,549
receivable
Gain on -- 7,589 7,589 12,613
purchase of
debt
Interest (67,307) -- (67,307) (111,864)
payable and
similar
charges
Exchange gain 4,058 -- 4,058 6,744
(loss)
(43,063) 7,589 (35,474) (58,958)
Profit (loss) (111,148) 7,589 (103,559) (172,115)
on ordinary
activities
before
taxation
Taxation -- -- -- --
Loss for (111,148) 7,589 (103,559) (172,115)
period
Basic and GBP(0.07) GBP0.00 GBP(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
2002 2003 2003
GBP'000 GBP'000 $'000
Loss for the period (609,313) (35,726) (59,377)
Exchange differences (25,892) 3,473 5,773
Total recognised losses (635,205) (32,253) (53,604)
Nine months ended 30 September
2002 2003 2003
GBP'000 GBP'000 $'000
Loss for the period (673,047) (103,559) (172,115)
Exchange differences 26,280 28,968 48,145
Total recognised losses (646,767) (74,591) (123,970)
Consolidated Reconciliation of Changes in Equity Shareholders'
Funds
Three months ended 30 September
2002 2003 2003
GBP'000 GBP'000 $'000
Loss for period (609,313) (35,726) (59,377)
Issue of share 60 610 1,014
capital
Shares to be issued (71) (117) (194)
Charges related to -- -- --
share schemes
Exchange difference (25,892) 3,473 5,773
Net changes in (635,216) (31,760) (52,784)
equity shareholders'
funds
Opening equity 1,612,696 912,562 1,516,677
shareholders' funds
Closing equity 977,480 880,802 1,463,893
shareholders' funds
Nine months ended 30 September
2002 2003 2003
GBP'000 GBP'000 $'000
Loss for period (673,047) (103,559) (172,115)
Issue of share capital 170 612 1,017
Shares to be issued (296) (229) (381)
Charges related to share 14 -- --
schemes
Exchange difference 26,280 28,968 48,145
Net changes in equity (646,879) (74,208) (123,334)
shareholders' funds
Opening equity 1,624,359 955,010 1,587,227
shareholders' funds
Closing equity 977,480 880,802 1,463,893
shareholders' funds
Consolidated Balance Sheet
At 31
December At 30 September 2003
2002
GBP'000 GBP'000 $'000
Fixed assets
Intangible fixed 10,639 9,866 16,397
assets (net)
Tangible fixed 2,695,499 2,909,095 4,834,916
assets (cost)
Accumulated (1,316,690) (1,542,621) (2,563,836)
depreciation
Tangible fixed 1,378,809 1,366,474 2,271,080
assets (net)
Investments in own 206 204 339
shares
Total fixed assets 1,389,654 1,376,544 2,287,816
Current assets
Trade debtors 189,788 200,183 332,704
Prepaid expenses 74,606 62,870 104,490
and other debtors
Investments in 889,590 880,199 1,462,891
liquid resources
Cash at bank and 45,292 54,205 90,089
in hand
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 37,688 37,711 62,676
capital
Share premium 2,314,335 2,314,792 3,847,184
Merger reserve 27,227 27,359 45,471
Shares to be 454 225 374
issued
Profit and loss (1,424,694) (1,499,285) (2,491,812)
account
Equity shareholders' 955,010 880,802 1,463,893
funds
Provisions for 87,368 71,581 118,968
liabilities and charges
Creditors
Amounts falling 352,653 367,678 611,081
due within one 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 1,193,899 1,253,940 2,084,048
falling due after more
than one year
Total creditors 1,546,552 1,621,618 2,695,129
Total liabilities, 2,588,930 2,574,001 4,277,990
capital and reserves
Consolidated Cash Flow Statement
Three months ended 30 September
2002 2003 2003
GBP'000 GBP'000 $'000
Net cash inflow from 55,084 45,264 75,228
operating activities
Returns on investments
and servicing of
finance
Interest received 9,486 6,023 10,010
Interest paid, finance (8,900) (9,251) (15,375)
costs and similar
charges
Gain on cancellation -- -- --
of forward foreign
currency contracts
Net cash inflow 586 (3,228) (5,365)
(outflow) from returns
on investments and
servicing of finance
Capital expenditure
and financial
investment
Purchase of tangible (89,905) (32,909) (54,695)
fixed assets
Net cash outflow from (89,905) (32,909) (54,695)
capital expenditure
and financial
investment
Management of liquid 78,152 3,816 6,343
resources
Financing
Issue of ordinary -- 473 786
shares
Issue (purchase) of (18,782) -- --
non-convertible debt
Issue (purchase) of (9,563) -- --
convertible debt
Net cash inflow (28,345) 473 786
(outflow) from
financing
Increase (decrease) in 15,572 13,416 22,297
cash
Nine months ended 30 September
2002 2003 2003
GBP'000 GBP'000 $'000
Net cash inflow from 112,381 112,951 187,725
operating activities
Returns on
investments and
servicing of finance
Interest received 30,674 20,277 33,700
Interest paid, (46,872) (41,546) (69,049)
finance costs and
similar charges
Gain on cancellation 4,844 -- --
of forward foreign
currency contracts
Net cash inflow (11,354) (21,269) (35,349)
(outflow) from
returns on
investments and
servicing of finance
Capital expenditure
and financial
investment
Purchase of tangible (339,722) (108,300) (179,995)
fixed assets
Net cash outflow from (339,722) (108,300) (179,995)
capital expenditure
and financial
investment
Management of liquid 337,741 46,659 77,547
resources
Financing
Issue of ordinary 110 474 788
shares
Issue (purchase) of (64,328) (14,166) (23,544)
non-convertible debt
Issue (purchase) of (32,949) (9,606) (15,965)
convertible debt
Net cash inflow (97,167) (23,298) (38,721)
(outflow) from
financing
Increase (decrease) 1,879 6,743 11,207
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 Total
Region Region Region
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
Corporate Wholesale North Central South Total
Region Region Region
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
Corporate Wholesale North Central South Total
Region Region Region
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
Corporate Wholesale North Central South Total
Region Region Region
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
2002 2003 2003
GBP'000 GBP'000 $'000
Profit (loss) for (609,313) (35,726) (59,377)
period
Weighted average 1,507,226 1,508,037 1,508,037
of ordinary
shares ('000)
Basic and diluted GBP(0.40) GBP(0.02) $(0.04)
profit (loss) per
share
Nine months ended 30 September
2002 2003 2003
GBP'000 GBP'000 $'000
Profit (loss) for (673,047) (103,559) (172,115)
period
Weighted average 1,507,138 1,507,463 1,507,463
of ordinary
shares ('000)
Basic and diluted GBP(0.45) GBP(0.07) $(0.11)
profit (loss) per
share
4a. Net cash inflow from operating activities
Three months ended 30 September
2002 2003 2003
GBP'000 GBP'000 $'000
Operating loss (627,010) (20,477) (34,032)
Depreciation, 621,400 63,733 105,924
amortisation of fixed
assets
Exchange differences (442) (19) (32)
Decrease (increase) 14,485 11,206 18,624
in debtors
Increase (decrease) 26,471 (935) (1,554)
in creditors
Movement in provision 20,180 (8,244) (13,702)
for liabilities and
charges
Net cash inflow from 55,084 45,264 75,228
operating activities
Nine months ended 30 September
2002 2003 2003
GBP'000 GBP'000 $'000
Operating loss (746,355) (68,085) (113,157)
Depreciation, 752,987 183,286 304,620
amortisation of
fixed assets
Exchange differences 520 123 205
Decrease (increase) 48,860 15,020 24,964
in debtors
Increase (decrease) 29,977 3,325 5,526
in creditors
Movement in 26,392 (20,718) (34,433)
provision for
liabilities and
charges
Net cash inflow from 112,381 112,951 187,725
operating activities
4b. EBITDA reconciliation
Three months ended 30 September
2002 2003 2003
GBP'000 GBP'000 $'000
Net cash inflow from 55,084 45,264 75,228
operating activities
Adjusted for:
Exchange differences 442 19 32
Movement in debtors (14,485) (11,206) (18,624)
Movement in creditors (26,471) 935 1,554
Total working capital (40,956) (10,271) (17,070)
adjustments
Movement in provision (20,180) 8,244 13,702
for liabilities and
charges
Add back
Exceptional 12,640 -- --
interconnect and
Network charges
Exceptional selling 12,360 -- --
and
Administrative
charges
EBITDA before 19,390 43,256 71,892
exceptional items
Nine months ended 30 September
2002 2003 2003
GBP'000 GBP'000 $'000
Net cash inflow from 112,381 112,951 187,725
operating activities
Adjusted for:
Exchange differences (520) (123) (205)
Movement in debtors (48,860) (15,020) (24,964)
Movement in creditors (29,977) (3,325) (5,526)
Total working capital (78,837) (18,345) (30,490)
adjustments
Movement in provision (26,392) 20,718 34,433
for liabilities and
charges
Add back
Exceptional 18,320 -- --
interconnect and
Network charges
Exceptional selling 18,934 -- --
and
Administrative
charges
EBITDA before 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
2002 2003 2003
GBP'000 GBP'000 $'000
Beginning of period 1,058,150 920,519 1,529,903
Net increase (78,152) (3,816) (6,343)
(decrease) in
investments in
liquid resources
before exchange
differences
Effects of exchange (15,761) 4,715 7,837
differences in
investments in
liquid resources
Net increase 15,572 13,416 22,297
(decrease) in cash
before exchange
differences
Effects of exchange (1,715) (430) (714)
differences in cash
End of period 978,094 934,404 1,552,980
Nine months ended 30 September
2002 2003 2003
GBP'000 GBP'000 $'000
Beginning of period 1,304,477 934,882 1,553,774
Net increase (337,741) (46,659) (77,547)
(decrease) in
investments in
liquid resources
before exchange
differences
Effects of exchange 14,153 37,268 61,939
differences in
investments in
liquid resources
Net increase 1,879 6,743 11,207
(decrease) in cash
before exchange
differences
Effects of exchange (4,674) 2,170 3,607
differences in cash
End of period 978,094 934,404 1,552,980
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
2002 2003 2003
GBP'000 GBP'000 $'000
Loss for period (609,313) (35,726) (59,377)
Adjustments:
Deferred (356) (292) (485)
compensation (i),
(ii)
Amortisation of 384 544 904
intangibles (iii)
Capitalised 1,147 (715) (1,188)
interest, net of
depreciation (iv)
Profit on sale of 262 262 435
IRUs (v)
Warrants (vi) (154) 140 233
Installation revenue (4,043) 773 1,285
(vii)
Direct costs 4,043 (1,401) (2,329)
attributable to
installation revenue
(vii)
Impairment (viii) 107,200 (2,805) (4,662)
Loss for period (500,830) (39,220) (65,184)
under US GAAP
Weighted average 1,507,226 1,508,037 1,508,037
number of ordinary
shares ('000)
Basic and diluted GBP(0.33) GBP(0.03) $(0.04)
loss per share
Nine months ended 30 September
2002 2003 2003
GBP'000 GBP'000 $'000
Loss for period (673,047) (103,559) (172,115)
Adjustments:
Deferred (1,617) (815) (1,355)
compensation (i),
(ii)
Amortisation of 873 1,612 2,679
intangibles (iii)
Capitalised 4,726 (2,268) (3,769)
interest, net of
depreciation (iv)
Profit on sale of 784 783 1,301
IRUs (v)
Warrants (vi) (1,377) 127 211
Installation revenue 680 2,044 3,397
(vii)
Direct costs (680) (2,672) (4,441)
attributable to
installation revenue
(vii)
Impairment (viii) 107,200 (8,416) (13,987)
Loss for period (562,458) (113,164) (188,079)
under US GAAP
Weighted average 1,507,138 1,507,463 1,507,463
number of ordinary
shares ('000)
Basic and diluted GBP(0.37) GBP(0.08) $(0.12)
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 GBP0.2 million and GBP1.0 million respectively and for the three and nine months ended 30 September 2003 nil and GBP0.3 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 GBP0.2 million and GBP0.6 million respectively and for the three and nine months ended 30 September 2003 GBP0.3 million and GBP0.5 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 GBP6.6 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 GBP0.4 million and GBP0.9 million for the three and nine months ended 30 September 2002 respectively and GBP0.5 million and GBP1.6 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 GBP0.6 million, representing cumulative deferred installation revenues of GBP55.6 million and costs of GBP55.0 million.
(viii) During the quarter ended 30 September 2002, the Company recorded charges of GBP443.8 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 GBP107.2 million. For the three and nine months ended 30 September 2003 depreciation in the amount of GBP2.8 million and GBP8.4 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
GBP'000 $'000
Equity shareholders' funds 880,802 1,463,893
for the Company
U.S. GAAP adjustments:
Adjustment for deferred (10,569) (17,565)
compensation
Unearned compensation (1,708) (2,839)
Additional paid in 12,277 20,404
share capital
Own shares held in (206) (342)
trust (i)
Amortisation of 5,512 9,161
intangibles
Warrants 979 1,627
Impairment 95,974 159,509
Deferred profit on IRUs (17,984) (29,889)
Capitalised interest, 38,692 64,305
net of depreciation
Deferred profit on (628) (1,044)
installations
Approximate equity 1,003,141 1,667,220
shareholders' funds under
U.S. 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 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 GBP43.2 million ($71.9 million) and GBP126.2 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.