Colt Telecom Group PLC announces results for the quarter ended 30 September 2005
Market Wire, October, 2005
COLT Telecom Group plc announces results for the quarter ended 30 September 2005
COLT Telecom Group plc (COLT), a leading European provider of business
communications, today reported another quarter of solid progress, with strong
customer wins to support future revenues and positive free cash flow for the
quarter.
Third quarter highlights
Compared with Q2 2005:
- Turnover decreased by 1.5% to GBP311.8 million, mainly reflecting the
seasonality of revenue. On a constant currency basis, turnover decreased by
2.1%
- Non-switched revenues grew by 1.9% to GBP123.3 million
- Gross margin before depreciation increased from 33.6% to 34.6%
- Selling, general and administrative expenses were reduced by GBP3.7
million to GBP61.9 million
- EBITDA (1) increased by GBP5.1 million to GBP45.9 million
- Free cash flow (2) improved by GBP35.1 million, producing a cash inflow of
GBP25.4 million
- India headcount increased by 71 to 455 whilst Europe decreased by 104
to 3,422
Compared with Q3 2004:
- Turnover increased by 2.4%. On a constant currency basis, turnover
increased by 1.1% and by 3.3% after also excluding reductions in fixed to
mobile prices
- Non-switched revenues grew by 4.6%
- EBITDA improved by GBP12.1 million despite the costs of the India
transition
The Company's financial position continues to be strong, with cash and cash
equivalents of GBP339.6 million at the end of the quarter.
COLT Chairman Barry Bateman said:
"In challenging market conditions we have continued to work hard to translate
our strategy into improved results. We still need to see increased revenue
growth but at the same time I am pleased to see growth in data revenues, a
further improvement in EBITDA and now also positive free cash flow."
Commenting on the results for the quarter, Jean-Yves Charlier, Chief Executive,
said:
"Conditions in the European telecoms markets continue to be challenging. Whilst
our voice revenues were affected by the lower seasonal activity, we grew
non-switched revenues and generated a solid month of bookings in September. In
addition to the major contracts that we announced earlier this month
(Commerzbank and Nomura), we have just been awarded an important hosting and
managed services contract in Spain valued at more than EUR 9 million over four
years.
(1) EBITDA is earnings before interest, tax, depreciation, foreign exchange and
debt settlement income / expense
(2) Free cash flow is cash generated from operating activities less net cash
used in investing activities and net interest paid
"We are continuing to streamline and take cost out of our business. With stable
margins and SG&A falling for the third successive quarter, despite substantial
costs of change, we are now seeing clear benefits from our cost leadership
initiatives and expect more improvement over the next two years. During the
quarter we transferred 71 positions to India where our offshore office now has
more than 450 people. We are on track to have 15% of the company operating out
of India by the year-end.
"With stable revenues and lower costs, EBITDA improved for the fourth successive
quarter. As a result of this higher EBITDA, lower capital expenditure, continued
tight management of working capital and lower interest payments, we saw a GBP25.4
million free cash inflow. We remain confident that COLT will be free cash flow
positive on a sustainable annual basis from the second half of 2005 and have
therefore given notice during the quarter of our intention to retire, before its
due date in 2006, approximately GBP132.5 million of debt."
Financial Review
Results for the quarter are reported under International Financial Reporting
Standards (IFRS). Results for comparative periods have been restated to conform
to IFRS.
Total turnover
Turnover for the quarter was GBP311.8 million (Q2 2005: GBP316.7 million; Q3 2004:
GBP304.6 million) a decrease of 2.1% over the second quarter of 2005 and an
increase of 1.1% over the third quarter of 2004 on a constant currency basis.
Excluding the impact of reductions in fixed to mobile prices, constant currency
turnover increased by 3.3% over the third quarter of 2004. Non-switched turnover
as a percentage of total turnover was 39.6% (Q2 2005: 38.2%; Q3 2004: 38.7%).
Switched turnover
Switched turnover for the quarter decreased by 3.8% to GBP188.0 million (Q2 2005:
GBP195.4 million) and increased by 1.7% over the third quarter of 2004 (Q3 2004:
GBP184.8 million). Within switched turnover the proportion of carrier was 35.3%
(Q2 2005: 36.0%; Q3 2004: 36.6%). Switched turnover from corporate customers
decreased by 5.6% to GBP79.3 million (Q2 2005: GBP84.1 million) and decreased by
2.0% over the third quarter of 2004 (Q3 2004: GBP81.0 million). Switched turnover
from wholesale customers decreased by 2.4% to GBP108.7 million (Q2 2005: GBP111.3
million) and increased by 4.7% over the third quarter of 2004 (Q3 2004: GBP103.8
million).
Non-switched turnover
Non-switched turnover for the quarter increased by 1.9% to GBP123.3 million (Q2
2005: GBP121.0 million) and increased by 4.6% over the third quarter of 2004 (Q3
2004: GBP117.9 million). Non-switched turnover from corporate customers increased
by 3.5% to GBP99.6 million (Q2 2005: GBP96.3 million) and increased by 9.0% over the
third quarter of 2004 (Q3 2004: GBP91.4 million). Non-switched turnover from
wholesale customers decreased by 4.3% to GBP23.7 million (Q2 2005: GBP24.8 million)
and decreased by 10.5% over the third quarter of 2004 (Q3 2004: GBP26.5 million).
Cost of sales
Cost of sales for the quarter decreased by 2.6% to GBP251.9 million (Q2 2005:
GBP258.5 million) and decreased by 1.0% over the third quarter of 2004 (Q3 2004:
GBP254.4 million). Interconnect and network costs decreased by 3.0% to GBP204.0
million (Q2 2005: GBP210.2 million) and decreased by 1.8% over the third quarter
of 2004 (Q3 2004: GBP207.8 million).
Network depreciation decreased by 0.7% to GBP47.9 million (Q2 2005: GBP48.2 million)
and increased by 2.7% over the third quarter of 2004 (Q3 2004: GBP46.6 million).
Operating expenses
Operating expenses for the quarter decreased by 5.5% to GBP69.7 million (Q2 2005:
GBP73.8 million) and decreased by 0.3% over the third quarter of 2004 (Q3 2004:
GBP69.9 million). Selling, general and administrative (SG&A) expenses decreased by
5.6% to GBP61.9 million (Q2 2005: GBP65.6 million) and decreased by 1.7% over the
third quarter of 2004 (Q3 2004: GBP63.0 million). SG&A expenses as a proportion of
turnover were 19.9% (Q2 2005: 20.7%; Q3 2004: 20.7%). Other depreciation
decreased by GBP0.4 million to GBP7.7 million (Q2 2005: GBP8.1 million) and increased
by GBP0.9 million over the third quarter of 2004 (Q3 2004: GBP6.8 million).
Interest receivable, interest payable and similar charges
Interest receivable for the quarter decreased by GBP0.1 million to GBP2.9 million
(Q2 2005: GBP3.0 million) and decreased by GBP2.7 million over the third quarter of
2004 (Q3 2004: GBP5.6 million). Interest payable and similar charges remained
constant at GBP13.7 million (Q2 2005: GBP13.7 million) and decreased by GBP6.8 million
over the third quarter of 2004 (Q3 2004: GBP20.5 million). These decreases
compared to 2004 were due to the reduction in cash and cash equivalents and debt
levels following the redemption of some of the Company's outstanding notes
during 2004 and the first nine months of 2005.
Interest payable and similar charges for the quarter included GBP6.6 million (Q2
2005: GBP6.7 million; Q3 2004: GBP12.0 million) of interest and accretion on
convertible debt and GBP6.7 million (Q2 2005: GBP6.6 million; Q3 2004: GBP8.7 million)
of interest and accretion on non-convertible debt.
Tax on loss on ordinary activities
COLT had no taxable profits in the quarter nor in 2004.
Cash flow
Net movement in cash and cash equivalents for the quarter was an inflow of GBP1.1
million (Q2 2005: outflow of GBP9.5 million; Q3 2004: outflow of GBP14.2 million).
There was a free cash flow of GBP25.4 million (Q2 2005: outflow of GBP9.8 million;
Q3 2004: outflow of GBP1.0 million).
During the quarter, GBP24.7 million of the 2% Senior Convertible Notes due 2007
were redeemed early. In the first six months of 2005 all of the outstanding
10.125% Senior Notes due 2007 and the 8.875% Senior Notes due 2007 were redeemed
at par for GBP80.9 million. In addition, we intend to redeem approximately GBP132.5
million of 2% Senior Convertible Notes due 2006 on 21 October 2005.
COLT had balances of cash and cash equivalents at 30 September 2005 of GBP339.6
million compared with GBP452.7 million at 31 December 2004 and GBP791.4 million at
30 September 2004. The decreases are primarily as a result of bond redemptions.
Financial Information
Consolidated income statement
Three months ended 30 September
2004 2005 2005
GBP'000 GBP'000 $'000
Turnover 304,565 311,781 551,728
Cost of sales
Interconnect and network (207,813) (203,972) (360,949)
Network depreciation (46,611) (47,891) (84,748)
(254,424) (251,863) (445,697)
Gross profit 50,141 59,918 106,031
Operating expenses
Selling, general and administrative (63,019) (61,948) (109,623)
Other depreciation (6,835) (7,715) (13,652)
(69,854) (69,663) (123,275)
Operating loss (19,713) (9,745) (17,244)
Other income (expense)
Interest receivable 5,600 2,884 5,104
Debt settlement income (expense) (477) 1,596 2,824
Interest payable and similar charges (20,482) (13,658) (24,169)
Exchange gain (loss) 104 (285) (504)
(15,255) (9,463) (16,745)
Loss on ordinary activities before
taxation (34,968) (19,208) (33,989)
Taxation -- -- --
Loss for period (34,968) (19,208) (33,989)
Basic and diluted loss per share GBP(0.02) GBP(0.01) $(0.02)
All of the Group's activities are continuing. The basis on which this
information has been prepared is described in Note 1 to this financial
information.
Consolidated reconciliation of changes in equity shareholders' funds
Three months ended 30 September
2004 2005 2005
GBP'000 GBP'000 $'000
Loss for period (34,968) (19,208) (33,989)
Issue of share capital -- 483 855
Shares to be issued under share
option plans 497 779 1,379
Warranty fair value (352) 107 187
Grant of shares from Group Quest -- 23 41
Cost of debt redemption allocated to
equity (11) (2,457) (4,348)
Exchange differences 8,029 3,420 6,052
Net changes in equity shareholders'
funds (26,805) (16,853) (29,823)
Opening equity shareholders' funds 764,353 627,904 1,111,139
Closing equity shareholders' funds 737,548 611,051 1,081,316
Consolidated balance sheet
At 30 At 31 At 30
September December September 2005
2004 2004
GBP'000 GBP'000 GBP'000 $'000
ASSETS
Non-current assets
Property, plant and
equipment 1,193,127 1,197,063 1,088,024 1,925,368
Intangible assets 65,976 65,783 56,864 100,626
Total non-current
assets 1,259,103 1,262,846 1,144,888 2,025,994
Current assets
Trade receivables 194,269 199,074 192,098 339,937
Prepaid expenses and
other debtors 46,566 48,459 64,133 113,490
Cash and cash
equivalents 791,367 452,716 339,601 600,958
Total current assets 1,032,202 700,249 595,832 1,054,385
Total assets 2,291,305 1,963,095 1,740,720 3,080,379
EQUITY
Capital and reserves
Share capital 2,354,400 2,354,443 2,355,163 4,167,696
Other reserves 111,245 77,543 65,309 115,571
Retained earnings (1,728,097) (1,733,430) (1,809,421) (3,201,951)
Total equity 737,548 698,556 611,051 1,081,316
LIABILITIES
Non-current
liabilities
Convertible debt 348,963 365,579 213,234 377,339
Non-convertible debt 432,023 363,365 349,721 618,866
Provisions for
liabilities and
charges 48,966 48,708 37,415 66,210
Total non-current
liabilities 829,952 777,652 600,370 1,062,415
Current liabilities
Convertible debt 302,791 -- 130,448 230,841
Non-convertible debt -- 81,692 -- --
Trade and other
payables 421,014 405,195 398,851 705,807
Total current
liabilities 723,805 486,887 529,299 936,648
Total liabilities 1,553,757 1,264,539 1,129,669 1,999,063
Total equity and
liabilities 2,291,305 1,963,095 1,740,720 3,080,379
Consolidated cash flow statement
Three months ended 30 September
2004 2005 2005
GBP'000 GBP'000 $'000
Net cash generated from operating
activities 36,354 56,288 99,607
Cash flows from investing activities:
Purchase of tangible fixed assets (32,574) (27,095) (47,947)
Disposal of tangible fixed assets 86 130 230
Net cash used in investing activities (32,488) (26,965) (47,717)
Cash flows from financing activities:
Interest paid, finance costs and similar
charges (10,378) (6,717) (11,886)
Interest received 5,550 2,752 4,870
Issue of ordinary shares -- 483 855
Redemption of debt (13,247) (24,719) (43,743)
Net cash used in financing activities (18,075) (28,201) (49,904)
Net movement in cash and cash equivalents (14,209) 1,122 1,986
Cash and cash equivalents at beginning of
period 793,976 335,855 594,329
Effect of exchange rate changes on cash
and cash equivalents 11,600 2,624 4,643
Cash and cash equivalents at end of
period 791,367 339,601 600,958
Notes to the Financial Information
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 information
has been presented for the Group for the three months ended 30 September 2005.
The financial information for the three months ended 30 September 2005 is
unaudited and does not constitute statutory accounts within the meaning of
Section 240 of the Companies Act 1985. The financial information has been
prepared in accordance with the measurement principles within International
Financial Reporting Standards (IFRS) that had been published by 31 December 2004
and apply to accounting periods beginning on or after 1 January 2005. The
standards used are those endorsed by the EU together with those standards and
interpretations that have been issued by the IASB but had not been endorsed by
the EU by 30 September 2005. The 2004 comparative information has, as permitted
by IFRS 1, been prepared taking advantage of the following transitional
exemptions:
(i) Business combinations prior to the transition date of 1 January 2004 have
not been restated.
(ii) The Company has elected to only adopt recognition and
measurement criteria requirements to share based payments granted after 7
November 2002 that had not vested by 1 January 2005.
(iii) The Company has reset the cumulative translation
differences for all foreign operations to GBPnil as at 1 January 2004.
The Company has elected to comply with IAS 32 "Financial Instruments: Disclosure
and Presentation" and IAS 39 "Financial Instruments: Recognition and
Measurement" with effect from 1 January 2004.
Further standards and interpretations may be issued that will be applicable for
financial years beginning on or after 1 January 2005 or that are applicable to
later accounting periods but may be adopted early. The Company's first IFRS
financial statements may, therefore, be prepared in accordance with some
different accounting policies from the financial information presented here.
Additionally, IFRS is currently being applied in the United Kingdom and in a
large number of other countries simultaneously for the first time. Furthermore,
due to a number of new and revised Standards included within the body of
Standards that comprise IFRS, there is not yet a significant body of established
practice on which to draw in forming opinions regarding interpretation and
application. Accordingly, practice is continuing to evolve. At this preliminary
stage, therefore, the full financial effect of reporting under IFRS as it will
be applied and reported on in the Group's first IFRS financial statements cannot
be determined with certainty and may be subject to change.
Accounting policies and presentation applied are therefore not consistent with
those applied in preparing the Group's financial statements for the year ended
31 December 2004 due to the transition from UK GAAP to IFRS. Details of changes
in accounting policies and their financial impact are set out in notes 7 and 8.
Certain British pound amounts in the financial information have been translated
into U.S. dollars at 30 September 2005 and for the periods then ended at the
rate of $1.7696 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 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.
2. Segmental information
The Group operates in a single business segment, telecommunications, and in the
geographical areas shown below.
The reported segments are Germany, UK, France and Strategic Markets. Strategic
Markets comprises Austria, Belgium, Denmark, Ireland, Italy, The Netherlands,
Portugal, Spain, Sweden and Switzerland.
Switched turnover comprises services that involve the transmission of voice,
data or video through a switching centre. Non-switched turnover includes managed
and non-managed network services, bandwidth services and voice traffic which is
delivered in a digital form (IP Voice).
For the three months ended 30 September 2005, 30 June 2005 and 30 September 2004,
turnover and result by segment were as follows:
Three months ended 30 September 2005
Germany UK France Strategic Total
Markets
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Carrier 28,369 7,748 5,218 24,952 66,287
Non-carrier 57,294 20,245 15,806 28,372 121,717
Total switched 85,663 27,993 21,024 53,324 188,004
Non-switched 34,527 30,555 17,610 40,637 123,329
Other -- -- -- 448 448
Turnover by segment 120,190 58,548 38,634 94,409 311,781
Operating result by
segment (4,465) (1,532) (677) (3,071) (9,745)
Three months ended 30 June 2005
Germany UK France Strategic Total
Markets
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Carrier 28,124 9,153 5,269 27,840 70,386
Non-carrier 57,250 21,854 17,243 28,656 125,003
Total switched 85,374 31,007 22,512 56,496 195,389
Non-switched 34,361 29,641 17,411 39,631 121,044
Other -- -- -- 225 225
Turnover by segment 119,735 60,648 39,923 96,352 316,658
Operating result by
segment (6,084) (5,418) (1,080) (2,976) (15,558)
Three months ended 30 September 2004
Germany UK France Strategic Total
Markets
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Carrier 31,195 7,270 2,965 26,264 67,694
Non-carrier 53,961 25,032 14,745 23,381 117,119
Total switched 85,156 32,302 17,710 49,645 184,813
Non-switched 32,967 27,764 17,916 39,278 117,925
Other 1,117 -- -- 710 1,827
Turnover by segment 119,240 60,066 35,626 89,633 304,565
Operating result by
segment (7,952) (6,928) (959) (3,874) (19,713)
In addition, for the three months ended 30 September 2005, 30 June 2005 and 30
September 2004, turnover by customer segment is presented below. Corporate
turnover includes services to corporate and government accounts. Wholesale
turnover includes services to other telecommunications carriers, resellers and
internet service providers.
Three months ended 30 September 2005
Corporate Wholesale Total
GBP'000 GBP'000 GBP'000
Carrier -- 66,287 66,287
Non-carrier 79,344 42,373 121,717
Total switched 79,344 108,660 188,004
Non-switched 99,596 23,733 123,329
Other 325 123 448
Turnover 179,265 132,516 311,781
Three months ended 30 June 2005
Corporate Wholesale Total
GBP'000 GBP'000 GBP'000
Carrier -- 70,386 70,386
Non-carrier 84,068 40,935 125,003
Total switched 84,068 111,321 195,389
Non-switched 96,254 24,790 121,044
Other 97 128 225
Turnover 180,419 136,239 316,658
Three months ended 30 September 2004
Corporate Wholesale Total
GBP'000 GBP'000 GBP'000
Carrier -- 67,694 67,694
Non-carrier 81,000 36,119 117,119
Total switched 81,000 103,813 184,813
Non-switched 91,405 26,520 117,925
Other 1,827 -- 1,827
Turnover 174,232 130,333 304,565
Turnover for the three months ended 30 September 2005, compared to the three
months ended 30 June 2005 and 30 September 2004 and after excluding the impact
of foreign exchange, is shown below:
Q3 2005 Q3 2005 Compared to Q2
2005 % Growth
GBP'000 GBP'000
Actual Adjusted Actual Adjusted
(1) (1)
Corporate
Switched 79,344 78,964 (5.6) (6.1)
Non-switched 99,596 99,116 3.5 3.0
Other 325 322 n/a n/a
Total 179,265 178,402 (0.6) (1.1)
Wholesale
Carrier 66,287 65,893 (5.8) (6.4)
Non-carrier 42,373 42,108 3.5 2.9
Total switched 108,660 108,001 (2.4) (3.0)
Non-switched 23,733 23,614 (4.3) (4.7)
Other 123 122 n/a n/a
Total 132,516 131,737 (2.7) (3.3)
Total
Carrier 66,287 65,893 (5.8) (6.4)
Non-carrier 121,717 121,072 (2.6) (3.1)
Total switched 188,004 186,965 (3.8) (4.3)
Non-switched 123,329 122,728 1.9 1.4
Other 448 446 n/a n/a
Total 311,781 310,139 (1.5) (2.1)
Q3 2005 Compared to Q3
2004 % Growth
GBP'000
Adjusted Actual Adjusted
(2) (2)
Corporate
Switched 78,414 (2.0) (3.2)
Non-switched 98,413 9.0 7.7
Other 321 n/a n/a
Total 177,148 2.9 1.7
Wholesale
Carrier 65,327 (2.1) (3.5)
Non-carrier 41,736 17.3 15.6
Total switched 107,063 4.7 3.1
Non-switched 23,442 (10.5) (11.6)
Other 121 n/a n/a
Total 130,626 1.7 0.2
Total
Carrier 65,327 (2.1) (3.5)
Non-carrier 120,150 3.9 2.6
Total switched 185,477 1.7 0.4
Non-switched 121,854 4.6 3.3
Other 443 n/a n/a
Total 307,774 2.4 1.1
(1) Q3 2005 turnover has been restated using Q2 2005 exchange rates, and
compared to turnover which was reported in Q2 2005
(2) Q3 2005 turnover has been restated using Q3 2004 exchange rates, and
compared to turnover which was reported in Q3 2004
3. Loss per share
Three months ended 30 September
2004 2005 2005
GBP'000 GBP'000 $'000
Loss for period (34,968) (19,208) (33,989)
Weighted average of ordinary
shares ('000) 1,511,021 1,512,241 1,512,241
Basic and diluted loss per share GBP(0.02) GBP(0.01) $(0.02)
4. Reconciliation of net loss to cash generated from operations
Three months ended 30 September
2004 2005 2005
GBP'000 GBP'000 $'000
Loss for the period (34,968) (19,208) (33,989)
Exchange differences (104) 285 504
Interest payable 20,482 13,658 24,169
Interest receivable (5,600) (2,884) (5,104)
Debt settlement expense (income) 477 (1,596) (2,824)
Depreciation 53,446 55,606 98,400
Share option charge 497 779 1,379
Movement in debtors 272 11,693 20,692
Movement in creditors 6,001 1,693 2,996
Movement in provisions (3,303) (3,453) (6,112)
Exchange differences (846) (285) (504)
Cash generated from operations 36,354 56,288 99,607
5. EBITDA reconciliation
Three months ended 30 September
2004 2005 2005
GBP'000 GBP'000 $'000
Cash generated from operations 36,354 56,288 99,607
Movement in debtors (272) (11,693) (20,692)
Movement in creditors (6,001) (1,693) (2,996)
Total working capital adjustments (6,273) (13,386) (23,688)
Movement in provisions 3,303 3,453 6,112
Exchange differences 846 285 504
Share option charge (497) (779) (1,379)
EBITDA 33,733 45,861 81,156
6. Free cash flow reconciliation
Three months ended 30 September
2004 2005 2005
GBP'000 GBP'000 $'000
EBITDA 33,733 45,861 81,156
Movement in debtors 272 11,693 20,692
Movement in creditors 6,001 1,693 2,996
Movement in provisions (3,303) (3,453) (6,112)
Exchange differences (846) (285) (504)
Share option charge 497 779 1,379
Interest paid (10,378) (6,717) (11,886)
Interest received 5,550 2,752 4,870
Capital expenditure (32,488) (26,965) (47,717)
Free cash inflow (outflow) (962) 25,358 44,874
7. Summary of the consolidated income statement differences between U.K.
Generally Accepted Accounting Principles ("UK GAAP") and International Financial
Reporting Standards ("IFRS")
A reconciliation and explanation of the difference between the consolidated
income statements for the three months ended 30 September 2004 is shown below:
Three months ended
30 September 2004
UK GAAP Effect of IFRS
transition
to IFRS
GBP'000 GBP'000 GBP'000
Turnover (i) 303,710 855 304,565
Cost of sales
Interconnect and network (207,813) -- (207,813)
Network depreciation (46,611) -- (46,611)
(254,424) -- (254,424)
Gross profit 49,286 855 50,141
Operating expenses
Selling, general and
administrative (ii) (62,522) (497) (63,019)
Other depreciation and
amortisation (iii) (7,337) 502 (6,835)
(69,859) 5 (69,854)
Operating loss (20,573) 860 (19,713)
Other income (expense)
Interest receivable 5,600 -- 5,600
Debt settlement income
(expense) (iv) 205 (682) (477)
Interest payable and similar
charges (iv) (16,882) (3,600) 20,482)
Exchange loss 104 -- 104
(10,973) (4,282) (15,255)
Loss on ordinary activities
before taxation (31,546) (3,422) (34,968)
Taxation -- -- --
Loss for period (31,546) (3,422) (34,968)
Basic and diluted loss per
share GBP(0.02) GBP(0.00) GBP(0.02)
(i) Installation fees revenue recognition - Under IFRS, all installation fees
are taken to the profit and loss account over the expected length of the
customer relationship period. Under UK GAAP the revenue was recognised in the
same period as the related costs.
(ii) Share option schemes - Under UK GAAP, COLT did not suffer a profit and loss
charge in respect of its share option plans. Under IFRS 2 "Share based payments"
the Group is required to charge the profit and loss account with the fair value
of the options issued. The adjustment represents the charge calculated using the
Black-Scholes method, which is then spread over the vesting period. An exemption
applies for options which were granted prior to 7 November 2002.
(iii) Goodwill - Under IFRS, goodwill is not subject to annual amortisation but
there is a requirement for an annual impairment review. Any impairment so
identified will be charged immediately to the income statement. The difference
represents the reversal of the 2004 goodwill amortisation.
(iv) Convertible debt - Under IAS 32 "Financial instruments: Disclosure and
presentation" the interest charge on convertible debt is increased to equal the
interest charge on equivalent debt which does not have conversion rights.
Under UK GAAP, COLT included the liability in respect of the convertible debt
within long term creditors. Under IFRS it is necessary to allocate the
convertible debt between that which is deemed to relate to debt and that which
is deemed to relate to the conversion rights. The element of the debt which
relates to the conversion rights has been classified in Other Reserves in Equity
Shareholders' Funds in the Group's balance sheet.
Under IFRS the gain or loss on early redemption of debt since 1 January 2004 is
required to be restated. Upon early redemption of debt under IFRS the cost of
redemption is allocated between that relating to the debt and equity elements.
The difference between the cost of redemption allocated to debt and the carrying
value of the debt is reported in the profit and loss account for the period as
the debt settlement income/expense. The cost of the redemption allocated to
equity is reported in the convertible debt reserve.
8. Summary of consolidated balance sheet differences between U.K. Generally
Accepted Accounting Principles ("UK GAAP") and International Financial Reporting
Standards ("IFRS")
A reconciliation and explanation of the difference between consolidated balance
sheets as at 30 September 2004 is shown below:
As at 30 September 2004
UK GAAP Effect of IFRS
transition
to IFRS
GBP'000 GBP'000 GBP'000
ASSETS
Non-current assets
Property, plant and
equipment (i) 1,249,904 (56,777) 1,193,127
Intangible assets (i) (iii) 7,691 58,285 65,976
Total non-current assets 1,257,595 1,508 1,259,103
Current assets
Trade receivables 194,269 -- 194,269
Prepaid expenses and other
debtors (v) 46,444 122 46,566
Cash and cash equivalents 791,367 -- 791,367
Total current assets 1,032,080 122 1,032,202
Total assets 2,289,675 1,630 2,291,305
EQUITY
Capital and reserves
Share capital 2,354,400 -- 2,354,400
Other reserves (viii) 27,359 83,886 111,245
Retained earnings (vii) (1,608,001) (120,096) (1,728,097)
Total equity 773,758 (36,210) 737,548
LIABILITIES
Non-current liabilities
Convertible debt (vi) 367,110 (18,147) 348,963
Non-convertible debt 432,023 -- 432,023
Provisions for liabilities
and 48,966 -- 48,966
charges
Total non-current 848,099 (18,147) 829,952
liabilities
Current liabilities
Convertible debt (vi) 315,866 (13,075) 302,791
Trade and other payables (iv) 351,952 69,062 421,014
Total current liabilities 667,818 55,987 723,805
Total liabilities 1,515,917 37,840 1,553,757
Total equity and 2,289,675 1,630 2,291,305
liabilities
(i) Software assets - IFRS requires that certain software assets be classified
as intangible assets whilst under UK GAAP they were classified as tangible
assets.
(ii) Share option schemes - Under IFRS 2 "Share based payments" the potential
shares which could be issued under share option schemes are included in other
reserves as "Shares to be issued" (see (vii) and (viii) below).
(iii) Goodwill - Under IFRS, subsequent to the date of transition, goodwill is
not subject to annual amortisation but there is a requirement for an annual
impairment review. This adjustment is the reversal of the 2004 goodwill
amortisation.
(iv) Installation fees revenue recognition - Under IFRS all installation fees
are taken to the profit and loss account over the expected length of the
customer relationship period. This results in an increase in deferred revenue
within creditors.
(v) Warrants fair value - Under UK GAAP, warrants received from suppliers which
give COLT the right to subscribe for shares in the suppliers had no value
attributed to them. Under IFRS, they are recorded on the balance sheet within
other debtors at their fair value. The movement in the value of the warrants is
recorded as a movement in reserves.
(vi) Convertible debt - Under UK GAAP, COLT included the liability in respect of
the convertible debt within long term creditors. Under IFRS it is necessary to
allocate the convertible debt between that which is deemed to relate to debt and
that which is deemed to relate to the conversion rights. The element of the debt
which relates to the conversion rights has been classified in Equity
Shareholders' Funds in the Group's balance sheet. The impact on the carrying
value of debt shown in creditors is partially offset by the increased accretion
under IFRS. As the debt is Euro denominated and its carrying value has changed
the foreign exchange gain or loss taken to reserves has also been adjusted.
(vii) Adjustment to retained earnings - The impact of the adjustments on
retained earnings is as follows:
As at 30 September
2004
GBP'000
Share option scheme (note ii) (3,456)
Retranslation reserve disclosed within Other Reserves
under IFRS 11,869
Goodwill (note iii) 1,508
Installation fees revenue recognition (note iv) (69,062)
Convertible debt (note vi) (60,955)
(120,096)
(viii) Adjustment to other reserves - The impact of the adjustments on other
reserves is as follows:
As at 30 September
2004
GBP'000
Share option scheme (note ii) 3,456
Retranslation reserve disclosed within Other Reserves
under IFRS (11,869)
Convertible debt (note vi) 93,509
Warranty fair value (note v) 122
Impact of convertible debt on retranslation reserve (note
vi) (1,332)
83,886
9. Summary of differences between IFRS and US Generally Accepted Accounting
Principles ("US GAAP")
a. Effects of conforming to US GAAP - impact on net loss
Three months ended 30 September
2004 2005 2005
GBP'000 GBP'000 $'000
Loss for period under IFRS (34,968) (19,208) (33,989)
Share based compensation (i) 938 837 1,481
Capitalised interest, net of depreciation
(ii) (810) (1,042) (1,844)
Profit on sale of IRUs (iii) 261 261 462
Warrants (iv) (352) 107 189
Impairment (v) (2,805) (2,805) (4,964)
Convertible debt (vii) 4,282 333 589
Loss for period under US GAAP (33,454) (21,517) (38,076)
Weighted average number of ordinary shares
('000) 1,511,021 1,512,241 1,512,241
Basic and diluted loss per share (GBP0.02) (GBP0.01) ($0.03)
b. Effects of conforming to US GAAP - impact on net equity
As at 30 September
2005 2005
GBP'000 $'000
Equity shareholders' funds under IFRS 611,051 1,081,316
Deferred compensation (i) (10,583) (18,728)
Unearned compensation (i) (14) (25)
Additional paid in share capital (i) 10,597 18,752
Capitalised interest, net of depreciation (ii) 31,232 55,268
Deferred profit on sale of IRUs (iii) (15,896) (28,130)
Impairment (v) 73,533 130,124
Amortisation of intangibles (vi) 6,016 10,646
Convertible debt (vii) (8,499) (15,040)
Payroll taxes on employee share schemes (viii) 350 619
Equity shareholders' funds under US GAAP 697,787 1,234,802
(i) The Group 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% of market value. Under IFRS, the P&L charge is calculated
on the basis of the fair value of the options granted, and is spread over the
vesting period of the options. Under US GAAP, the P&L charge is calculated as
the difference between the market value of the shares on the date of grant and
the option price, and this is also spread over the vesting period of the
options. Also under US GAAP, an employer's offer to enter into a new SAYE
contract at a lower price causes variable accounting for all existing awards
subject to the offer.
The Group also operates a Group Share Plan (the "Option Plan") under which
options are granted to key employees of the Group. Under IFRS, the P&L charge is
calculated on the basis of the fair value of the options granted and is spread
over the vesting period of the options. Under US GAAP, no P&L charge is required
to be recorded, although a pro forma disclosure of the Group's result as if a
charge had been calculated under SFAS 123 "Accounting for Stock-Based
Compensation" is given in note 9c.
(ii) Under IFRS, the Group does not capitalise interest. Under US GAAP, the
estimated amount of interest incurred on capital projects is included in fixed
assets and depreciated over the lives of the related assets.
(iii) In 2000 and 2001, the Group concluded a number of infrastructure sales
in the form of 20-year indefeasible rights-of-use ("IRUs"). Under IFRS, these
transactions were accounted for as outright sales. Under US GAAP, these
transactions are treated as 20-year operating leases.
(iv) The Group has received warrants from certain suppliers. Under IFRS,
these warrants are carried at fair value, and subsequent changes in fair value
are reflected in reserves. Under US GAAP, these warrants are also recorded at
fair value, but subsequent changes are reflected in the profit and loss account.
(v) During 2002, the Group recorded a charge in respect of the impairment
of goodwill, other intangible assets, network and non-network assets. Under
IFRS, being the grandfathered UK GAAP position, this charge was GBP551.0 million.
Under US GAAP, the charge was GBP443.8 million. The assets which were impaired
under IFRS but not impaired under US GAAP continue to be depreciated under US
GAAP.
(vi) The Group acquired ImagiNet in July 1998, with the purchase
consideration including deferred shares and payments. On transition to IFRS, the
ImagiNet goodwill was frozen at its amortised value on 1 January 2004 and it is
now subject to an annual impairment test. This goodwill includes the deferred
shares and payments which were included in the calculation of the purchase
consideration. Under US GAAP, this goodwill was amortised until 31 December 2001
and after this date amortisation ceased and the goodwill is now tested annually
for impairment. The deferred shares and payments were excluded from the purchase
consideration under US GAAP and were recognised as compensation expense in the
profit and loss accounts over the periods in which the payments vested.
(vii) The Group has issued convertible debt. Under IFRS, this debt has been
split between the element which relates to debt and the element which is deemed
to relate to conversion rights. The element which relates to the conversion
rights is classified in equity. Additionally, the interest charge is increased
to equal the interest charge on equivalent debt which does not have conversion
rights. Under US GAAP, the whole liability is included within creditors, and the
interest charge equals the coupon rate plus accretion.
Under IFRS the gain or loss on early redemption of debt since 1 January 2004 is
required to be restated. Upon early redemption of debt under IFRS the cost of
redemption is allocated between that relating to the debt and equity elements.
The difference between the cost of redemption allocated to debt and the carrying
value of the debt is reported in the profit and loss account for the period as
the debt settlement income/expense. The cost of the redemption allocated to
equity is reported in the convertible debt reserve.
(viii)The Group operates a number of employee share schemes on which it incurs
employer payroll taxes. Under IFRS, the cost of employer payroll taxes is
recognised over the period from the date of grant to the end of the performance
period. Under US GAAP, the cost is recognised when the tax obligation arises.
c. Effects of conforming to U.S. GAAP - stock options
As permitted by SFAS No.123, "Accounting for Stock-Based Compensation", the
Group 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 Group's loss for the three months
ended 30 September 2005 would have been GBP21.6 million ($38.1 million).
Additional Information
Operating statistics
Q3 04 Q2 05 Q3 05 Growth Growth
Q3 05 - Q3 05 -
Q2 05 Q3 04
Customers (at end
of quarter)
UK 2,796 2,892 2,836 (2%) 1%
Germany 7,753 7,678 7,749 1% --
France 3,103 3,033 2,990 (1%) (4%)
Strategic Markets 7,982 8,869 8,872 -- 11%
21,634 22,472 22,447 -- 4%
Customers (at end
of quarter)
Corporate 20,427 21,251 21,208 -- 4%
Wholesale 1,207 1,221 1,239 1% 3%
21,634 22,472 22,447 -- 4%
Switched Minutes
(million) (for
quarter)
UK 933 1,040 991 (5%) 6%
Germany 3,312 3,484 3,377 (3%) 2%
France 642 1,017 967 (5%) 51%
Strategic Markets 1,178 1,445 1,448 -- 23%
6,065 6,986 6,783 (3%) 12%
Private Wire VGEs
(000) (at end of
quarter)
UK 10,287 11,326 12,257 8% 19%
Germany 12,217 12,883 13,860 8% 13%
France 3,186 4,790 5,248 10% 65%
Strategic Markets 8,983 11,347 12,184 7% 36%
34,673 40,346 43,549 8% 26%
Headcount (at end
of quarter)
UK 1,162 1,071 1,065 (1%) (8%)
Germany 1,086 990 921 (7%) (15%)
France 432 402 396 (1%) (8%)
Strategic Markets 1,123 1,063 1,040 (2%) (7%)
India 86 384 455 18% n/a
3,889 3,910 3,877 (1%) --
Strategic Markets comprises Austria, Belgium, Denmark, Ireland, Italy,
Netherlands, Portugal, Spain, Sweden and Switzerland. Customers represent the
number of customers who purchase network and data solutions products. VGEs are
the comparable number of voice circuits, of 64 kilobites per second, each
approximately equivalent in capacity to the non-switched circuit being measured.
Headcount comprises active employees excluding temporary and contract workers.
Certain comparative figures for customer numbers for Germany and Strategic
Markets have been restated due to changes in customer classifications.
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. COLT
Telecom Group plc 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 Group's actual results and could cause
the Group's actual results for future periods to differ materially from those
expressed in any forward looking statement made by or on behalf of the Group.
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 Group to expand and develop its networks in new markets,
(iii) the Group's ability to manage its growth, (iv) the nature of the
competition that the Group will encounter and (v) unforeseen operational or
technical problems. The Group 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
Luke Glass
Director Corporate Communications
Email: luke.glass@colt.net
Tel: 44 (0) 20 7390 3681
Gill Maclean
Head of Corporate Communications
Email: gill.maclean@colt.net
Tel: 44 (0) 20 7863 5314
This information is provided by RNS
The company news service from the London Stock Exchange
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