RNS Number:3404K
Colt Telecom Group PLC
24 April 2003
24 April 2003
COLT TELECOM GROUP PLC ANNOUNCES RESULTS FOR THE
THREE MONTHS ENDED 31 MARCH 2003
HIGHLIGHTS
* Turnover up 10% to #271.7 million compared to Q1 2002
* Increase in turnover driven in part by the weakness of the British
pound relative to the Euro.
* Retail turnover up 20.7% to #162.8 million
* Gross margin before depreciation and exceptional items improved from
28.7% to 33.6%
* EBITDA (1) up 247% to #34.0 million
* Cash consumption reduced from #110.7 million to #12.4 million,
excluding bond purchases
* Strong liquidity position with cash and liquid resources of #954.0
million
* Directly connected network and eBusiness customers up 23% to 16,316
* Staff levels including temporary and contract workers reduced by 231
during quarter
Commenting on the results COLT Telecom Group Chairman Barry Bateman said:
"The operating environment remains challenging but nonetheless we have made an
encouraging start to the year with further improvements in turnover, gross
margins and EBITDA.
"We have also continued to demonstrate our ability to improve cash flow with
cash consumption reducing from #110.7 million in the first quarter of 2002 to
#12.4 million in the first quarter of this year, excluding bond purchases. We
remain on track to achieve our objective of becoming free cash flow positive
during 2005.
"Cash is an important competitive advantage in today's market and with #954.0
million of cash and liquid resources combined with our reputation for first
class service our customers see COLT as one of the long term successes of the
European telecom sector."
Steve Akin, COLT's President and Chief Executive Officer added:
"Our performance for the quarter reflected further progress on the achievement
of our key priorities of profitable revenue growth and tight management of
operating costs and capital expenditure.
"Revenues grew by 10% to #271.7 million with retail revenues improving by 20.7%.
At the same time non-switched services accounted for 40.6% of revenues compared
with 38.0% in the first quarter of 2002.
"As well as giving increased emphasis to growing same-customer-sales we also
continued to win new customers and amongst the more significant new contract
wins was Oracle, the world's largest enterprise software company, which has
chosen COLT as one of its preferred pan-European suppliers. We also achieved an
important win in Portugal with Banco Investimento Global Services (BIG). Other
new customers included ST Microelectronics, the semiconductor company. In the
governmental sector we continued to make progress with a new contract with Rome
University for whom COLT will provide services up to 1 Gbps connecting 9
buildings.
Also in Rome, we have won new contracts with the Ministries of Culture and
Environment. In France, both local and central government contracts have been
won with Les Hospices Civils de Lyon, Communaute Urbaine de Lyon and Ministere
des Affaires Sociales.
"The improvement in gross margin before depreciation and exceptional items
reflects the improvement in revenue mix as well as the actions we have taken to
tightly manage operating costs. SG&A costs before exceptional items were reduced
from #61.0 million in the first quarter of 2002 to #57.2 million in the first
quarter of 2003. We have reduced staff numbers by a further 231 during the
quarter, including temporary/contract workers, bringing the total to 4,624. We
remain on course to reduce staff numbers to approximately 4,300 before the end
of the year.
"The major construction phase of our network infrastructure was completed at the
beginning of 2002 and we are now concentrating capital investment on winning new
business. There was a further reduction in capital expenditure to #41.6 million
compared with #139.1 million in the first quarter last year.
"While there are no signs of any improvement in the operating environment
generally, we expect to make further progress during the second quarter and the
year as a whole."
KEY FINANCIAL DATA Three months ended
31 March
2002 2003
# m # m
Turnover 246.8 271.7
Interconnect and network costs before exceptional items (176.1) (180.5)
Gross profit before depreciation and exceptional items 70.7 91.2
Gross profit before depreciation and exceptional items % 28.7 % 33.6%
Network depreciation (50.6) (48.4)
Exceptional interconnect and network costs (5.7) --
Gross profit 14.4 42.8
Loss for the period (before exceptional items) (73.9) (40.9)
Loss for the period (after exceptional items) (47.8) (40.6)
EBITDA (1) 9.8 34.0
OPERATING STATISTICS
Growth Growth
Q1 02 Q4 02 Q1 03 Q1 02- Q4 02-
Q1 03 Q1 03
Customers (at end of period)
North Region 3,436 4,282 4,555 33% 6%
Central Region 4,771 5,255 5,579 17% 6%
South Region 3,386 4,381 4,596 36% 5%
eBusiness 1,628 1,605 1,586 -3% -1%
13,221 15,523 16,316 23% 5%
Buildings Connected (at end of period)
North Region 2,474 2,730 2,775 12% 2%
Central Region 3,532 3,784 3,774 7% --
South Region 2,200 2,724 2,867 30% 5%
8,206 9,238 9,416 15% 2%
Switched Minutes (million) (for period)
North Region 1,562 1,354 1,444 -8% 7%
Central Region 2,979 2,682 2,717 -9% 1%
South Region 786 967 931 18% -4%
5,327 5,003 5,092 -4% 2%
Private Wire VGEs (000) (at end of period)
North Region 6,089 8,749 9,104 50% 4%
Central Region 7,238 8,541 9,012 25% 6%
South Region 2,426 3,133 3,643 50% 16%
15,753 20,423 21,759 38% 7%
Racks (at end of period)
eBusiness 2,376 2,774 2,858 20% 3%
Headcount (at end of period)
North Region 1,614 1,496 1,284 -20% -14%
Central Region 1,764 1,537 1,490 -16% -3%
South Region 962 937 917 -5% -2%
eBusiness 666 481 455 -32% -5%
Group/other 234 233 296 26% 27%
5,240 4,684 4,442 15% -5%
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 #246.8 million for the three months ended 31 March 2002
to #271.7 million for the three months ended 31 March 2003, an increase of #24.9
million or 10%. Turnover also benefited from the weakness of the British pound
relative to the Euro; at constant exchange rate the growth over the first
quarter 2002 was 3%. 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 and reduced demand in some areas, particularly
the wholesale market.
Turnover from switched network services increased from #152.1 million for the
three months ended 31 March 2002 to #161.0 million for the three months ended 31
March 2003. For the three months ended 31 March 2003 compared to the equivalent
period of 2002, average switched revenue per minute increased by 11% as a result
of changes in mix and a more stable pricing environment. Carrier revenues
represented 33% of total switched revenue for the three months ended 31 March
2003 compared with 35% for the comparable period in 2002 and 33% for the three
months ended 31 December 2002. Total wholesale (carriers, resellers and ISPs)
switched revenues represented 51% of total switched revenues for the three
months ended 31 March 2003 compared with 54% in the equivalent period in 2002
and 51% in the three months ended 31 December 2002.
Turnover from non-switched services, increased from #93.8 million for the three
months ended 31 March 2002 to #110.2 million for the three months ended 31 March
2003. Non-switched network services revenue increased from #80.7 million in the
three months ended 31 March 2002 to #97.5 million in the equivalent period in
2003. eBusiness revenue decreased from #13.1 million for the three months ended
31 March 2002 to #12.7 million for the corresponding period in 2003 reflecting
the impact of the mothballing of ISCs announced in February 2002. Growth in
non-switched network services revenue 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
revenue also reflects the growing success COLT is achieving in the provision of
IPVPN services. At 31 March 2003 COLT had 21.8 million voice grade equivalent
private wires in service, an increase of 38% compared to 31 March 2002. At 31
March 2003, COLT had 2,858 racks installed, an increase of 20% compared to 31
March 2002 and 1,586 eBusiness customers. Non-switched turnover from retail
customers represented 75% of total non-switched turnover for the three months
ended 31 March 2003 compared to 69% in the equivalent period in 2002.
Turnover from other activities was #0.5 million for the three months ended
31 March 2003 and #0.9 million for the equivalent period in 2002.
Cost of Sales
Cost of sales, before exceptional items, increased from #226.7 million for the
three months ended 31 March 2002 to #228.9 million for the three months ended 31
March 2003, an increase of #2.2 million or 1.0%.
Interconnection and network costs, before exceptional items, increased from
#176.1 million for the three months ended 31 March 2002 to #180.5 million for
the three months ended 31 March 2003, as a result of the overall increase in
business partially offset by the cost containment measures introduced during
2002.
Network depreciation decreased from #50.6 million for the three months ended 31
March 2002 to #48.5 million for the three months ended 31 March 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 three months ended 31 March 2002, an exceptional charge of #5.7 million
was recognised for severance provisions related to the staff reduction
programmes announced in February 2002. There were no exceptional charges for the
three months ended 31 March 2003.
Operating Expenses
Operating expenses, before exceptional items, decreased from #75.4 million for
the three months ended 31 March 2002 to #66.8 million for the comparable period
in 2003.
Selling, general and administrative (SG&A) expenses, before exceptional items,
decreased from #61.0 million for the three months ended 31 March 2002 to #57.2
million for the three months ended 31 March 2003 reflecting the cost containment
measures introduced during 2002. SG&A before exceptional items as a proportion
of turnover in the three months ended 31 March 2003 was 21.1% compared to 24.7%
in the equivalent period of 2002.
Other depreciation and amortisation decreased from #14.4 million for the three
months ended 31 March 2002 to #9.6 million in the comparable period in 2003
reflecting the effect of the impairment provisions recorded in September 2002
and other assets being fully depreciated.
For the three months ended 31 March 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 months ended 31 March 2003.
Interest Receivable, Interest Payable and Similar Charges
Interest receivable decreased from #10.3 million for the three months ended
31 March 2002 to #7.5 million for the three months ended 31 March 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 #25.7 million for the three
months ended 31 March 2002 to #22.4 million for the equivalent period in 2003.
The decrease was due primarily to a reduction in debt levels reflecting the
cumulative purchases of #343.1 million accreted amount of the Company's
outstanding notes.
Interest payable and similar charges for the three months ended 31 March 2003
included: #8.6 million of interest and accretion on convertible debt; #13.2
million of interest and accretion on non-convertible debt; and #0.6 million of
interest and unwinding of discounts on provisions. Interest payable and similar
charges for the three months ended 31 March 2003 comprised #16.4 million and
#6.0 million of interest and accretion, respectively.
Gain on Purchase of Debt
Gains arising on the purchase of debt for the three months ended 31 March 2003
were #0.3 million compared with #38.4 million in the equivalent period in 2002.
Exchange Gain (Loss)
For the three months ended 31 March 2003 COLT had exchange losses of #1.9
million compared with exchange losses of #3.2 million in the equivalent period
in 2002. These 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 months ended 31 March 2002 and 2003, COLT generated losses on
ordinary activities of #47.8 million and #40.6 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 #220 million and #270 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 #25.9 million for the three months
ended 31 March 2002 and #30.4 million for the three months ended 31 March 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
#136.6 million in the three months ended 31 March 2002 to #42.8 million for the
three months ended 31 March 2003.
The decrease in net cash outflow was primarily a result of reduced purchases of
tangible fixed assets, which decreased from #139.1 million for the three months
ended 31 March 2002 to #41.6 million for the equivalent period in 2003.
There were no proceeds from the exercise of options in the three months ended 31
March 2003, while proceeds of #0.1 million were raised during the three months
ended 31 March 2002. COLT had balances of cash and investments in liquid
resources at 31 March 2003 of #954.0 million compared to #934.9 million at 31
December 2002. The increase reflected foreign exchange translation gains.
Consolidated Profit and Loss Account
Three months ended 31 March
2002 2002 2002
Before Exceptional Items Exceptional Items After Exceptional Items
#'000 #'000 #'000
Turnover
Switched 152,109 -- 152,109
Non-switched 93,823 -- 93,823
Other 866 -- 866
246,798 -- 246,798
Cost of sales
Interconnect and (176,054) (5,680) (181,734)
network
Network (50,616) -- (50,616)
depreciation
(226,670) (5,680) (232,350)
Gross profit 20,128 (5,680) 14,448
(loss)
Operating
expenses
Selling, general (60,988) (6,574) (67,562)
and
administrative
Other (14,429) -- (14,429)
depreciation and
amortisation
(75,417) (6,574) (81,991)
Operating loss (55,289) (12,254) (67,543)
Other income
(expense)
Interest 10,272 -- 10,272
receivable
Gain on purchase -- 38,409 38,409
of debt
Interest payable (25,703) -- (25,703)
and similar
charges
Exchange gain (3,197) -- (3,197)
(loss)
(18,628) 38,409 19,781
Loss on ordinary (73,917) 26,155 (47,762)
activities
before
taxation
Taxation -- -- --
Loss for (73,917) 26,155 (47,762)
period
Basic and #(0.05) #0.02 #(0.03)
diluted loss per
share
Three months ended 31 March
2003 2003 2003 2003
Before Exceptional Exceptional After Exceptional After Exceptional
Items Items Items Items
#'000 #'000 #'000 $'000
Turnover
Switched 160,951 -- 160,951 254,141
Non-switched 110,248 -- 110,248 174,082
Other 521 -- 521 823
271,720 -- 271,720 429,046
Cost of sales
Interconnect and (180,466) -- (180,466) (284,956)
network
Network (48,446) -- (48,446) (76,496)
depreciation
(228,912) -- (228,912) (361,452)
Gross profit 42,808 -- 42,808 67,594
(loss)
Operating
expenses
Selling, general (57,235) -- (57,235) (90,374)
and
administrative
Other (9,594) -- (9,594) (15,149)
depreciation and
amortisation
(66,829) -- (66,829) (105,523)
Operating loss (24,021) -- (24,021) (37,929)
Other income
(expense)
Interest 7,471 -- 7,471 11,797
receivable
Gain on purchase -- 349 349 551
of debt
Interest payable (22,444) -- (22,444) (35,439)
and similar
charges
Exchange gain (1,936) -- (1,936) (3,057)
(loss)
(16,909) 349 (16,560) (26,148)
Loss on ordinary (40,930) 349 (40,581) (64,077)
activities
before
taxation
Taxation -- -- -- --
Loss for (40,930) 349 (40,581) (64,077)
period
Basic and #(0.03) #0.00 #(0.03) $(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 Statement of Total Recognised Gains and Losses
Three months ended 31 March
2002 2003 2003
#'000 #'000 $'000
Loss for the period (47,762) (40,581) (64,077)
Exchange differences (596) 24,362 38,467
Total recognised losses (48,358) (16,219) (25,610)
Consolidated Reconciliation of Changes in Equity Shareholders' Funds
Three months ended 31 March
2002 2003 2003
#'000 #'000 $'000
Loss for the period (47,762) (40,581) (64,077)
Issue of share 110 -- --
capital
Shares to be issued (190) (167) (264)
Exchange difference (596) 24,362 38,467
Net changes in equity (48,438) (16,386) (25,874)
shareholders' funds
Opening equity 1,624,359 955,010 1,507,961
shareholders' funds
Closing equity 1,575,921 938,624 1,482,087
shareholders' funds
Consolidated Balance Sheet
At 31 December 2002
At 31 March 2003
#'000 #'000 $'000
Fixed assets
Intangible fixed assets (net) 10,639 10,734 16,949
Tangible fixed assets (cost) 2,695,499 2,839,953 4,484,286
Accumulated depreciation (1,316,690) (1,425,083) (2,250,206)
Tangible fixed assets (net) 1,378,809 1,414,870 2,234,080
Investments in own shares 206 206 325
Total fixed assets 1,389,654 1,425,810 2,251,354
Current assets
Trade debtors 189,788 196,543 310,342
Prepaid expenses and other 74,606 73,920 116,720
debtors
Investments in liquid 889,590 907,581 1,433,070
resources
Cash at bank and in hand 45,292 46,389 73,248
Total current assets 1,199,276 1,224,433 1,933,380
Total assets 2,588,930 2,650,243 4,184,734
Capital and reserves
Called up share capital 37,688 37,688 59,509
Share premium 2,314,335 2,314,335 3,654,335
Merger reserve 27,227 27,227 42,992
Shares to be issued 454 287 453
Profit and loss account (1,424,694) (1,440,913) (2,275,202)
Equity shareholders' funds 955,010 938,624 1,482,087
Provisions for liabilities and 87,368 82,778 130,707
charges
Creditors
Amounts falling due within one 352,653 366,270 578,340
year
Amounts falling due after more
than one year:
Convertible debt 639,829 683,025 1,078,497
Non-convertible debt 554,070 579,546 915,103
Total amounts falling due after 1,193,899 1,262,571 1,993,600
more than one year
Total creditors 1,546,552 1,628,841 2,571,940
Total liabilities, capital and 2,588,930 2,650,243 4,184,734
reserves
Consolidated Cash Flow Statement
Three months ended 31 March
2002 2003 2003
#'000 #'000 $'000
Net cash inflow from operating activities 25,872 30,364 47,945
Returns on investments and servicing of
finance
Interest received 10,687 7,508 11,855
Interest paid, finance costs and similar (8,211) (8,649) (13,657)
charges
Net cash inflow (outflow) from returns on 2,476 (1,141) (1,802)
investments and servicing of finance
Capital expenditure and financial investment
Purchase of tangible fixed assets (139,053) (41,629) (65,732)
Net cash outflow from capital expenditure and (139,053) (41,629) (65,732)
financial investment
Management of liquid resources 126,143 11,258 17,776
Financing
Issue of ordinary shares 110 -- --
Issue (purchase) of non-convertible debt (13,492) -- --
Issue (purchase) of convertible debt (23,386) (424) (669)
Net cash inflow (outflow) from financing (36,768) (424) (669)
Increase (decrease) in cash (21,330) (1,572) (2,482)
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 months ended 31 March 2002 and
2003 and at 31 December 2002 and 31 March 2003.
The financial statements for the three months ended 31 March 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 charges
for the three months ended 31 March 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 31 March 2003 and for the periods then ended at the rate of
$1.5790 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 31 March 2002 and 2003, turnover by region was as
follows:
Three months ended 31 March 2002
North Central Region South Region eBusiness Total Retail Wholesale
Region
#'000 #'000 #'000 #'000 #'000 #'000 #'000
Switched 45,300 71,297 35,512 -- 152,109 69,883 82,226
Non-switched 29,026 31,877 19,814 13,106 93,823 64,621 29,202
Other 37 761 68 -- 866 437 429
Total 74,363 103,935 55,394 13,106 246,798 134,941 111,857
Three months ended 31 March 2003
North Central Region South Region eBusiness Total Retail Wholesale
Region
#'000 #'000 #'000 #'000 #'000 #'000 #'000
Switched 49,913 73,489 37,549 -- 160,951 79,575 81,376
Non-switched 36,561 36,156 24,830 12,701 110,248 83,037 27,211
Other 45 317 159 -- 521 235 286
Total 86,519 109,962 62,538 12,701 271,720 162,847 108,873
3. Profit (loss) per share
Three months ended 31 March
2002 2003 2003
#'000 #'000 $'000
Profit (loss) for period (47,762) (40,581) (64,077)
Weighted average of ordinary shares ('000) 1,507,083 1,507,503 1,507,503
Basic and diluted loss per share #(0.03) #(0.03) $(0.04)
Notes to Financial Statements
4(a). Net cash inflow from operating activities
Three months ended 31 March
2002 2003 2003
#'000 #'000 $'000
Operating loss (67,543) (24,021) (37,929)
Depreciation, amortisation of fixed assets 65,045 58,040 91,645
Exchange differences 100 163 258
Decrease (increase) in debtors 10,592 4,696 7,415
Increase (decrease) in creditors 9,705 (238) (376)
Movement in provision for liabilities and 7,973 (8,276) (13,068)
charges
Net cash inflow from operating activities 25,872 30,364 47,945
4(b). EBITDA reconciliation
Three months ended 31 March
2002 2003 2003
#'000 #'000 $'000
Net cash inflow from operating activities 25,872 30,364 47,945
Adjusted for:
Exchange differences (100) (163) (258)
Movement in debtors (10,592) (4,696) (7,415)
Movement in creditors (9,705) 238 376
Total working capital adjustments (20,297) (4,458) (7,039)
Movement in provision (7,973) 8,276 13,068
for liabilities and charges
Add back
Exceptional interconnect and 5,680 -- --
Network charges
Exceptional selling and 6,574 -- --
Administrative charges
EBITDA before exceptional items 9,756 34,019 53,716
5. Changes in cash and investments in liquid resources
Three months ended 31 March
2002 2003 2003
#'000 #'000 $'000
Beginning of period 1,304,477 934,882 1,476,179
Net increase (decrease) in investments in (126,143) (11,258) (17,776)
liquid resources before exchange
differences
Effects of exchange differences in 47 29,249 46,183
investments in liquid resources
Net increase (decrease) in cash before (21,330) (1,572) (2,482)
exchange differences
Effects of exchange differences in cash (2,155) 2,669 4,214
End of period 1,154,896 953,970 1,506,318
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 31 March
--------------------
-------- --------
2002 2003 2003
#'000 #'000 $'000
Loss for period: (47,762) (40,581) (64,077)
Adjustments:
Deferred compensation (i), (ii) (604) (270) (427)
Amortisation of intangibles (iii) 247 521 823
Capitalised interest, net of depreciation 1,875 (912) (1,440)
(iv)
Profit on sale of IRUs (v) 261 261 412
Warrants (vi) 4 (157) (248)
Installation revenue (vii) (1,467) (636) (1,004)
Direct costs attributable to installation 1,467 636 1,004
revenue (vii)
Unrealised gain on forward foreign exchange 467 -- --
contracts (viii)
Impairment (ix) -- (2,805) (4,429)
Loss for period under U.S. GAAP (45,512) (43,943) (69,386)
Weighted average of ordinary shares ('000) 1,507,083 1,507,503 1,507,503
Basic and diluted loss per share #(0.03) #(0.03) $(0.05)
(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 paid over the two year
period ending June 2003, subject to certain conditions being met.
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 months ended 31 March 2002 and 31 March 2003 was #0.4
million and #0.1 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, are
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 was #0.2 million for the three
month periods ended 31 March 2002 and 2003.
Notes to Financial Statements
(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 months ended 31 March 2002 and 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. Under U.S. GAAP, the warrants
are recorded at fair value with unrecognised gains and losses reflected in the
profit and loss account. Hence for U.K. GAAP purposes the warrants have been
recognised at nil.
(vii) In accordance with SAB 101 "Revenue Recognition in Financial Statements",
for the three months ended 31 March 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 relationship period for wholesale customers was reduced during the
three months ended 30 June 2002. At 31 March 2003, the cumulative impact on net
losses under SAB 101 was nil, representing cumulative deferred installation
revenues of #57.0 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 gain of #0.5 million for the three months ended 31 March 2002,
represents the unrealised gain on that ineffective portion of the hedge
attributable to the cumulative notes purchased as at 31 March 2002. There was no
impact on profits for the three months ended 31 March 2003 as the forward
foreign exchange contracts were cancelled in June 2002.
(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 months ended 31 March 2003 depreciation in the
amount of #2.8 million 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 31 March 2003
-------------------
#'000 $'000
Equity shareholders' funds for the Company 938,624 1,482,087
U.S. GAAP adjustments:
Adjustment for deferred compensation (10,024) (15,828)
Unearned compensation (1,262) (1,993)
Additional paid in share capital 11,286 17,821
Own shares held in trust (i) (206) (325)
Amortisation of intangibles 4,421 6,981
Shares to be issued (62) (98)
Warrants 695 1,097
Impairment 101,585 160,403
Deferred profit on IRUs (18,506) (29,221)
Capitalised interest, net of depreciation 40,048 63,236
Approximate equity shareholders' funds under U.S. 1,066,599 1,684,160
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 31 March 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
months ended 31 March 2003 would have been
#48.1 million ($76.0 million).
d. New U.S. Accounting Standards
FAS 143, Accounting for Obligations Associated with the Retirement of Long-Lived
Assets, was issued in July 2001. This standard is effective for the Group's
fiscal year beginning 1 January 2003. The standard provides the accounting
requirements for retirement obligations associated with tangible long-lived
assets. The standard requires that the obligation associated with the retirement
of tangible long-lived assets be capitalised into the asset cost at the time of
initial recognition. The liability is then discounted to its fair value at the
time of recognition using the guidance provided by that standard. Management has
adopted SFAS 143 in the consolidated financial statements and its impact is not
material.
FASB Interpretation No. 46 ("FIN 46" or the "Interpretation"), "Consolidation of
Variable Interest Entities, an interpretation of ARB 51" was issued in January
2003. The primary objectives of FIN 46 are to provide guidance on the
identification of entities for which control is achieved through means other
than through voting rights ("variable interest entities" or "VIEs") and how to
determine when and which business enterprise should consolidate the VIE (the
"primary beneficiary"). In addition, FIN 46 requires that both the primary
beneficiary and all other enterprises with a significant variable interest in a
VIE make additional disclosures. For any variable interest entities created
after 31 January 2003, FIN 46 is effective immediately. This Interpretation will
be effective for the Group's fiscal year beginning 1 January 2004. Management
believes the adoption of FIN46 will have no impact on its consolidated financial
statements.
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 Investor Relations
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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