July 19, 2007 / 6:25 AM / 13 years ago

Colt core earnings up 5 percent

LONDON (Reuters) - Colt Telecom Group SA COLT.L posted a more than 5 percent increase in second-quarter core earnings on Thursday but repeated its forecast that 2007 earnings would be flat due to a difficult German market.

At 8:40 a.m., its shares were up 3.3 percent at 155 pence.

The Luxembourg-based, pan-European corporate telecoms provider posted a 3.5 million euro (2.4 million pounds) increase in earnings before interest, tax, depreciation and amortisation (EBITDA) to 67.9 million euros for the three months to the end of June.

It was profitable for the fourth quarter running, with profit before tax and exceptional items up by 17.9 million euros from a loss a year earlier to 8.9 million euros, but revenue fell by 8.8 percent to 410 million euros due to weak voice-based services.

“We continue to make progress in the UK, France and Strategic Markets, but trading in Germany continues to be difficult and uncertain,” the company said.

“Given this outlook and the accelerated investment noted in April, we continue to expect that EBITDA for 2007 will be broadly in line with that of 2006.”

Data revenue increased by 11.1 percent to 206.9 million euros and grew to 50.5 percent of total revenue, with growth in every region and with double-digit growth in every market except Germany. Data bookings also continued to grow.

But headline revenues fell, reflecting a drop in low-margin voice revenues, which were down 22.9 percent for the quarter.

Colt, like many other alternative network providers across Europe, has been suffering from overcapacity and falling prices for voice-based services in its core markets, which has put pressure on revenues and forced it to seek growth in high-margin data businesses.

It said in April it would accelerate investment in its network, data centres, IT systems and people.

On a conference call with reporters, Chief Executive Rakesh Bhasin said he was confident the group could continue to grow its data revenue as order rates were still increasing.

Finance Officer Tony Bates said the German market has been disrupted by some regulatory changes which had forced companies to change the way they were trading.

“Germany is our single largest business, and voice is a larger proportion of our business in Germany than it is anywhere else, so the impact has been disproportionate for us,” he said.

Bridgewell analyst Dan Gardiner said the figures were broadly in line with his expectations, but the prediction for 2007 earnings implies no material profitability in the second half of the year.

“We will not be changing our profit forecast materially but continue to believe the current valuation implies a significant turnaround in COLT’s fortunes which, given the market conditions, seems unlikely in our view.”

Gross margin before depreciation improved by 4 percentage points to 38.5, which it said reflected the improved revenue mix. Free cash flow increased by 3.1 million euros to an inflow of 11.3 million euros.

COLT, founded and majority-owned by U.S. fund manager Fidelity, stood for City of London Telecom before it spread its wings in Europe.

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