TIDMCOLT
RNS Number : 5837R
Colt Group S.A.
30 June 2015
Press Release
Colt Group S.A. to focus on core strengths
30 June 2015: Since the beginning of 2015, the Management of
Colt Group SA (London Stock Exchange: COLT) has been working on a
plan to refocus the Company's activities and improve its
performance. The Board has now approved this plan (the "Business
Plan") and the actions that flow from it, following a provisional
approval in May 2015. The Business Plan gives Colt greater focus on
its core - Network, Voice and Data Centre Services, with a managed
exit from IT Services.
The Board believes that it is appropriate to initiate the
implementation of the Business Plan as soon as possible. The
development of the Business Plan preceded and is unrelated to the
recent Offer announced by Fidelity to acquire the shares in Colt
not already owned by it.
HIGHLIGHTS
Focus on core business
-- To accelerate improved performance of the Group, Colt will
now focus on its core Network, Voice and Data Centre Services
businesses (the "Core Business") and exit IT Services.
-- The fundamentals of our core Network Services and Voice
Services businesses are solid and continue to improve. We will
continue to drive improvements in Data Centre Services through
better use of our assets.
Controlled exit of IT Services
-- Our IT services business would continue to need considerable
investment in the short-to-medium term in order to deliver
profitability and we do not believe this business can compete and
grow successfully with a level of risk that is acceptable.
-- To allow increased focus on our core infrastructure and asset
based activities, the Board has decided to exit IT Services over
the next two to three years.
-- Colt will continue to honour existing customer contracts
through to termination, but will no longer seek new business.
Financial implications
-- Colt expects to incur exceptional cash costs of EUR45m to
EUR55m and a non-cash impairment charge of c.EUR90 million. There
is also expected to be exceptional restructuring costs of c.EUR25
million relating to the Core Business. We anticipate around EUR25m
of annual savings related to this restructuring to be reflected in
Core Business EBITDA partially in 2015 and fully in 2016.
-- In order to deliver improved profitability, competitiveness
and cash returns, cost transformation across the Group continues to
be a key strategic focus.
Trading update and outlook
-- Trading performance of the Group in Q2 is in line with
Management expectations and interim results will be reported before
the end of July 2015.
-- In accordance with the actions outlined above, excluding the
exceptional cash outflows, Management is targeting for the Group to
deliver positive free cash flow(1) for the Core Business in a range
of EUR70m to EUR80m for full year 2015, improving to a range of
EUR100m to EUR120m in 2016.
(1) Free cash flow is net cash generated from operating
activities less net cash used to purchase non-current assets and
net interest paid
Rakesh Bhasin, Chief Executive Officer, said:
"The fundamentals of our core Network Services and Voice
Services businesses remain solid, and we are driving improvements
in our Data Centre Services business. We are taking decisive action
to become a more focused and disciplined organisation which we
believe will accelerate the performance of our Core Business.
Overall, we believe the prospects for the Group are good and I am
confident that, with the recent changes we have made within the
senior management team, we will be able to deliver improved
profitability and cash returns."
THE BUSINESS PLAN
A focused strategy on core infrastructure services
We regularly review our strategy to ensure that we are
delivering for our customers and other stakeholders. The
realignment of the business into four lines of business has enabled
us to carry out a more granular evaluation of our performance. We
now believe that we need to create a sharper focus on our
infrastructure and asset based services; to invest in areas that
maximise returns and to accelerate execution and delivery.
To do this we have strengthened our Management team over the
last year and all have proven track records of significantly
improving business performance.
Network Services
Network Services is focused on better leveraging its network
assets to drive improved profitability and cash returns, with
specific growth programmes on dark fibre, high speed circuits
between data centres, wireless backhaul and cloud access. To
enhance cash returns, a dedicated sales team has been formed to
focus on selling into the existing estate of connected buildings.
We also launched our global financial extranet at the beginning of
the year. These initiatives are already starting to yield results
with Q1 bookings and current run rate the highest for a number of
quarters.
Voice Services
Voice Services successfully planned and executed the strategic
withdrawal from low margin carrier voice trading contracts last
year. Q2 will be the last full quarter showing the decline in
Carrier Voice revenue from this decision. The team has put
initiatives in place to drive higher margin through its existing
product portfolio.
Data Centre Services
We are conducting a detailed review to identify the optimal
structure and positioning of the business. This includes a detailed
site by site review of the estate and is focused primarily on
utilising our existing infrastructure and investing in these sites
to ensure medium term cash returns.
KVH (Colt Asia)
KVH financial and operational performance continues to deliver
ahead of plan. The integration of the business into Colt Group
remains on track.
Controlled exit of IT Services
Our IT Services business would continue to need considerable
investment in the short-to-medium term in order to deliver
profitability and we do not believe this business can compete and
grow successfully with a level of risk that is acceptable.
The recent performance of IT Services has shown few signs of
improving in accordance with the targets we set to deliver
appropriate profit and cash returns in the medium term. Accordingly
the Board has decided, as part of the Business Plan, on a
controlled exit from IT Services over the next two to three years.
Colt will continue to honour existing contracts through to
termination, but will no longer seek new IT Service sales or
renewals. The operations of the business will be streamlined
accordingly over three years.
The performance of the Network, Voice and Data Centre Services
lines of business will not be materially impacted by the withdrawal
from IT Services. We will continue to offer all our customers the
same level of high quality service that they have come to expect
from Colt.
Cost transformation
In order to deliver improved profitability, competitiveness and
cash returns, cost transformation across the Group continues to be
a key strategic focus.
We have been working on cost transformation programmes since the
beginning of the year. Our reviews have highlighted material upside
potential to improve the efficiency of the business, with new
management in place driving the changes. Cost transformation will
continue to form a crucial element of the ongoing business over the
coming years. Detailed plans have been established and execution
has already commenced across several areas such as within our
service assurance function, and a review of our entire supplier
base, which is already showing benefit. We are also reducing
complexity in our sales organisation by distributing the integrated
services and solutions sales channel into the lines of
business.
With a focus on streamlining supporting lines and eliminating
same level reporting we are already a significant way through
reducing the number of senior executives in the business to
optimise the organisational structure and drive productivity.
FINANCIAL IMPLICATIONS
Exit from IT Services
Colt will incur a cash exceptional charge of EUR45m to EUR55m
and a c.EUR90m non-cash impairment charge. Around EUR20m of
exceptional cash cost is expected to occur in each of 2015 and
2016, with the balance in 2017. Revenue from IT Services is
expected to decline by around EUR20m in each of 2015, 2016 and 2017
and to become immaterial by 2018. The total cash costs of exiting
IT Services, including the up-front cash exceptional charge and
expected negative operating cash flows out to 2019, is anticipated
to be in the range of EUR90m to EUR100m.
Exceptional restructuring in the Core Business
In respect of Colt's continuing Network, Voice and Data Centre
Services businesses, restructuring related cost transformation
activities will incur an upfront cash exceptional charge of
c.EUR25m, of which approximately two-thirds will be incurred in the
current year. We anticipate around EUR25m of annual savings related
to this restructuring to be reflected in Core Business EBITDA
partially in 2015 and fully in 2016.
Ongoing cost transformation
Colt is confident that there is significant additional potential
to continue improving the efficiency of the business in future
years, and cost transformation will form a crucial element of the
ongoing business, beyond the initial phase announced today.
TRADING UPDATE AND OUTLOOK
After implementation of the actions Colt has announced today,
and assuming constant currencies, Management is targeting Group
revenue from the Core Business in a range of EUR1,500m to EUR1,520m
in 2015, and in a range of EUR1,500m to EUR1,530m in 2016.
In accordance with the actions outlined above, excluding the
exceptional cash outflows detailed above, Management is targeting
for the Group to deliver positive free cash flow(1) for the Core
Business in a range of EUR70m to EUR80m for full year 2015,
improving to a range of EUR100m to EUR120m in 2016.
(1) Free cash flow is net cash generated from operating
activities less net cash used to purchase non-current assets and
net interest paid
Trading performance of the Group in Q2 is in line with
Management expectations and interim results will be reported before
the end of July 2015. The above numbers exclude any cash costs
associated with the recent Fidelity announcement of the Offer.
This announcement in the context of the recent Offer announced
by Fidelity
The development of the Business Plan preceded and is unrelated
to the recent Offer announced by Fidelity to acquire the shares in
Colt not already owned by it. Fidelity first approached the
independent directors of Colt with a proposal to acquire the
remaining shares in Colt in April 2015. Following discussions with
the independent directors of Colt and certain shareholders,
Fidelity announced its intention to make an offer at a price of
190p in cash per share on 19 June 2015 (the 'Offer').
In considering their response to Fidelity's Offer terms, the
independent directors took into account the prospects of Colt
including the potential benefits from the Business Plan. For its
part, Fidelity has confirmed that it was aware of the Business Plan
and that the terms of its Offer take into account its assessment of
the impact of the Business Plan. The Fidelity-related directors on
the Board of Colt have played no part in the consideration of the
Offer or the assessment of the prospects and value of the Company
undertaken by the independent directors in their response to the
Offer.
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 Group S.A., 'the Group', 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 regulations and technology
within the IT services and communications industries, (ii) the
Group's ability to manage its growth, (iii) the nature of the
competition that the Group will encounter and wider economic
conditions including economic downturns, (iv) unforeseen
operational or technical problems and (v) the Group's ability to
raise capital. 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:
Investor Relations:
Morten Singleton
DDI: +44 (0) 20 7863 5314
Mobile: +44 (0) 7535 445159
Email: morten.singleton@colt.net
Press:
Helen Toft
DDI: +44 (0) 20 7039 2420
Mobile: +44 (0) 7855 301078
Email: helen.toft@colt.net
This information is provided by RNS
The company news service from the London Stock Exchange
END
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