Press Release

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
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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
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Our IT services business would continue to need considerable investment in the short-tomedium 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
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Colt expects to incur exceptional cash costs of €45m to €55m and a non-cash impairment
charge of c.€90 million. There is also expected to be exceptional restructuring costs of c.€25
million relating to the Core Business. We anticipate around €25m 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
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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,
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Management is targeting for the Group to deliver positive free cash flow for the Core
Business in a range of €70m to €80m for full year 2015, improving to a range of €100m to
€120m in 2016.
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.
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Free cash flow is net cash generated from operating activities less net cash used to purchase non-current assets and net interest paid
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 €45m to €55m and a c.€90m non-cash impairment
charge. Around €20m 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 €20m 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 €90m to €100m.
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.€25m, of which
approximately two-thirds will be incurred in the current year. We anticipate around €25m 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 €1,500m to €1,520m in
2015, and in a range of €1,500m to €1,530m in 2016.
In accordance with the actions outlined above, excluding the exceptional cash outflows detailed
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above, Management is targeting for the Group to deliver positive free cash flow for the Core
Business in a range of €70m to €80m for full year 2015, improving to a range of €100m to €120m in
2016.
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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: [email protected]
Press:
Helen Toft
DDI: +44 (0) 20 7039 2420
Mobile: +44 (0) 7855 301078
Email: [email protected]
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Free cash flow is net cash generated from operating activities less net cash used to purchase non-current assets and net interest paid

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