Colt Telecom Group = PLC

Colt Telecom Group =
PLC

21 July =
2005

21 =
July 2005

COLT=
 Telecom Group plc announces results for the quarter ended 30 June =
2005

COLT=
 Telecom Group plc (COLT), a leading European provider of =
business

communications said today that =
it continued to make progress in =
the

implementation of its strategic =
plan, even though markets remain =
challenging.

Seco=
nd quarter highlights

Comp=
ared with Q1 2005:

   =95 Turnover increased =
by 3.1% to =A3316.7 million. On a constant =
currency

     basis, turnover increased by =
5.0%

   =95 Gross margin before depreciation decreased =
by 0.4 of a percentage point

     to =
33.6%

   =95 Selling, general and administrative =
expenses were reduced by =A31.9

     million to =
=A365.6 million

   =95 EBITDA (1) increased =
by =A33.7 million to =A340.8 =
million

   =95 Free cash outflow improved by =A36.1 =
million to =A39.8 million

   =95 India head count =
increased by more than 100 to just under =
400

Comp=
ared with Q2 2004:

   =95 Turnover increased =
by 4.5%. On a constant currency basis =
turnover

     increased by 3.1% and by 5.6% after =
also excluding reductions in fixed =
to

     mobile =
prices

   =95 EBITDA (1) improved by =A31.4 million =
despite the costs of the India

     =
transition

The =
Company's financial position continues to be strong, with cash and =
cash

equivalents of =A3335.9 million at =
the end of the quarter.

COLT=
 Chairman Barry Bateman said:

'Des=
pite challenging markets, we have grown revenues and improved EBITDA. =
There

is still much hard work to be done =
to fully implement the strategic =
initiatives

we announced last October, =
but the foundations are laid and hopefully we should =

now begin to see a return on our =
efforts and continuing =
investment.'

Comm=
enting on the results for the quarter, Jean-Yves Charlier, Chief =
Executive,

said:

'In =
the second quarter we saw COLT return to growth with improvement =
in

turnover, earnings and cash flow. =
These results are an encouraging sign that =
our

strategy is continuing to show early =
results.

'Com=
pared with the first quarter, second quarter revenues grew in twelve out =
of

thirteen COLT countries, led by a =
strong performance in voice =
revenues.

Non-switched revenues grew =
more slowly than we would like to have seen but =
we

remain confident that growth in these =
areas should accelerate as our =
sales

initiatives and new value add =
products are introduced.

(1) =
EBITDA is earnings before interest, tax, depreciation, foreign exchange =
and

debt settlement =
expense

'Dur=
ing the quarter we won a number of new and important contracts. We =
also

enjoyed growing interest in our =
Ethernet product range, where we have =
already

signed 25 customers, in VoIP for =
corporates and in COLT Total Plus, our =
LAN

management offering for mid-sized =
businesses. We are also planning to =
introduce

during the third quarter a =
converged voice and data offering for =
mid-sized

businesses to continue =
expanding our product portfolio.

'Ove=
rall, we are pleased with the progress on all the strategic initiatives =
we

announced last October. Whilst we are =
improving our operational results =
and

driving down our cost base, we =
continue to make investments in new =
internal

systems, in our transaction =
processing centre in India, where we now have =
almost

400 employees and the development =
of new products.

'We =
are on course to meet market expectations for revenue and EBITDA. We =
expect

to be free cashflow positive in =
the second half of the year but not =
necessarily

for the year as a =
whole.  We are confident =
that we will be free cashflow positive =

on a sustainable annual basis going =
forward.'

Fina=
ncial Review

Resu=
lts for the quarter are reported under International Financial =
Reporting

Standards (IFRS). Results for =
comparative periods have been restated to =
conform

to IFRS. Unless otherwise stated =
all comparisons are between the quarter and =
six

months ended 30 June 2005 and 30 =
June 2004.

Tota=
l turnover

Turn=
over for the quarter was =A3316.7 million (Q1 2005: =A3307.1 million; Q2 =
2004:

=A3302.9 million) an increase of =
5.0% over the first quarter of 2005 and of =
3.1%

over the second quarter of 2004 on =
a constant currency basis. Excluding =
the

impact of reductions in fixed to =
mobile prices, constant currency =
turnover

increased by 5.6% over the =
second quarter of 2004. Non-switched turnover as =
a

percentage of total turnover was 38.2% =
(Q1 2005: 39.6%; Q2 2004: 38.0%).

Turn=
over for the six months was =A3623.8 million (2004: =A3605.7 million), =
an

increase of 1.4% over the first six =
months of 2004 on a constant currency =
basis.

Excluding the impact of =
reductions in fixed to mobile prices, constant =
currency

turnover increased by 3.9% over =
the first six months of 2004. =
Non-switched

turnover as a percentage of =
total turnover increased to 38.9% (2004: =
38.0%).

Swit=
ched turnover

Swit=
ched turnover for the quarter increased by 5.5% to =A3195.4 million (Q1 =
2005:

=A3185.2 million) and increased by =
4.1% over the second quarter of 2004 (Q2 =
2004:

=A3187.7 million). Within switched =
turnover the proportion of carrier was =
36.0%

(Q1 2005: 32.7%; Q2 2004: 36.6%). =
Switched turnover from corporate =
customers

increased by 1.0% to =A384.1 =
million (Q1 2005: =A383.2 million) and increased =
by

4.7% over the second quarter of 2004 =
(Q2 2004: =A380.3 million). Switched =
turnover

from wholesale customers =
increased by 9.2% to =A3111.3 million (Q1 2005: =
=A3102.0

million) and increased by 3.6% =
over the second quarter of 2004 (Q2 2004: =
=A3107.4

million).

Swit=
ched turnover for the six months increased by 1.5% to =A3380.6 million =
(2004:

=A3375.1 million). Within =
switched turnover the proportion of carrier was =
34.4%

(2004: 35.3%). Switched turnover =
from corporate customers decreased by 1.5% =
to

=A3167.3 million (2004: =A3169.9 =
million). Switched turnover from =
wholesale

customers increased by 4.0% to =
=A3213.3 million (2004: =A3205.2 =
million).

Non-=
switched turnover

Non-=
switched turnover for the quarter decreased by 0.4% to =A3121.0 million =
(Q1

2005: =A3121.5 million) and =
increased by 5.1% over the second quarter of 2004 =
(Q2

2004: =A3115.1 million). =
Non-switched turnover from corporate customers =
decreased

by 0.2% to =A396.3 million (Q1 =
2005: =A396.4 million) and increased by 4.5% over =
the

second quarter of 2004 (Q2 2004: =
=A392.1 million). Non-switched turnover =
from

wholesale customers decreased by =
1.2% to =A324.8 million (Q1 2005: =A325.1 =
million)

and increased by 7.8% over the =
second quarter of 2004 (Q2 2004: =A323.0 =
million).

Non-=
switched turnover for the six months increased by 5.5% to =A3242.6 =
million

(2004: =A3230.0 million). =
Non-switched turnover from corporate customers =
increased

by 8.8% to =A3192.7 million =
(2004: =A3177.1 million). Non-switched turnover =
from

wholesale customers decreased by =
5.7% to =A349.9 million (2004: =A352.9 =
million).

Cost=
 of sales

Cost=
 of sales for the quarter increased by 2.6% to =A3258.5 million (Q1 =
2005:

=A3251.8 million) and increased by =
3.1% over the second quarter of 2004 (Q2 =
2004:

=A3250.8 million). Interconnection =
and network costs increased by 3.8% to =
=A3210.2

million (Q1 2005: =A3202.6 =
million) and increased by 2.5% over the second =
quarter

of 2004 (Q2 2004: =A3205.0 =
million). Network depreciation decreased by 2.0% =
to

=A348.2 million (Q1 2005: =A349.2 =
million) and increased by 5.5% over the =
second

quarter of 2004 (Q2 2004: =A345.7 =
million).

Cost=
 of sales for the six months increased by 2.9% to =A3510.3 million =
(2004:

=A3495.7 million). =
Interconnection and network costs increased by 2.4% to =
=A3412.8

million (2004: =A3403.1 =
million). Network depreciation increased by 5.3% to =
=A397.4

million (2004: =A392.5 =
million).

Oper=
ating expenses

Oper=
ating expenses for the quarter decreased by 1.3% to =A373.8 million (Q1 =
2005:

=A374.8 million) and increased by =
13.7% over the second quarter of 2004 (Q2 =
2004:

=A364.9 million). Selling, general =
and administrative (SG&A) expenses decreased =
by

2.8% to =A365.6 million (Q1 2005: =
=A367.5 million) and increased by 12.3% over =
the

second quarter of 2004 (Q2 2004: =
=A358.4 million). SG&A expenses as a =
proportion

of turnover were 20.7% (Q1 =
2005: 22.0%; Q2 2004: 19.3%). Other =
depreciation

increased by =A30.8 million =
to =A38.1 million (Q1 2005: =A37.3 million) and =
increased

by =A31.7 million over the =
second quarter of 2004 (Q2 2004: =A36.4 =
million).

Oper=
ating expenses for the six months increased by 14.8% to =A3148.5 =
million

(2004: =A3129.4 million). =
SG&A expenses increased by 15.2% to =A3133.1 =
million

(2004: =A3115.6 million). =
SG&A expenses as a proportion of turnover were =
21.3%

(2004: 19.1%). Other depreciation =
increased by =A31.6 million to =A315.4 =
million

(2004: =A313.8 =
million).

Inte=
rest receivable, interest payable and similar =
charges

Inte=
rest receivable for the quarter decreased by =A30.2 million to =A33.0 =
million

(Q1 2005: =A33.2 million) and =
decreased by =A32.2 million over the second quarter =
of

2004 (Q2 2004: =A35.2 million). =
Interest payable and similar charges decreased =
by

=A30.7 million to =A313.7 million (Q1 =
2005: =A314.4 million) and decreased by =
=A36.9

million over the second quarter =
of 2004 (Q2 2004: =A320.6 million). =
These

decreases were due to the =
reduction in cash and cash equivalent and debt =
levels

following the redemption of some =
of the Company's outstanding notes during =
2004

and the first quarter of =
2005.

Inte=
rest payable and similar charges for the quarter included =A36.7 million =
(Q1

2005: =A36.8 million; Q2 2004: =
=A312.0 million) of interest and accretion =
on

convertible debt and =A36.6 million =
(Q1 2005: =A37.2 million; Q2 2004: =A38.6 =
million)

of interest and accretion on =
non-convertible debt.

Inte=
rest receivable for the six months decreased by =A34.8 million to =A36.2 =
million

(2004: =A311.0 million). =
Interest payable and similar charges decreased by =
=A313.6

million to =A328.1 million =
(2004: =A341.7 million). These decreases 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 quarter =
of

2005.

Inte=
rest payable and similar charges for the six months included =A313.5 =
million

(2004: =A323.9 million) of =
interest and accretion on convertible debt and =
=A313.9

million (2004: =A317.4 million) =
of interest and accretion on non-convertible =
debt.

Tax =
on loss on ordinary activities

COLT=
 had no taxable profits in the quarter and six months ended 30 June 2005 =
nor

in =
2004.

Cash=
 flow

Net =
movement in cash and cash equivalents for the quarter was an outflow of =
=A39.5

million (Q1 2005: outflow of =
=A396.8 million; Q2 2004: inflow of =A34.6 =
million).

There was a free cash outflow =
(1) of =A39.8 million (Q1 2005: outflow of =
=A315.9

million; Q2 2004: inflow of =
=A34.5 million).

Net =
movement in cash and cash equivalents for the six months was an outflow =
of

=A3106.3 million (2004: inflow of =
=A318.8 million). There was a free cash outflow =
of

=A325.6 million (2004: inflow of =
=A318.2 million).

Ther=
e were no repurchases of debt in the quarter. In the six months all of =
the

outstanding 10.125% Senior Notes due =
2007 and the 8.875% Senior Notes due =
2007

were redeemed at par for =A380.9 =
million.

COLT=
 had balances of cash and cash equivalents at 30 June 2005 of =A3335.9 =
million

compared with =A3452.7 million =
at 31 December 2004 and =A3794.0 million at 30 =
June

2004. The decreases are primarily =
as a result of bond redemptions.

(1) =
Free cash flow is cash generated from operating activities less net =
cash

used in investing activities and =
net interest paid.

           &n=
bsp;           &nb=
sp;     Financial =
Information

           &n=
bsp;           &nb=
sp; Consolidated income =
statement

           &n=
bsp;           &nb=
sp;                 &n=
bsp;     Three months ended 30 =
June

           &n=
bsp;           &nb=
sp;           &nbs=
p;      2004            =
2005            =
2005

           &n=
bsp;           &nb=
sp;           &nbs=
p;     =A3'000           =
=A3'000           =
$'000

Turn=
over           &n=
bsp;           &nb=
sp;       302,884       =
  316,658         =
567,483

Cost=
 of sales

Interconnect and network           &n=
bsp;  (205,028)       (210,231)       =
(376,755)

Network =
depreciation           &n=
bsp;       (45,736)        =
(48,232)        =
(86,437)

           &n=
bsp;           &nb=
sp;           &nbs=
p;  (250,764)       (258,463)       =
(463,192)

Gros=
s profit           &n=
bsp;           &nb=
sp;    52,120          =
58,195         =
104,291

Oper=
ating expenses

Selling, general and =
administrative    =
(58,441)        (65,626)       =
(117,608)

Other depreciation           &n=
bsp;          =
(6,448)    =
     (8,127)        =
(14,564)

           &n=
bsp;           &nb=
sp;           &nbs=
p;   (64,889)        (73,753)       =
(132,172)

Oper=
ating loss           &n=
bsp;           &nb=
sp; (12,769)        (15,558)        =
(27,881)

Othe=
r income (expense)

Interest =
receivable           &n=
bsp;          =
5,174           =
2,952           =
5,290

Interest payable and =
similar charges   =
(20,553)        (13,691)        =
(24,536)

Exchange loss           &n=
bsp;           &nb=
sp;      (34)           &n=
bsp; (7)            =
(13)

           &n=
bsp;           &nb=
sp;           &nbs=
p;   (15,413)        (10,746)        =
(19,259)

Loss=
 on ordinary activities before

 =
taxation           &n=
bsp;           &nb=
sp;      (28,182)        =
(26,304)        =
(47,140)

Taxation           &n=
bsp;           &nb=
sp;            =
--           &n=
bsp;  --           &n=
bsp;  --

Loss for =
period           &n=
bsp;            =
(28,182)        (26,304)        =
(47,140)

Basic and diluted loss =
per share        =A3(0.02)         =
=A3(0.02)         =
$(0.03)

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. 
           &n=
bsp;           &nb=
sp; Consolidated income =
statement
 
           &n=
bsp;           &nb=
sp;           &nbs=
p;           =
Six months ended 30 June
           &n=
bsp;           &nb=
sp;           &nbs=
p;     2004            =
2005           &n=
bsp; 2005
           &n=
bsp;           &nb=
sp;           &nbs=
p;    =A3'000           =
=A3'000            =
$'000
 
Turn=
over           &n=
bsp;           &nb=
sp;      605,740         =
623,795        =
1,117,903
 
Cost=
 of sales
Interconnect and network           &n=
bsp; (403,118)       (412,829)        =
(739,831)
Network =
depreciation           &n=
bsp;      (92,544)        =
(97,438)        =
(174,619)
           &n=
bsp;           &nb=
sp;           &nbs=
p; (495,662)       (510,267)        =
(914,450)
 
Gros=
s profit           &n=
bsp;           &nb=
sp;  110,078         =
113,528          =
203,453
 
Oper=
ating expenses
Selling, general and =
administrative  =
(115,568)       (133,113)        =
(238,552)
Other depreciation           &n=
bsp;        (13,786)        =
(15,395)         =
(27,589)
           &n=
bsp;           &nb=
sp;           &nbs=
p; (129,354)       (148,508)        =
(266,141)
 
Oper=
ating loss           &n=
bsp;            =
(19,276)        (34,980)         =
(62,688)
 
Othe=
r income (expense)
Interest =
receivable           &n=
bsp;        11,037           =
6,179           =
11,073
Interest payable and =
similar charges  =
(41,714)    =
    (28,109)         =
(50,374)
Exchange gain           &n=
bsp;           &nb=
sp;     118           &n=
bsp; 127           &n=
bsp;  228
           &n=
bsp;           &nb=
sp;           &nbs=
p;  (30,559)        (21,803)         =
(39,073)
 
Loss=
 on ordinary activities before
 =
taxation           &n=
bsp;                 (49,835)        =
(56,783)        =
(101,761)
Taxation           &n=
bsp;           &nb=
sp;           =
--           &n=
bsp;  --           &n=
bsp;   --
Loss for =
period           &n=
bsp;           =
(49,835)        (56,783)        =
(101,761)
Basic and diluted loss =
per share       =A3(0.03)         =A3(0.04)          =
$(0.07)
 
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
 
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
;   Three months ended 30 =
June
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
;  2004        2005        =
2005
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
; =A3'000       =A3'000       =
$'000
Loss for period           &n=
bsp;           &nb=
sp;        (28,182)    (26,304)    =
(47,140)
Issue of share =
capital           &n=
bsp;           &nb=
sp;      84         232         =
416
Shares to be issued under =
share option plans       495         644       =
1,154
Warranty fair value                     &n=
bsp;         (260)         84         =
151
Grant of shares from Group =
Quest           &n=
bsp;        --          =
18          =
32
Exchange differences           &n=
bsp;           &nb=
sp;     2,630      (5,261)     =
(9,428)
Net changes in equity =
shareholders' funds      (25,233)    (30,587)    =
(54,815)
Opening equity =
shareholders' funds           &n=
bsp; 789,586     658,491   =
1,180,082
Closing equity =
shareholders' funds           &n=
bsp; 764,353     627,904   1,125,267
 
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
;    Six months ended 30 =
June
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
;  2004        2005        =
2005
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
; =A3'000       =A3'000       =
$'000
Loss for period           &n=
bsp;           &nb=
sp;        (49,835)    (56,783)   =
(101,761)
Issue of share =
capital           &n=
bsp;           &nb=
sp;     527         237         =
425
Shares to be issued under =
share option plans     1,067       1,171       =
2,099
Warranty fair value           &n=
bsp;           &nb=
sp;       (577)       =
(214)       =
(383)
Grant of shares from Group =
Quest           &n=
bsp;        --          =
18          =
32
Exchange differences           &n=
bsp;           &nb=
sp;   (21,230)    (15,081)    =
(27,027)
Net changes in equity =
shareholders' funds      (70,048)    (70,652)   =
(126,615)
Opening equity =
shareholders' funds            &n=
bsp;834,401     698,556   =
1,251,882
Closing equity =
shareholders' funds           &n=
bsp; 764,353     627,904   1,125,267
 
 
 
           &n=
bsp;           &nb=
sp;   Consolidated balance =
sheet
 
           &n=
bsp;           &nb=
sp;    At 30           =
At 31            =
At 30 June 2005
           &n=
bsp;           &nb=
sp;  June 2004    December =
2004
           &n=
bsp;           &nb=
sp;      =A3'000            =
=A3'000        =A3'000        =
$'000
ASSETSNon-current assets
Property, =
plant and
 equipment           &n=
bsp;     1,188,669       =
1,197,063    =
1,100,925    =
1,972,969
Intangible assets           &n=
bsp; 66,153          =
65,783       58,810      =
105,393
Total =
non-current
 assets           &n=
bsp;        1,254,822       =
1,262,846    =
1,159,735    =
2,078,362
 
Curr=
ent assets
Trade receivables            =
188,610         =
199,074      203,265      =
364,271
Prepaid expenses =
and
 other debtors           &n=
bsp;    48,944          =
48,459       62,141      =
111,362
Cash and =
cash
 equivalents           &n=
bsp;     793,976         =
452,716      335,855      =
601,886
Total current assets       =
1,031,530         =
700,249      601,261    =
1,077,519
 
Tota=
l assets           &n=
bsp;   2,286,352       1,963,095    1,760,996    =
3,155,881
 
EQUI=
TY
Capital and =
reserves
Share capital           &n=
bsp;  2,354,400       2,354,443    2,354,680    =
4,219,822
Other reserves           &n=
bsp;   103,082          =
77,543       63,437      =
113,685
Retained earnings         =
(1,693,129)     (1,733,430)  (1,790,213)  =
(3,208,240)
Total equity           &n=
bsp;     764,353         =
698,556      627,904    =
1,125,267
 
LIAB=
ILITIES
Non-current =
liabilities
Convertible debt           &n=
bsp; 642,390         =
365,579      230,588      =
413,237
Non-convertible debt         =
425,211         =
363,365      345,535      =
619,232
Provisions =
for
 liabilities =
and
 charges           &n=
bsp;          =
51,594          =
48,708       39,978       =
71,645
Total =
non-current
 liabilities           &n=
bsp;   1,119,195         =
777,652      616,101    =
1,104,114
 
Curr=
ent liabilities
Convertible debt           &n=
bsp;      --           &n=
bsp;  --      127,246      =
228,038
Non-convertible debt           &n=
bsp;  --          =
81,692           --           =
--
Trade and =
other
 payables           &n=
bsp;        402,804         =
405,195      389,745      =
698,462
Total =
current
 liabilities           &n=
bsp;     402,804         =
486,887      516,991      =
926,500
 
Tota=
l liabilities          =
1,521,999       1,264,539    1,133,092    =
2,030,614
 
Tota=
l equity and
 liabilities           &n=
bsp;   2,286,352       1,963,095    1,760,996    =
3,155,881
 
 
 
           &n=
bsp;            =
Consolidated cash flow =
statement
 
           &n=
bsp;         Three months =
ended 30 June      Six months ended 30 =
June
           &n=
bsp;          =
2004      2005      =
2005      2004       =
2005       =
2005
           &n=
bsp;         =A3'000     =A3'000     $'000     =A3'000      =
=A3'000      =
$'000
 
Net =
cash
 generated =
from
 =
operating
 activities         41,565    30,543    54,736    88,031     52,953     =
94,897
 
Cash=
 flows from
 =
investing
 =
activities:
Purchase =
of
 tangible =
fixed
 assets            =
(29,214)  =
(33,354)  =
(59,774)  =
(60,771)   =
(64,794)  =
(116,117)
Disposal =
of
 tangible =
fixed
 assets           &n=
bsp;  1,430       881     1,579     3,884        =
881      =
1,579
Net cash =
used
 in =
investing
 activities        =
(27,784)  =
(32,473)  =
(58,195)  =
(56,887)   =
(63,913)  =
(114,538)
 
Cash=
 flows from
 =
financing
 =
activities:
Interest =
paid,
 finance =
costs
 and =
similar
 charges           =
(14,417)  =
(10,678)  =
(19,136)  =
(23,261)   =
(20,678)   =
(37,057)
Interest=
 received            =
5,119     =
2,858     =
5,122    =
10,352      6,016     =
10,781
Issue =
of
 =
ordinary
 shares           &n=
bsp;     84       232       =
416       527        =
237        =
425
Redemption =
of
 debt           &n=
bsp;       --        =
--        --        =
--    =
(80,927)  =
(145,029)
Net cash =
used
 in =
financing
 activities         =
(9,214)   =
(7,588)  =
(13,598)  =
(12,382)   =
(95,352)  =
(170,880)
 
Net =
movement
 in cash =
and
 =
cash
 equivalents         4,567    (9,518)  (17,057)   18,762   (106,312)  =
(190,521)
Cash and =
cash
 equivalents =
at
 beginning =
of
 period            =
786,123   =
349,024   =
625,486   =
802,382    =
452,716    =
811,312
Effect =
of
 exchange =
rate
 changes =
on
 cash and =
cash
 equivalents         3,286    (3,651)   (6,543)  (27,168)   (10,549)   =
(18,905)
Cash and =
cash
 equivalents =
at
 end of period     793,976   335,855   601,886   793,976    335,855    =
601,886
 
 
           &n=
bsp;           =
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 and six months ended 30 =
June
2005.
 
The =
financial information for the three and six months ended 30 June 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 June 2005. The 2004 =
comparative information has, as permitted =
by
IFRS 1, been prepared taking =
advantage of the following transitional =
exemptions:
 
(i)<=
SPAN style=3D"mso-spacerun: yes">   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 =
=A3nil 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.
 
Furt=
her 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.
 
Addi=
tionally, 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.
 
Acco=
unting 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.
 
Cert=
ain British pound amounts in the financial information have been =
translated
into U.S. dollars at 30 June =
2005 and for the periods then ended at the rate =
of
$1.7921 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.
 
Swit=
ched 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 June 2005, 31 March 2005 and 30 June =
2004,
turnover and result by segment =
were as follows:
 
           &n=
bsp;           &nb=
sp;        Three months ended 30 June =
2005
 
           &n=
bsp;            =
Germany       UK   France  Strategic      =
Total
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
;     =
Markets
           &n=
bsp;           &nb=
sp;  =A3'000    =A3'000    =A3'000      =A3'000      =
=A3'000
Carrier                 &n=
bsp;28,124    =
9,153    =
5,269     =
27,840     =
70,386
Non-carrier           &n=
bsp;  57,250   =
21,854   =
17,243     =
28,656    =
125,003
Total switched           =
85,374   =
31,007   =
22,512     =
56,496    =
195,389
Non-switched           &n=
bsp; 34,361   =
29,641   =
17,411    =
 39,631    =
121,044
Other           &n=
bsp;            =
--       --       =
--        225        =
225
Turnover by segment     119,735   60,648   39,923     96,352    =
316,658
Operating result =
by
 segment           &n=
bsp;     (6,084)  (5,418)  =
(1,080)   =
(2,976)    =
(15,558)
 
 
           &n=
bsp;           &nb=
sp;        Three months ended =
31 March 2005
 
           &n=
bsp;            =
Germany       UK   France  Strategic      =
Total
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
;     =
Markets
           &n=
bsp;           &nb=
sp;  =A3'000    =A3'000    =A3'000      =A3'000      =
=A3'000
Carrier           &n=
bsp;      24,044    7,510    4,784     24,192     =
60,530
Non-carrier           &n=
bsp;  59,006   =
22,351   =
16,817     =
26,500    =
124,674
Total switched           =
83,050   =
29,861   =
21,601     =
50,692    =
185,204
Non-switched           =
  33,510   29,734   18,132     40,150    =
121,526
Other           &n=
bsp;            =
--       20       =
--        387        =
407
Turnover by segment     116,560   59,615   39,733     91,229    =
307,137
Operating result =
by
 segment           &n=
bsp;     (4,350)  (8,779)  =
(2,149)    =
(4,144)   =
(19,422)
 
 
           &n=
bsp;           &nb=
sp;         Three months =
ended 30 June 2004
 
           &n=
bsp;            =
Germany       UK   France  Strategic      =
Total
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
;     =
Markets
           &n=
bsp;           &nb=
sp;  =A3'000    =A3'000    =A3'000      =
=A3'000      =
=A3'000
Carrier           &n=
bsp;      30,853    7,698    2,950     27,219     =
68,720
Non-carrier           &n=
bsp;  51,963   =
27,459   =
15,578     =
24,002    =
119,002
Total switched           =
82,816   =
35,157   =
18,528     =
51,221    =
187,722
Non-switched           &n=
bsp; 31,880   =
28,915   =
16,617     =
37,712    =
115,124
Other           &n=
bsp;            =
--        4       =
--         34         =
38
Turnover by segment     114,696   64,076   35,145     88,967    =
302,884
Operating result =
by
 segment                &n=
bsp;(6,436)  =
(4,329)    =
(100)    =
(1,904)   =
(12,769)
 
 
For =
the six months ended 30 June 2005 and 30 June 2004, turnover and result =
by
segment was as =
follows:
           &n=
bsp;           &nb=
sp;           =
Six months ended 30 June =
2005
 
           &n=
bsp;            =
Germany       UK   France  Strategic      =
Total
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
;     =
Markets
           &n=
bsp;           &nb=
sp;  =A3'000    =A3'000    =A3'000      =A3'000      =
=A3'000
Carrier           &n=
bsp;      52,168   16,663   10,053     52,032    =
130,916
Non-carrier           &n=
bsp; 116,256   =
44,205   =
34,060     =
55,156    =
249,677
Total switched          =
168,424   =
60,868   =
44,113    =
107,188    =
380,593
Non-switched           &n=
bsp; 67,871   =
59,375   =
35,543     =
79,781    =
242,570
Other           &n=
bsp;            =
--       20       =
--        612        =
632
Turnover by segment     236,295  120,263   79,656    187,581    =
623,795
Operating result =
by
 segment           &n=
bsp;    (10,434) (14,197)  (3,229)    (7,120)   =
(34,980)
 
 
           &n=
bsp;           &nb=
sp;            =
Six months ended 30 June =
2004
 
           &n=
bsp;            =
Germany       UK   France  Strategic      =
Total
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
;     =
Markets
           &n=
bsp;           &nb=
sp;  =A3'000    =A3'000    =A3'000      =A3'000      =
=A3'000
Carrier           &n=
bsp;      61,011   15,699    5,175     50,574    =
132,459
Non-carrier           &n=
bsp; 105,426   =
56,850   =
33,111     =
47,228    =
242,615
Total switched          =
166,437   =
72,549   =
38,286     =
97,802    =
375,074
Non-switched           &n=
bsp; 64,836   =
57,470   =
33,913     =
73,758    =
229,977
Other               &n=
bsp;        --       =
93       --        =
596        =
689
Turnover by segment     231,273  130,112   72,199    172,156    =
605,740
Operating result =
by
 segment           &n=
bsp;     (7,573)  (4,693)     765     (7,775)   (19,276)
 
In =
addition, for the three months ended 30 June 2005, 31 March 2005 and 30 =
June
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.
 
           &n=
bsp;           &nb=
sp;           &nbs=
p;     Three months ended 30 June =
2005
           &n=
bsp;           &nb=
sp;          =
Corporate          =
Wholesale           =
Total
           &n=
bsp;           &nb=
sp;           &nbs=
p;  =A3'000           &n=
bsp;  =A3'000           =
=A3'000
Carrier           &n=
bsp;           &nb=
sp;          --           &n=
bsp; 70,386          =
70,386
Non-carrier           &n=
bsp;           &nb=
sp;  84,068           &n=
bsp; 40,935         =
125,003
Total switched           &n=
bsp;           =
84,068            =
111,321         =
195,389
Non-switched           &n=
bsp;           &nb=
sp; 96,254           &n=
bsp; 24,790         =
121,044
Other           &n=
bsp;           &nb=
sp;            =
97           &n=
bsp;    128           &n=
bsp; 225
Turnover           &n=
bsp;           &nb=
sp;    180,419            =
136,239         =
316,658
 
           &n=
bsp;              &n=
bsp;           &nb=
sp; Three months ended 31 March =
2005
           &n=
bsp;           &nb=
sp;          =
Corporate          =
Wholesale           =
Total
           &n=
bsp;           &nb=
sp;           &nbs=
p;  =A3'000           &n=
bsp;  =A3'000           =
=A3'000
Carrier           &n=
bsp;           &nb=
sp;         --           &n=
bsp;  60,530          =
60,530
Non-carrier           &n=
bsp;           &nb=
sp;  83,232           &n=
bsp; 41,442         =
124,674
Total switched           &n=
bsp;           =
83,232            =
101,972         =
185,204
Non-switched           &n=
bsp;           &nb=
sp; 96,430           &n=
bsp; 25,096         =
121,526
Other           &n=
bsp;           &nb=
sp;           =
336           &n=
bsp;     71           &n=
bsp; 407
Turnover           &n=
bsp;           &nb=
sp;    179,998            =
127,139         =
307,137
 
           &n=
bsp;           &nb=
sp;           &nbs=
p;     Three months ended 30 June =
2004
               &n=
bsp;           &nb=
sp;      Corporate          =
Wholesale           =
Total
           &n=
bsp;           &nb=
sp;           &nbs=
p;  =A3'000           &n=
bsp;  =A3'000           =
=A3'000
Carrier           &n=
bsp;           &nb=
sp;          --           &n=
bsp; 68,720          =
68,720
Non-carrier            =
           &n=
bsp;  80,321           &n=
bsp; 38,681         =
119,002
Total switched           &n=
bsp;           =
80,321            =
107,401         =
187,722
Non-switched           &n=
bsp;           &nb=
sp; 92,131           &n=
bsp; 22,993         =
115,124
Other           &n=
bsp;           &nb=
sp;            =
29           &n=
bsp;      9           &n=
bsp;  38
Turnover           &n=
bsp;           &nb=
sp;    172,481            =
130,403         =
302,884
 
 
For =
the six months ended 30 June 2005 and 30 June 2004, turnover by =
customer
segment was as =
follows:
           &n=
bsp;           &nb=
sp;           &nbs=
p;      Six months ended 30 June =
2005
           &n=
bsp;           &nb=
sp;          =
Corporate          =
Wholesale           =
Total
           &n=
bsp;           &nb=
sp;           &nbs=
p;  =A3'000           &n=
bsp;  =A3'000           =
=A3'000
Carrier           &n=
bsp;           &nb=
sp;          --            =
130,916         130,916<=
/o:p>
Non-carrier           &n=
bsp;           &nb=
sp; 167,300           &n=
bsp; 82,377         =
249,677
Total switched           &n=
bsp;          =
167,300            =
213,293         =
380,593
Non-switched           &n=
bsp;            =
192,684           &n=
bsp; 49,886         =
242,570
Other           &n=
bsp;           &nb=
sp;           =
433           &n=
bsp;    199           &n=
bsp; 632
Turnover           &n=
bsp;           &nb=
sp;    360,417            =
263,378         =
623,795
 
           &n=
bsp;           &nb=
sp;           &nbs=
p;      Six months ended 30 June =
2004
           &n=
bsp;           &nb=
sp;          Corporate          =
Wholesale           =
Total
           &n=
bsp;           &nb=
sp;           &nbs=
p;  =A3'000           &n=
bsp;  =A3'000           =
=A3'000
Carrier           &n=
bsp;           &nb=
sp;          --            =
132,459         =
132,459
Non-carrier           &n=
bsp;           &nb=
sp; 169,908    =
         72,707<=
SPAN style=3D"mso-spacerun: =
yes">         =
242,615
Total switched           &n=
bsp;          =
169,908            =
205,166         =
375,074
Non-switched           &n=
bsp;            =
177,080           &n=
bsp; 52,897         =
229,977
Other           &n=
bsp;           &nb=
sp;           =
576           &n=
bsp;    113             689
Turnover           &n=
bsp;           &nb=
sp;    347,564            =
258,176         =
605,740
 
Turn=
over for the three months ended 30 June 2005, compared to the three =
months
ended 31 March 2005 and 30 June =
2004 and after excluding the impact of =
foreign
exchange, is shown =
below:
 
           &n=
bsp;     Q2 2005   Q2 2005  =
Compared to Q1 2005   =
Q2 2005  Compared =
to Q2 2004
           &n=
bsp;       =A3'000     =A3'000       =
% Growth           =
=A3'000       % =
Growth
           &n=
bsp;      Actual  Adjusted    Actual  Adjusted   Adjusted   Actual  =
Adjusted
           &n=
bsp;           &nb=
sp;  (1)           &n=
bsp;     (1)        (2)           &n=
bsp;    =
(2)
Corporate Switched         84,068    85,516      =
1.0        2.7     82,977      =
4.7       =
3.3
 Non-switched     96,254    97,892     (0.2)       =
1.5     =
94,989      4.5       =
3.1
 Other           &n=
bsp;    97        99       =
--         --         96       =
--        =
--
 Total           =
180,419   =
183,507      0.2        =
1.9    =
178,062      4.6       =
3.2
 
Whol=
esale
 Carrier          =
70,386    =
71,713     =
16.3       18.5     69,349      =
2.4       =
0.9
 Non-carrier      =
40,935    =
41,831     =
(1.2)       0.9     40,350      =
5.8       =
4.3
 Total switched  111,321   113,544      =
9.2       11.3    109,699      =
3.6       =
2.1
 Non-switched     24,790    25,207     (1.2)       =
0.4     =
24,468      7.8       =
6.4
 Other           &n=
bsp;   128       131       =
--         --        =
126       --        =
--
 Total           =
136,239   =
138,882      7.2        =
9.2    =
134,293      4.5       =
3.0
 
Tota=
l
 Carrier          =
70,386    =
71,713     =
16.3    =
   18.5     69,349      2.4       =
0.9
 Non-carrier     125,003   127,347      =
0.3        2.1    123,327      =
5.0       =
3.6
 Total switched  195,389   199,060      =
5.5        7.5    192,676      =
4.1       =
2.6
 Non-switched    121,044   123,099     (0.4)       1.3    119,457      =
5.1       =
3.8
 Other           &n=
bsp;   225       230       =
--         --        =
222       --        =
--
 Total           =
316,658   =
322,389      3.1        =
5.0    =
312,355      4.5       =
3.1
 
(1) =
Q2 2005 turnover has been restated using Q1 2005 exchange rates, =
and
    compared to turnover which was reported =
in Q1 2005
(2) Q2 2005 turnover has been =
restated using Q2 2004 exchange rates, =
and
    compared to turnover which was reported =
in Q2 2004
 
 
3. =
Loss per share
 
           &n=
bsp;          Three =
months ended 30 June           =
Six months ended 30 June
           &n=
bsp;         2004        =
2005        2005        =
2004        2005        =
2005
           &n=
bsp;        =A3'000       =
=A3'000       $'000       =
=A3'000       =A3'000       =
$'000
Loss =
for
 period           (28,182)    (26,304)    (47,140)    (49,835)    (56,783)   =
(101,761)
Weighted
 average of
 =
ordinary     =
 shares ('000)  =
1,510,888   =
1,511,207   =
1,511,207   =
1,510,664   =
1,511,174   =
1,511,174
Basic =
&
 diluted       =
 loss per
 share           &n=
bsp; =A3(0.02)     =A3(0.02)     $(0.03)     =
=A3(0.03)     =A3(0.04)     =
$(0.07)
 
 
4. =
Reconciliation of net loss to cash generated from =
operations
 
           &n=
bsp;        Three months ended =
30 June       Six months ended 30 =
June
           &n=
bsp;         2004      =
2005      2005       2004      =
2005        =
2005
           &n=
bsp;        =A3'000     =A3'000     $'000      =
=A3'000     =
=A3'000       =
$'000
Loss for =
the
 period           =
(28,182)  =
(26,304)  =
(47,140)   =
(49,835)  =
(56,783)   =
(101,761)
Exchange
 differences           =
34         7        =
13       (118)     (127)       =
(228)
Interest payable           =
20,553    =
13,691    =
24,536     =
41,714    =
28,109      =
50,374
Interest receivable        (5,174)   (2,952)   (5,290)   (11,037)   (6,179)    =
(11,073)
Depreciation       =
52,184    =
56,359   =
101,001    =
106,330   =
112,833     =
202,208
Share =
option
 charge           &n=
bsp;   495       644     1,154      =
1,067     =
1,171       =
2,099
Movement =
in
 debtors           &n=
bsp; (420)   =
(5,166)   =
(9,258)    =
21,193   =
(28,501)    =
(51,077)
Movement =
in
 creditors          4,944 =
     (942)   (1,688)   (12,730)   10,123      =
18,141
Movement =
in
 provisions        =
(3,390)   =
(4,787)   =
(8,579)    =
(9,455)   =
(7,820)    =
(14,014)
Exchange=
 differences          =
521        (7)      =
(13)       902       =
127         =
228
Cash =
generated
 from operations   41,565    30,543    54,736     88,031    52,953      =
94,897
 
 
5. =
EBITDA reconciliation
 
           &n=
bsp;           =
Three months ended 30 June    Six months ended 30 =
June
           &n=
bsp;           &nb=
sp; 2004     2005     2005      2004      =
2005      =
2005
            &n=
bsp;           =A3'000    =
=A3'000    =
$'000     =
=A3'000     =
=A3'000     =
$'000
Cash generated =
from
 operations            =
41,565   =
30,543   =
54,736    =
88,031    =
52,953    =
94,897
Movement in debtors       =
420    =
5,166    =
9,258   =
(21,193)   =
28,501    =
51,077
Movement in creditors  (4,944)     942    1,688    12,730   (10,123)  =
(18,141)
Total working =
capital
 adjustments           =
(4,524)   =
6,108   =
10,946    =
(8,463)   =
18,378    =
32,936
Movement in =
provisions  3,390    4,787    8,579     9,455     7,820    =
14,014
Exchange differences     (521)       =
7       13      =
(902)     =
(127)     =
(228)
Share option charge      =
(495)    =
(644)  (1,154)   (1,067)   (1,171)   =
(2,099)
EBITDA           &n=
bsp;     39,415   40,801   73,120    87,054    77,853   139,520
 
 
6. =
Free cash flow reconciliation
 
           &n=
bsp;       Three months ended 30 =
June       Six months ended 30 =
June
           &n=
bsp;        2004      =
2005      2005       =
2004      2005        =
2005
           &n=
bsp;       =A3'000     =A3'000     $'000      =
=A3'000     =
=A3'000       =
$'000
 
EBIT=
DA            =
39,415    =
40,801    =
73,120     =
87,054    =
77,853     =
139,520
Movement =
in
 debtors            =
(420)   =
(5,166)   =
(9,258)    =
21,193   =
(28,501)    =
(51,077)
Movement =
in
 creditors         4,944      =
(942)   =
(1,688)   =
(12,730)   =
10,123      =
18,141
Movement =
in
 provisions       =
(3,390)   =
(4,787)   =
(8,579)    =
(9,455)   =
(7,820)    =
(14,014)
Exchange=
 differences         521        =
(7)      (13)       =
902       127         =
228
Share =
option
 charge           &n=
bsp;  495       644     1,154      =
1,067     =
1,171       2,099
Interest paid    =
(14,417)  =
(10,678)  =
(19,136)   =
(23,261)  =
(20,678)    =
(37,057)
Interest=
 received          =
5,119     =
2,858     =
5,122     =
10,352     =
6,016      =
10,781
Capital expenditure     (27,784)  (32,473)  (58,195)   (56,887)  (63,913)   =
(114,538)
Free =
cash
 inflow (outflow)  4,483    (9,750)  (17,473)    18,235   (25,622)    =
(45,917)
 
 
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 statement for the =
three months ended 30 June 2004 is shown =
below:
 
           &n=
bsp;           &nb=
sp;           =
Three months ended 30 June =
2004
                    &n=
bsp;         UK =
GAAP    Effect =
of transition      =
IFRS
           &n=
bsp;           &nb=
sp;           &nbs=
p;           to =
IFRS
           &n=
bsp;           &nb=
sp;        =A3'000          =
=A3'000           &n=
bsp;  =A3'000
 
Turn=
over (i)           &n=
bsp;      301,233          =
1,651            =
302,884
 
Cost=
 of sales
Interconnect and network     =
(205,028)            =
--           =
(205,028)
Network =
depreciation          =
(45,736)            =
--            =
(45,736)
           &n=
bsp;           &nb=
sp;     (250,764)            =
--           =
(250,764)
 
Gros=
s profit             &n=
bsp;     50,469          =
1,651           &n=
bsp; 52,120
 
Oper=
ating expenses
Selling, general =
and
 administrative (ii)          =
(57,946)         (495)            =
(58,441)
Other depreciation =
and
 amortisation (iii)            =
(6,946)           =
498             (6,448)
           &n=
bsp;           &nb=
sp;      (64,892)           &n=
bsp; 3            =
(64,889)
 
Oper=
ating loss           &n=
bsp;    (14,423)         1,654            =
(12,769)
 
Othe=
r income (expense)
Interest =
receivable           &n=
bsp; 5,174           &n=
bsp; --           &n=
bsp;  5,174
Interest payable =
and similar
 charges (iv)           &n=
bsp;     (16,983)        (3,570)           =
(20,553)
Exchange loss           &n=
bsp;         (34)            =
--           &n=
bsp;    (34)
           &n=
bsp;           &nb=
sp;      (11,843)        =
(3,570)           =
(15,413)
 
Loss=
 on ordinary activities
 before =
taxation           &n=
bsp;  (26,266)        (1,916)           =
(28,182)
Taxation           &n=
bsp;           &nb=
sp;   --           &n=
bsp; --           &n=
bsp;     =
--
Loss for period           &n=
bsp;   (26,266)        (1,916)           =
(28,182)
Basic and diluted loss =
per
 share           &n=
bsp;           &nb=
sp; =A3(0.02)        =A3(0.00)            =
=A3(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.
 
Unde=
r 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.
 
Unde=
r IFRS the gain or loss on early redemption of debt (known as the =
debt
settlement income or expense) since =
1 January 2004 is required to be =
restated.
Upon early redemption of debt =
under IFRS it is necessary to allocate the cost =
of
redemption between that relating to =
the debt and equity elements. The =
cost
allocated to the debt is equal to =
the fair value of the debt at the time of =
the
redemption. The fair value of the =
debt is measured by discounting the cash =
flows
which would have been earned by a =
debt holder from point of redemption =
to
maturity by the rate of interest =
payable on equivalent non convertible =
debt.
 
The =
difference between the cost of redemption and the fair value of the debt =
has
been taken to the profit and loss =
account. The difference between the cost =
of
redemption and the cost allocated to =
debt (i.e. the fair value of the debt) =
has
been allocated to the equity element =
and taken to 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
 sheet as at 30 June 2004 is =
shown below:
 
           &n=
bsp;           &nb=
sp;                  &n=
bsp;As at 30 June 2004
           &n=
bsp;           &nb=
sp;      UK GAAP    Effect of =
transition         =
IFRS
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
to IFRS 
           &n=
bsp;           &nb=
sp;        =A3'000           =
=A3'000           &n=
bsp;    =
=A3'000
ASSETSNon-current =
assets
Property, plant =
and
 equipment (i)           &n=
bsp;  1,245,785          =
(57,116)          =
1,188,669
 
Inta=
ngible assets (i)(iii)      8,031           =
58,122           &n=
bsp;  66,153
Total =
non-current assets    =
1,253,816            =
1,006           =
1,254,822
 
Curr=
ent assets
Trade receivables           &n=
bsp; 188,610           &n=
bsp;   --           &n=
bsp; 188,610
Prepaid expenses and =
other
 debtors (v)           &n=
bsp;       48,470           &n=
bsp;  474           &n=
bsp;  48,944
Cash and cash =
equivalents     =
793,976           &n=
bsp;   --           =
  793,976
Total =
current assets        1,031,056           &n=
bsp;  474           =
1,031,530
Total assets           &n=
bsp;    2,284,872            =
1,480           =
2,286,352
 
EQUI=
TY
Capital and =
reserves
Share capital           &n=
bsp;   2,354,400           &n=
bsp;   --           =
2,354,400
Other reserves =
(viii)          =
27,359           =
75,723           &n=
bsp; 103,082
Retained earnings =
(vii)    =
(1,583,826)        (109,303)         =
(1,693,129)
Total equity           &n=
bsp;      797,933          =
(33,580)            =
764,353
 
LIAB=
ILITIES
Non-current =
liabilities
Convertible debt (vi)         =
677,247          =
(34,857)            =
642,390
Non-convertible debt          =
425,211           &n=
bsp;   --           &n=
bsp; 425,211
Provisions for =
liabilities
 and charges           &n=
bsp;       51,594           &n=
bsp;   --              51,594Total non-current          =
 liabilities           &n=
bsp;    1,154,052          =
(34,857)          =
1,119,195
 
Curr=
ent liabilities
Trade and other =
payables      =
 (iv)           &n=
bsp;           &nb=
sp; 332,887           =
69,917           &n=
bsp; 402,804
Total current =
liabilities     =
332,887           =
69,917           &n=
bsp; 402,804
Total =
liabilities           =
1,486,939           =
35,060           =
1,521,999
Total equity and            =
 liabilities           &n=
bsp;    2,284,872            =
1,480           =
2,286,352
 
 
(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: =
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
;            =
      As at 30 =
June
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
;            =
            =
2004
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
;            =
           =
=A3'000
Share option scheme (note =
ii)           &n=
bsp;           &nb=
sp;           &nbs=
p;     =
(2,959)
Retranslation reserve =
disclosed within Other Reserves under IFRS      =
19,240
Goodwill (note iii)           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
;    =
1,006
Installation fees revenue =
recognition (note iv)           &n=
bsp;          =
(69,917)
Convertible debt (note =
vi)           &n=
bsp;           &nb=
sp;           &nbs=
p;       =
(56,673)
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
;            =
        =
(109,303)
 
(vii=
i) Adjustment to other reserves - The impact of the adjustments on =
other
reserves is as =
follows:
 
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
;            =
      As at 30 =
June
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
;            =
            =
2004
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
;                    &n=
bsp;  =A3'000
Share =
option scheme (note ii)           &n=
bsp;           &nb=
sp;           &nbs=
p;      =
2,959
Retranslation reserve =
disclosed within Other Reserves under IFRS     =
(19,240)
Convertible debt (note =
vi)           &n=
bsp;           &nb=
sp;           &nbs=
p;        =
93,520
Warranty fair value (note =
v)           &n=
bsp;           &nb=
sp;           &nbs=
p;         =
474
Impact of convertible debt on =
retranslation reserve (note vi)         =
(1,990)
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
;            =
          =
75,723
 
 
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
 
           &n=
bsp;          Three =
months ended 30 June            =
Six months ended 30 June
           &n=
bsp;         2004        =
2005        2005         2004        =
2005        =
2005
           &n=
bsp;        =A3'000       =
=A3'000       $'000        =
=A3'000       =A3'000       =
$'000
Loss =
for
period =
under
 IFRS           &n=
bsp; (28,182)    =
(26,304)    =
(47,140)     (49,835)    (56,783)   =
(101,761)
Share =
based
 compensation (i)     430         467         836          =
936         959       =
1,718
Capitalised=
 interest, net
 of =
depreciation     =
 (ii)           &n=
bsp;    (910)     (1,065)     (1,909)      (2,006)     (1,893)     =
(3,392)
Profit on sale        =
 of IRUs (iii)        261         261         468          =
522         522         =
935
Warrants (iv)        =
(260)         84         151         (577)       =
(214)       =
(383)
Impairment (v)     (2,805)     (2,805)     (5,027)      =
(5,610)     =
(5,610)    =
(10,055)
Convertible
 debt (vii)         3,570       =
1,884       3,376        =
7,119       3,951       =
7,080
Payroll =
taxes
 on =
employee
 share schemes         =
 (viii)           &n=
bsp;    --         350         627           =
--         350       =
  627
Loss =
for
 period =
under
 US GAAP          =
(27,896)    =
(27,128)    =
(48,618)     (49,451)    (58,718)   =
(105,231)
Weighted
 average
 =
number
 of ordinary    =
 shares ('000)  =
1,510,888   =
1,511,207   =
1,511,207    =
1,510,664   =
1,511,174   =
1,511,174
Basic =
and
 diluted =
loss
 per share         =
(=A30.02)     (=A30.02)     ($0.03)      =
(=A30.03)     (=A30.04)     =
($0.07)
 
 
b. =
Effects of conforming to US GAAP - impact on net =
equity
 
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
As at 30 June   =
As at 30 June
           &n=
bsp;            &n=
bsp;           &nb=
sp;           &nbs=
p;        2005            =
2005
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
;        =A3'000           =
$'000
Equity shareholders' funds =
under IFRS           &n=
bsp;     627,904       =
1,125,267
Deferred compensation =
(i)                     &n=
bsp;       (10,641)        =
(19,070)
Unearned compensation =
(i)           &n=
bsp;           &nb=
sp;         (49)            =
(88)
Additional paid in share =
capital (i)           &n=
bsp;       10,690          =
19,158
Capitalised interest, net =
of depreciation (ii)         32,274          =
57,838
Deferred profit on sale of =
IRUs (iii)           &n=
bsp;     (16,157)        =
(28,955)
Impairment (v)           &n=
bsp;           &nb=
sp;           &nbs=
p;     76,338         =
136,805
Amortisation of =
intangibles (vi)           &n=
bsp;            =
6,016          =
10,781
Convertible debt =
(vii)           &n=
bsp;           &nb=
sp;        (12,041)        =
(21,579)
Payroll taxes on =
employee share schemes (viii)            =
350           &n=
bsp; 627
Equity shareholders' =
funds under US GAAP           &n=
bsp;  714,684       =
1,280,784
 
(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 =A3551.0 =
million.
Under US GAAP, the charge was =
=A3443.8 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.
 
Unde=
r IFRS, upon early redemption of debt it is necessary to allocate the =
cost
of redemption between the element =
which relates to debt and the element =
which
relates to equity. The cost =
allocated to the debt is equal to the fair value =
of
the debt at the time of the =
redemption. The difference between the cost =
of
redemption and the fair value of the =
debt is taken to the profit and =
loss
account. The difference between the =
cost of redemption and the cost allocated =
to
debt (ie fair value of the debt) is =
allocated to the equity element and taken =
to
the convertible debt reserve. Under =
IFRS, the profit or loss on redemption =
is
the difference between the cost of =
redemption and the carrying value of =
debt
which is included in =
creditors.
 
(vii=
i)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 =
and
six months ended 30 June 2005 would =
have been =A326.7 million ($47.9 million) =
and
=A361.4 million ($110.1 =
million).
 
           &n=
bsp;           &nb=
sp;     Additional =
Information
 
           &n=
bsp;           &nb=
sp;     Operating =
statistics
 
           &n=
bsp;           &nb=
sp;       Q2 04     Q1 05      Q2 =
05     =
Growth     =
Growth
                    &n=
bsp;           &nb=
sp;           &nbs=
p;            =
;     Q2 05 -    Q2 05 =
-
           &n=
bsp;           &nb=
sp;           &nbs=
p;            =
;            =
  Q1 05      Q2 =
04
Customers (at end of =
quarter)
UK           &n=
bsp;           &nb=
sp;     2,874     2,799      2,892       =
3%         =
1%
Germany           &n=
bsp;            =
7,758     =
7,685      7,678       =
--        =
(1%)
France           &n=
bsp;           &nb=
sp; 3,105     3,070      3,033      =
(1%)       =
(2%)
Strategic Markets           &n=
bsp;  7,777     8,671      8,869       =
2%        =
14%
           &n=
bsp;                &n=
bsp; 21,514    22,225     22,472       1%         =
4%
Customers (at end of =
quarter)
Corporate           &n=
bsp;         20,341    20,982     21,251       =
1%         =
4%
Wholesale           &n=
bsp;          =
1,173     =
1,243      1,221      =
(2%)        =
4%
                    &n=
bsp;         21,514    22,225     22,472       =
1%         =
4%
Switched Minutes (million) =
(for quarter)
UK           &n=
bsp;           &nb=
sp;       951       =
990      1,040       =
5%         =
9%
Germany           &n=
bsp;            =
3,322     =
3,580      3,484      (3%) =
       5%=
France           &n=
bsp;           &nb=
sp;   587       953      =
1,017       7%        =
73%
Strategic Markets           &n=
bsp;  1,336     1,350      1,445       =
7%         =
8%
           &n=
bsp;           &nb=
sp;       6,196     6,873      =
6,986       2%        =
13%
Private Wire VGEs (000) (at =
end of quarter)
UK           &n=
bsp;           &nb=
sp;     9,461    10,552     11,326       7%        =
20%
Germany           &n=
bsp;            =
9,746    =
12,624     =
12,883       2%        =
32%
France           &n=
bsp;           &nb=
sp; 2,933     4,410      4,790       =
9%        63%Strategic Markets           &n=
bsp;  8,252    11,260     11,347       1%        =
38%
           &n=
bsp;           &nb=
sp;      30,392    38,846     40,346       =
4%        =
33%
Headcount (at end of =
quarter)
UK           &n=
bsp;           &nb=
sp;     1,187     1,148      1,071      (7%)      =
(10%)
Germany           &n=
bsp;            =
1,114       991        =
990       --       =
(11%)
France           &n=
bsp;           &nb=
sp;   438       413        =
402      (3%)       =
(8%)
Strategic Markets           &n=
bsp;  1,118     1,074      1,063      =
(1%)       =
(5%)
India           &n=
bsp;           &nb=
sp;     --       272        =
384      41%         =
--
           &n=
bsp;           &nb=
sp;       3,857     3,898      =
3,910       --         =
1%
 
Stra=
tegic 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.
 
Cert=
ain comparative figures for customer numbers for Germany and =
Strategic
Markets have been restated due =
to changes in customer =
classifications.
 
Forw=
ard 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.
 
Enqu=
iries:
 
COLT=
 Telecom Group plc
 
Luke=
 Glass
Director Corporate =
Communications
Email: =

luke.glass@colt.net=20
Tel: +44 (0) 20 7390 =
3681
 
Gill=
 Maclean
Head of Corporate =
Communications
Email: =

gill.maclean@colt.net=20
Tel: +44 (0) 20 7863 =
5314