LONDON -- COLT Telecom Group plc (COLT), a leading pan-European provider of business communications solutions and services said today that during the third quarter it continued to grow turnover and reduce losses in line with market expectations. COLT also said that it would be announcing separately today its strategic direction for profitable growth - ``Future in Focus'' - which it expects will enhance its prospects and position in the marketplace.

Highlights of the quarter (1) include:

Barry Bateman, Chairman, said:
``During the third quarter COLT contined to grow revenues and margins were broadly in line with the second quarter. However price erosion across a number of products and pressure on costs combined to lead to a disappointing decline in EBITDA. Nevertheless, COLT's underlying financial position remains strong: losses are reducing and we have taken action to reduce interest payments through the early redemption of some of our bonds, reflecting our confidence in the future. Our financial performance needs to improve further to enable us to achieve a satisfactory return on capital and to this end, we have strengthened our senior management team during the quarter and are setting a future direction for profitable growth which builds on the core strengths of our pan-European backbone, 32 metropolitan area networks with fibre access and best-in-industry customer service.''

Jean-Yves Charlier, Chief Executive Officer, said:
``COLT made further progress in a difficult quarter by growing revenues and reducing losses. We further reinforced our reputation for best-in-industry customer service by winning the prestigious World Communication Award for Customer Care for the fourth successive year.

``Despite these achievements, the revenue mix was not what it needs to be and we continue to be challenged by the market environment and by pressures on our cost base. We have taken action to strengthen our senior management team in sales and marketing as well as in our key markets of France and the UK. Furthermore, after a strategy review, we are implementing an enhanced set of strategic initiatives - ''Future in Focus`` - designed to re-establish the company as an innovator and as one of the top three players in each of the metropolitan markets in which it operates across Europe.

``To renew with innovation, we are also announcing today our SecureIT service for SME customers, the first in a portfolio of new services to extend COLT's IP management services to the LAN and desktop environment.''

(1) Comparison with equivalent quarter of the prior year.
(2) Excluding Fitec, which was disposed of in December 2003.
(3) EBITDA is earnings before interest, tax, depreciation, amortisation, foreign exchange and exceptional items.
(4) Before exceptional items.
Financial Review

Unless otherwise stated all comparisons are between the three and nine months ended 30 September 2004 and 30 September 2003.

Turnover

Turnover for the three months ended 30 September 2004 was GBP303.7 million (2003: GBP295.4 million). This was an increase of 7% on a constant currency basis and excluding the turnover contributed by Fitec (which was disposed of in December 2003).

Turnover for the nine months ended 30 September 2004 was GBP906.1 million (2003: GBP860.1 million). This was an increase of 9% on a constant currency basis and excluding the turnover contributed by Fitec. The increase in turnover was driven by demand for COLT's services from existing and new customers and new service introductions.

Corporate

Turnover from corporate customers for the three months ended 30 September 2004 decreased by 2% to GBP173.6 million (2003: GBP177.2 million). Turnover from corporate customers for the nine months ended 30 September 2004 increased by 1% to GBP518.4 million (2003: GBP511.3 million). Turnover from corporate customers represented 57% of total turnover in the three and nine months ended 30 September 2004 (2003: 60% and 59%).

Switched turnover for the three months decreased by 5% to GBP81.0 million (2003: GBP85.4 million) and for the nine months increased by 1% to GBP250.9 million (2003: GBP248.8 million). Non-switched turnover for the three months decreased by 1% to GBP90.7 million (2003: GBP91.2 million) and for the nine months increased by 1% to GBP265.1 million (2003: GBP261.6 million).

Wholesale

Turnover from wholesale customers for the three months ended 30 September 2004 increased by 10% to GBP130.2 million (2003: GBP118.2 million). Turnover from wholesale customers for the nine months ended 30 September 2004 increased by 11% to GBP387.6 million (2003: GBP348.7 million). Turnover from wholesale customers represented 43% of total turnover in the three and nine months ended 30 September 2004 (2003: 40% and 41%).

Switched turnover for the three months increased by 13% to GBP103.8 million (2003: GBP91.5 million) and for the nine months increased by 16% to GBP309.0 million (2003: GBP265.9 million). Non-switched turnover for the three months decreased by 1% to GBP26.3 million (2003: GBP26.7 million) and for the nine months decreased by 5% to GBP78.5 million (2003: GBP82.5 million).

Cost of Sales

Cost of sales for the three months ended 30 September 2004 increased by 3% to GBP254.4 million (2003: GBP247.3 million). Cost of sales for the nine months ended 30 September 2004 increased by 4% to GBP750.1 million (2003: GBP723.3 million).

Interconnection and network costs for the three months ended 30 September 2004 increased by 7% to GBP207.8 million (2003: GBP193.3 million). Interconnection and network costs for the nine months ended 30 September 2004 increased by 7% to GBP610.9 million (2003: GBP569.3 million). The increases reflected the overall increase in switched revenues.

Network depreciation for the three months ended 30 September 2004 decreased by 14% to GBP46.6 million (2003: GBP54.0 million). Network depreciation for the nine months ended 30 September 2004 decreased by 10% to GBP139.2 million (2003: GBP154.0 million). The decreases reflected the effect of some assets being fully depreciated, partially offset by further investment in fixed assets to support the growth in demand for services and new service developments.

Operating Expenses

Operating expenses for the three months ended 30 September 2004 increased by 2% to GBP69.9 million (2003: GBP68.5 million). Operating expenses for the nine months ended 30 September 2004 decreased by 3% to GBP199.2 million (2003: GBP204.8 million).

Selling, general and administrative (SG&A) expenses for the three months ended 30 September 2004 increased by 6% to GBP62.5 million (2003: GBP58.8 million). SG&A expenses for the nine months ended 30 September 2004 increased by 1% to GBP177.0 million (2003: GBP175.6 million). SG&A expenses as a proportion of turnover for the three and nine months was 20.6% and 19.5% (2003: 19.9% and 20.4%). The increases in SG&A expenses reflected the initial costs associated with the establishment of COLT's presence in India and increased personnel costs.

Other depreciation and amortisation for the three months ended 30 September 2004 decreased by 25% to GBP7.3 million (2003: GBP9.8 million). Other depreciation and amortisation for the nine months ended 30 September 2004 decreased by 24% to GBP22.1 million (2003: GBP29.2 million). The reductions reflected the effect of some assets being fully depreciated, partially offset by increased investment in customer service and other support systems.

Interest Receivable, Interest Payable and Similar Charges

Interest receivable for the three months ended 30 September 2004 decreased by 7% to GBP5.6 million (2003: GBP6.0 million). Interest receivable for the nine months ended 30 September 2004 decreased by 18% to GBP16.6 million (2003: GBP20.2 million). The decreases were as a result of reduced average balances of cash and investments in liquid resources following the purchase and redemption of GBP144.5 million of the Company's outstanding notes during 2003.

Interest payable and similar charges for the three months ended 30 September 2004 decreased by 24% to GBP16.9 million (2003: GBP22.1 million). Interest payable and similar charges for the nine months ended 30 September 2004 decreased by 24% to GBP51.5 million (2003: GBP67.3 million). These decreases were due primarily to the reduction in debt levels following the purchase and redemption of GBP144.5 million of the Company's outstanding notes during 2003. Interest payable and similar charges for the three months included GBP8.4 million (2003: GBP8.6 million) of interest and accretion on convertible debt and GBP8.7 million (2003: GBP12.9 million) of interest and accretion on non-convertible debt.

Interest payable and similar charges for the nine months included GBP25.2 million (2003: GBP25.8 million) of interest and accretion on convertible debt and GBP26.1 million (2003: GBP39.4 million) of interest and accretion on non-convertible debt. In the three and nine months there was also GBP(0.2) million and GBP0.1 million respectively of other interest and unwinding of discounts on provisions. Interest payable and similar charges for the quarter comprised GBP11.2 million and GBP5.7 million of interest and accretion respectively.

Gain on Purchase of Debt

Gains arising on the purchase of GBP13.2 million of debt during the three months ended 30 September 2004 were GBP0.2 million (2003: nil). Gains arising on the purchase of GBP13.2 million of debt during the nine months ended 30 September 2004 were GBP0.2 million (2003: GBP7.6 million).

Exchange Gains

For the three months ended 30 September 2004 there were exchange gains of GBP0.1 million (2003: GBP0.9 million). For the nine months ended 30 September 2004 there were exchange gains of GBP0.2 million (2003: GBP4.1 million). The exchange gains in the prior year were due primarily to movements in the British pound relative to the U.S. dollar on cash and debt balances denominated in U.S. dollars.

Tax on Loss on Ordinary Activities

COLT had no taxable profits in the nine months ended 30 September 2003 and 2004.

There was a free cash outflow of GBP1.0 million in the three months ended 30 September 2004 (2003: inflow of GBP9.1 million). For the nine months ended 30 September 2004 there was an inflow of GBP17.3 million (2003: outflow of GBP16.6 million). The improvement in free cash flow for the nine months was driven by reduced capital expenditure, lower payments against provisions and reduced interest payments.

Net cash outflows from financing for the three months ended 30 September 2004 were GBP13.2 million (2003: inflow of GBP0.5 million). Net cash outflows from financing for the nine months ended 30 September 2004 were GBP12.7 million (2003: outflow of GBP23.3 million). COLT had balances of cash and investments in liquid resources at 30 September 2004 of GBP791.4 million compared with GBP802.4 million at 31 December 2003.

On 19 October 2004 all of the outstanding DM600 million 2% Senior Convertible Notes due August 2005 and the EUR368 million 2% Senior Convertible Notes due December 2006 were redeemed. The redemptions were at the accreted principal amount of the Notes plus accrued interest and were funded out of cash and liquid resources. The aggregate amount payable was GBP324 million.

---In a separate release---

LONDON -- COLT Telecom Group plc, a leading pan-European provider of business communications solutions and services announced today its strategic direction - “Future in Focus” – which will:

This next stage of COLT’s development follows a strategic review conducted by new CEO, Jean-Yves Charlier, who was appointed on 30 August 2004.

Setting out the future strategic direction, Charlier said: “We have a clearly defined roadmap that builds on the core strengths of our pan-European backbone, 32 metropolitan area networks with fibre access and best-in-industry customer service. We will once again position COLT as an innovating force for the SME and Corporate markets across Europe whilst maximising profitable revenues through better utilisation of our existing assets and improved execution.”

In a presentation to analysts and investors in London today, Jean-Yves Charlier will outline the company’s strategic initiatives to achieving its goals: