LONDON -- COLT Telecom Group plc (COLT), a leading pan-European provider of business communications solutions and services reiterated today that market conditions continued to be challenging. Nevertheless, at constant exchange rates, second quarter revenues are expected to be ahead of both the second quarter of 2003 and the first quarter of 2004.

However, COLT also said that since the publication of its first quarter results on 21 April, the company had experienced tougher than expected trading conditions. In addition, there has been slower than anticipated uptake of its data products and the performance of some higher margin voice products has been disappointing. During Q2, revenue growth has therefore come mainly from the lower margin segments of the business. As a result, even though costs continue to be under tight control, overall margins are now under pressure. These trends are expected to continue throughout 2004 and consequently COLT does not now believe that it will meet market expectations for the quarter ended 30 June and the year ending 31 December 2004.

COLT now expects that for the year ending 31 December 2004, reported revenues will be above last year and that EBITDA will be slightly below or in line with last year. Operating free cash flow will however show an improvement over 2003 reflecting lower capital expenditure and improvements in working capital.

Colt Telecom Group plc