The performance of our core businesses, Network Services and Voice Services, both delivered encouraging underlying revenue and EBITDA performance. We continue to focus on improving the performance of our Data Centre Services and IT Services businesses.

It is still early days in the integration of KVH but this is on plan. The business has continued to deliver on revenue and EBITDA growth, in accordance with expectations. This is the first full quarter of KVH’s contribution to Colt Group performance.

Management believe the Group will deliver modestly positive cash flows for full year 2015.

Financial Performance
Revenue declined 1.3% from Q1’14, as a result of our prior year exit from low margin carrier voice trading contracts, offset by a first full quarter contribution from KVH which was acquired in December 2014. On a constant currency basis Group revenue declined 5.4%, explained by the following movements:

Network Services revenue declined 1.4% to €213.8 million (Q1’14: increased 0.5%) with growth in Managed networking revenue countered by the continuing decline in SDH (low speed circuits) and a major duct sale in Q1 2014.

Voice Services revenue decreased 35.8% to €95.7 million (Q1’14: increased 1.4%).

Wholesale Voice revenue (which combines Carrier Voice services and reseller voice, previously part of Enterprise Voice services) declined as a result of our exit from low margin carrier voice trading. Enterprise Voice revenue fell, largely due to regulatory driven price reductions. In underlying terms, Voice revenues are roughly flat year on year, a solid performance in a declining market.

Data Centre Services revenue decreased 4.1% to €28.3 million (Q1’14: decreased 1.3%) Excluding a one-off termination billing and related run rate impact from Q1’14, underlying colocation revenue was roughly flat. This weaker performance was due to salesforce vacancies in key markets which we are actively addressing.

IT Services revenue declined €3.5 million, or 17.5%, to €16.8 million (Q1 ’14: increased 24.6%). This was due to lower revenue from low margin asset sales; an area we are defocusing from unless wrapped into wider deals.

KVH contributed €40.0 million in its first full quarter of consolidation to Group revenue. KVH pro-forma revenue for Q1 ’14 on a constant currency basis was €36.3 million. Excluding oneoff termination billings in Q1 ’15, revenue grew by 7.8%, including strong Voice growth.

Group EBITDA of €76.4 million (Q1 ’14: €74.1 million) represents year on year growth of 3.1%. KVH EBITDA and the benefits of the 2014 restructuring programme more than compensated for margin compression within Network Services and the impact from the exit of low margin Voice business. On a constant currency basis Group EBITDA grew 2.2%. Net cash and deposits as at 31 March 2015 amounted to €64.6 million (31 December 2014: €77.4 million). Net cash flows improved by €22.3 million with a free cash outflow of €16.3 million in Q1‘15 compared to an outflow of €38.7 million in Q1 ‘14. The primary difference in cash flows between the quarters relates to an improved working capital performance and reduction in capital expenditure spend. Capital expenditure for Q1’15 decreased €15.4 million to €59.1 million (Q1 ’14: €74.5 million) as we sought to maximise our return on investment. Timing elements contributed to the overall year on year Group cash flow improvement this quarter, with underlying progress almost half that of the headline improvement.

Operational progress
The workforce restructuring announced in April 2014 is continuing largely as planned. In Q1 2015 the Group incurred payments of €5.3m associated with implementing the plan, taking the total cash outflows to date to €19.9m. The overall costs of the programme is still anticipated to be c.€30m and this will be completed by the end of Q2 ’15. The business is still expected to benefit from a similar run rate of ongoing annual cost savings partly this year, and fully in 2016. Cost transformation across the Group continues to be a key strategic focus as well as ensuring we effectively manage our cost base.

In alignment with Colt’s strategic focus on information intensive industries, our Capital Markets capability was significantly enhanced with the April announcement of the launch of our financial services extranet, Colt PrizmNet. This connects providers of financial content – including market data, research and other services – to Capital Markets firms. A dedicated private network with deterministic low latency will guarantee reliable, consistent, and transparent content delivery.

It is still early days in the integration of KVH, which is tracking to plan and we are already seeing engagement with several large customers due to the strength of the combined Colt and KVH capability. We remain on track to deliver on the cost synergy benefits outlined with the announcement of the deal.

We have separately announced this morning the appointment of Carl Grivner as our new Executive Vice President for Network Services. Carl has more than 25 years of executive and leadership experience in the telecommunications and technology industry, most recently as CEO of Pacnet and XO Communications.

Outlook
The Group performance in Q1 was in line with Colt’s expectations. The Group remains focused on profitable growth and continued cost transformation plans and expects to be modestly cash flow positive for the full year 2015.

Rakesh Bhasin, Chief Executive Officer, said: “The new focus we have brought to the organisation through the implementation of the lines of business is starting to deliver results. Our core Network Services and Voice Services in particular show underlying signs of improvement and the Group is showing headline visibility of year on year cash flow improvement. We will continue to drive efficiency and asset utilisation across the organisation to deliver improved performance in 2015.”

Colt Technology Services Group Ltd