Colt shares slump as telecoms provider warns on revenues

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The Independent Online

Colt Telecom shares slumped by almost a quarter yesterday after the company warned revenue growth had stalled in 2006. It will now look to cut more costs as it struggles to cope with persistently tough market conditions, raising the prospect of more staff being shifted out to India.

Colt, which is majority owned by the US fund manager Fidelity which has a stake of almost 60 per cent, has reduced 2006 guidance, warning that it no longer expects revenue growth in 2006. Colt said revenue would be "broadly in line" with the £1.25bn it reported in 2005. Shares in Colt slumped 23 per cent to close down 38.5p at 126.5p.

The warning followed disappointing second-quarter results as Colt struggled to gain momentum. The market for corporate voice services in the UK and Germany proved "particularly difficult" during the period, according to Jean-Yves Charlier, Colt's chief executive.

Colt competes against a host of competitors including BT, Cable & Wireless, Interoute and Equant in the European corporate telecoms market. Colt's network covers 13 European countries but since investing in the infrastructure at the beginning of the decade, it has struggled to generate revenue growth.

Colt did narrow its loss before tax to €9m (£6m) during the quarter as a result of saving €27m in costs, achieved in part by moving about 15 per cent of its staff to India. During the second quarter, the company shifted its headquarters to Luxembourg from London, while also enacting a share consolidation. The telecoms company also raised £300m to service its debt.

Colt argues it is making headway in reducing its dependence on voice products and winning more data-based contracts that generate higher margins than traditional telecoms products. In the second quarter, it increased data revenue by 4.3 per cent, but the company still derives about 60 per cent of its revenue from voice services. M. Charlier said: "We think the strategy is absolutely on track, but obviously taking more time than we had originally anticipated."

Matthew Pearson, at Investec Securities, sliced £20m from his revenue forecast for 2006 and £15m from his operating profit estimate for the year. He said the second-quarter results, defined by "revenue weakness, increasing margin pressure and downgraded guidance," justified "low confidence" in Colt's prospects.

Sam Morton, at Dresdner Kleinwort Wasserstein, said: "Colt continues to face significant operational challenges that could limit its attraction to an acquirer." He added that Colt's business model had yet to demonstrate its viability as a stand-alone company.