Corporate telecoms company Colt Telecom Group - which has a major operation in Birmingham - yesterday posted a better-than-expected ten per cent rise in underlying second-quarter earnings.
Chief executive Jean-Yves Charlier said the company would not necessarily be cashflow positive for the full year, but added that Colt was confident of becoming free cashflow positive on a sustainable basis in the second half.
Colt, which sells corporate telecoms services to businesses in the UK and Europe, believes the move to positive cashflow will help it meet investors' expectations for full-year revenues and underlying profits.
Analysts are forecasting that Colt, which has been battling falling prices and overcapacity, will report earnings before interest tax, depreciation and amortisation (EBITDA) of £169 million this year. However, Mr Charlier said second-quarter revenues in its non-switched business, which handles data rather than voice traffic, grew "more slowly than we would like to have seen" but Colt was confident of growth accelerating in future.
The company, which has built city networks in 32 financial centres across 13 European countries, said second quarter EBITDA rose for the third straight quarter to £ 40 . 8 million from £37.1 million the previous quarter. Turnover climbed 3.1 per cent to £316.7 million compared to last year. "Overall we see the market continuing to be quite competitive," Mr Charlier said.
Analysts had expected the company to reiterate full-year forecasts, although some have been holding out for increased revenue growth targets in Germany.
The company's shares have surged about 25 per cent since late May mainly on takeover hopes.
Investec Securities analyst Matthew Pearson said he was disappointed at non-switched revenue growth.
"It didn't come through in this quarter," he said.
Mr Pearson, who rates Colt a 'sell', explained that revenues from wholesale business tends to be "lumpy" and only marginally profitable.
Network owners tend to "play around each other on price" for short term contracts with other carriers, he said.
Colt said switched turnover, generated from voice traffic, rose 4 . 1 per cent to £195 million over last year.
Non-switched turnover for the second quarter fell 0.4 per cent to £121 million, but was up 5.1 per cent over the same quarter a year ago.
Chief financial officer Tony Bates said margins had been stable over the past three quarters and he did not see any reason why that should change.
Group gross margins before depreciation slipped 0.4 of a percentage point to 33.6 per cent.
For the three months ended June 30, Colt said pretax losses narrowed slightly to £ 26 . 3 million from £28.2 million a year ago.
The market, however, has been focusing more on takeover hopes than fundamentals recently.
Investor hopes that Colt would be swept up in industry consolidation have sent its shares climbing, although some analysts warn this is now more likely to prove an obstacle to potential bidders.
But Mr Charlier again stressed that this was a long shot. "We do not see ourselves taking part in the consolidation process or looking at any type of transaction in the short or medium term," he said.