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Announcement:

Correction to Text, Aug. 4, 2011 Release: Moody's affirms Colt's Ba3 CFR; outlook changed to stable

05 Aug 2011

London, 05 August 2011 -- Substitute Colt Group SA for Cable and Wireless Communications Plc in the penultimate paragraph. Revised release follows.

Moody's Investors Service has today affirmed Colt Group SA's ("Colt" or "the company") Ba3 corporate family (CFR) and probability-of-default (PDR) ratings and has changed the ratings outlook of Colt to stable from positive.

Moody's decision to change Colt's outlook to stable is based on: (i) the weaker than expected operating performance of the company with recovery in top-line likely only towards the end of 2011; (ii) the negative free cash flow generation during H1 2011 resulting from increased capex and temporary working capital outflows; and (iii) the lack of clarity over the company's medium-term capital structure and on its shareholder remuneration policy.

After registering a decline of -2.4% in 2010 over 2009, Colt's revenues fell by -3.5% (year-on-year) in H1 2011. The decreasing voice revenues (-9% in 2010; -11% in H12011) which were in particular negatively impacted by the 50% cut in mobile termination rates introduced in Germany at the end of 2010, have been fuelling the overall revenue declines. Against deteriorating voice revenues, Colt recorded only modest revenue growth in its Data and Managed Services business. Data revenues grew only by 1% in H12011 and Managed Services improved only marginally by 4.3% due to company's planned exit of lower margin co-location services. While macro-economic conditions in Europe remain challenging, Moody's notes that Colt is expecting incremental growth only in the latter part of 2011.

In contrast, Colt's EBITDA margins have remained largely stable, supported by an increasing proportion of higher-margin revenue from the Data and Managed Services division and efficient cost control. The company reported steady EBITDA margin in H1 2011 of 20.5% (compared to 19.9% in H12010). Going forward, we would expect Colt's EBITDA margin to remain supported by the gradually improving revenue mix for the company.

Moody's notes that despite the pressure on revenues, Colt has been investing into the business to position it for future growth opportunities. The company is working towards repositioning the Colt brand with a view to become Europe's leading information delivery platform via being an integrated computing and network service provider. In H1 2011 Colt has (i) largely completed its business re-organization ; (ii) continued investing in its modular data centre program; (iii) made investments in its internal IT systems and processes to support cloud services as well as in network extensions to high bandwidth usage sites such as data centres. While Moody's would expect these investments to enhance the revenue growth potential at Colt over the medium term, our stable ratings outlook reflects Colt's still lagging recovery on revenues in the backdrop of a challenging economic environment.

The increased investments into the business led to a significantly higher capex requirement for Colt in H1 2010. The company reported a year-on-year increase of 47.2% in capex to EUR 152.6 million in H1 2011. The cash outflows on capex in H1 2011 combined with a EUR 56.6 million working capital outflows (excluding outflows towards other provisions) and EUR 13.3 million of cash payments towards company's restructuring programme resulted in negative free cash flow generation (as reported by Colt) of EUR 68.8 million. While Moody's would expect the working capital outflows to normalize in H2 2011, the company's capex in 2011 is expected to be higher than 2010 level of EUR 232 million. This is likely to result in constrained free cash flow generation for Colt in 2011, in Moody's opinion. The agency notes that Colt is currently continuing to seek property to support its data centre business which may lead to increased capex over the short to medium term, depending on the availability of suitable sites. As the company focuses on expanding its data centre business, its capex profile is likely to become more front-loaded and to an extent less success based in Moody's opinion.

Colt had EUR 231 million worth of cash and cash equivalents (including deposits classified as current asset investments) as of 30 June 2011. Moody's expects this, together with internally generated cash flows, to provide the company with sufficient capacity to meet its current operational needs. However, in Moody's opinion, Colt may need to arrange for appropriate funding based on its medium-term growth investment requirements (including additional capex and/or add-on acquisitions).

At December 31 2010, Colt had no financial debt outstanding and its Gross debt/EBITDA ratio (as calculated by Moody's) of 1.8x reflected Moody's adjustment for operating leases. The ratings assume that the company's capital structure will incorporate some financial debt over time.

The ratings are likely to be negatively impacted if Colt's FCF generation, EBITDA margin growth or revenue growth from its Data and Managed Services business turns materially negative on a sustained basis. Pressure would be exerted on the ratings if the company's Gross Debt/ EBITDA (as calculated by Moody's) increased towards 3.5x.

Positive ratings pressure could develop: (i) as the returns to positive overall organic revenue growth and continues to generate good EBITDA margins supported by its growing Data and Managed Services business; (ii) exhibits a commitment to maintain its gross leverage solidly below 2.5x (as adjusted by Moody's); and (iii) continues to make investments in growing its Managed Services business in particular, while remaining focused on FCF generation (as defined by Moody's).

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The principal methodology used in rating Colt Group SA was the Global Telecommunications Industry Methodology published in December 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Colt Group S.A. is one of the leading alternative telecoms providers in the UK and Europe, offering high-bandwidth data, voice business communications and integrated IT managed solutions to businesses and governmental organisations. In 2010, the company generated revenues of EUR 1.58 billion and reported EBITDA of EUR 330.2 million.

London
Gunjan Dixit
Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Chetan Modi
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Ltd.
One Canada Square
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United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Correction to Text, Aug. 4, 2011 Release: Moody's affirms Colt's Ba3 CFR; outlook changed to stable
No Related Data.
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