Colt on Tuesday announced that it will stop offering IT services as part of a business restructuring that will see it focus on its core infrastructure operations.
The U.K. operator said it will carry out a controlled exit from IT services in the next two to three years; it will continue to serve existing customers but will not seek new business.
The move comes just over a year after the telco announced plans to pull out of the carrier voice space in order to concentrate on four areas: network services, IT services, data centre services and voice services.
"The fundamentals of our core network services and voice services businesses remain solid, and we are driving improvements in our data centre services business," said Colt CEO Rakesh Bhasin.
"We are taking decisive action to become a more focused and disciplined organisation which we believe will accelerate the performance of our core business," he added.
Colt said it will continue to focus on cost-reduction going forward, something it has been working on since the start of the year. It is in the process of reducing the number of senior executives at the company, but did not specify how many will lose their jobs.
As a result of the IT services exit Colt will incur cash costs of €45 million-€55 million and a non-cash impairment charge of around €90 million, in addition to €25 million in restructuring costs relating to its remaining business. It expects to generate annual savings of €25 million to be reflected in EBITDA starting partially this year and in full from 2016.
Colt’s IT services business generated €16.8 million in revenues in the first quarter of this year, down by 17.5% in constant currency terms on the year-ago period, and represented 4.3% of its group turnover.
Network services accounted for the bulk of Q1 revenues at €213.8 million, down 1.4%, while group revenues slid by 5.4% to €394.6 million. Colt attributed the overall decline to its aforementioned exit from low-margin carrier voice trading contracts, offset by its acquisition of Japanese data centre company KVH.
On Tuesday Colt said its trading performance in Q2 is in line with management expectations and that it will publish numbers before the end of July.
For the full year the firm expects to deliver positive free cash flow for its remaining businesses of €70 million-€80 million, rising to €100 million-€120 million in 2016.
Colt also confirmed that the restructuring is not related to major shareholder Fidelity’s bid to take the company private.
Earlier this month Fidelity made a £1.90-per-share offer to buyout Colt’s minority shareholders, valuing the company at £1.7 billion (€2.4 billion). Fidelity holds around two thirds of Colt’s shares.
Colt’s independent directors said the offer undervalues the company and its prospects, but noted that some shareholders may prefer the certainty of a cash offer.
