Global Crossing Q4 2006 and full year 2006

Global Crossing has announced their  Q4 2006 and full year 2006 financial results.

Highlights:

  • Revenue of 241 million pounds in 2006 establishes basis for future revenue growth.
  • Bond offering generated 56 million pounds in net proceeds.
  • GCUK acquired Fibernet from Global Crossing Limited subsidiary in December 2006
  • Conference Call
    Management has scheduled a conference call for Thursday, April 19, 2007, at 9:00 a.m. EDT/2:00 p.m. BST to discuss GCUK’s financial results. The call may be accessed by dialing +1 212 346 6553 or +44 (0) 870 001 3140. Callers are advised to dial in 15 minutes prior to the 9:00 a.m. EDT start time. The call will also be Webcast at investors.globalcrossing.com/results.cfm.

    A replay of the call will be available on Thursday, April 19, 2007, beginning at 11:00 a.m. EDT/4:00 p.m. BST and will be accessible until Thursday, April 26, 2007, at 11:00 a.m. EDT/4:00 p.m. BST. To access the replay, dial +1 402 977 9140 or +1 800 633 8284 and enter reservation number 21336317. UK callers may access the replay by dialing +44 (0) 870 000 3081 or 0800 692 0831 and entering reservation number 21336317.

    Global Crossing (NASDAQ: GLBC) today announced fourth quarter and full year 2006 financial results for its subsidiary, Global Crossing (UK) Telecommunications Limited (GCUK).

    Highlights
    GCUK generated 241 million pounds in revenue, with adjusted gross margin at 68 percent of revenue in 2006. In addition, the company generated 62 million pounds of earnings before interest, taxes, depreciation and amortization (EBITDA) and 61 million pounds of cash from operations, before interest payments.

    Global Crossing completed its acquisition of Fibernet in October and sold it to GCUK on December 28, 2006. The integration of Fibernet’s business into GCUK’s operations is still in progress. Throughout the year, GCUK announced several new contract renewals and new customer wins, building a solid base for future revenue growth. The company announced yesterday that it is providing Newsquest with a VoIP-ready managed IP VPN covering 160 sites across the UK and consolidating 50 server locations into two data centers.

    “Our UK business made positive strides in 2006, including several significant contract renewals and new customer wins,” said John Legere, Global Crossing’s chief executive officer. “As Fibernet’s operations quickly approach full integration into GCUK, we’ll be in a stronger position to serve customers with our enhanced network and portfolio of innovative IP solutions.”

    Anthony Christie, recently appointed to the role of managing director for GCUK and Europe, added: “Our UK business is key to the overall growth of Global Crossing, and we’re keenly focused on strategic initiatives for 2007, such as service generation and augmenting our UK IP backbone with even greater reach and capacity for customers’ converged IP services and managed services, to generate growth and ensure a superior, and differentiated, customer experience.”

    Revenue, Margin and Costs
    On December 28, 2006, GCUK acquired Fibernet from a subsidiary of Global Crossing Limited and began consolidating Fibernet’s operations into GCUK’s results; therefore, the impact of Fibernet on GCUK’s operating results for 2006 is not significant. Going forward GCUK’s operating results will include full contribution from Fibernet UK’s operations.

    GCUK generated total revenue of 241 million pounds for the year, compared with 239 million pounds in 2005. New customer wins throughout the year, such as the Crown Prosecution Service and Learning and Skills Council, and increased wholesale voice revenue, built a steady revenue base for GCUK, which was partially offset by previously disclosed customer losses. The “invest and grow” component of GCUK’s business, which includes enterprise and carrier data customers, generated 236 million pounds or 98 percent of total revenue for 2006. Adjusted gross margin (defined as revenue minus cost of access) was 164 million pounds or 68 percent of revenue for the year. This compared with 70 percent of revenue or 168 million pounds for 2005.

    During the fourth quarter of 2006, GCUK generated revenue of 62 million pounds, 98 percent of which was generated from the “invest and grow” component. This was a 2 percent sequential increase over the previous quarter, when revenue was 60 million pounds, and a 3 percent year-over-year increase from the fourth quarter of 2005. Adjusted gross margin was 42 million pounds during the fourth quarter or 68 percent of revenue, compared with 41 million pounds in the third quarter of 2006 and 42 million pounds in the fourth quarter of 2005.

    Cost of revenue, which includes cost of access, real estate, network and operations, third party maintenance and cost of equipment sales, was 159 million pounds for the full year, compared with 146 million pounds in 2005. The increase was attributable to higher cost of access expense as a result of certain one-time benefits in 2005, higher carrier sales volumes and contract novations in 2006 for certain customers, along with higher equipment sales costs, higher real estate, network and operations costs as a result of credits and one-time gains and benefits in 2005. Sales, general and administrative expenses (SG&A) were 31 million pounds for the year, relatively flat from 2005.

    For the fourth quarter, the company reported cost of revenue expense of 43 million pounds, compared to 39 million pounds in the third quarter and 34 million pounds in the fourth quarter of 2005. The sequential increase was attributable to equipment sales to one of GCUK’s largest customers. The year-over-year increase was due to the equipment sales in the fourth quarter as well as a rates rebate received in the fourth quarter of 2005. SG&A in the fourth quarter was 9 million pounds, compared with 7 million pounds in the third quarter and 6 million pounds in the fourth quarter of 2005. During the fourth quarter, the company recognized 2 million pounds of restructuring charges relating to the acquisition of Fibernet. Without it, SG&A would have been flat sequentially.

    Earnings
    GCUK’s EBITDA for 2006, as defined in Table 5 that follows, was 62 million pounds, compared with 66 million pounds in 2005. In the fourth quarter, the company recorded EBITDA of 20 million pounds, compared with 15 million pounds in the third quarter and 18 million pounds in the fourth quarter of 2005. Fourth quarter and full year EBITDA reflects an 8 million pound net gain arising from the acquisition of Fibernet (see Table 2 for reference). Included in this net gain is the deemed settlement of approximately 1 million pounds of deferred revenue with Fibernet. Excluding the 8 million pound net gain on the acquisition of Fibernet and the 1 million pound deemed settlement of deferred revenue, GCUK would have recorded EBITDA of 13 million pounds in the fourth quarter.

    GCUK’s net income for 2006 was 13 million pounds, compared with 8 million pounds in 2005. During the fourth quarter, GCUK recorded a net loss of 2 million pounds, compared with income of 4 million pounds in the third quarter and 10 million pounds in the fourth quarter of 2005. The company reduced its deferred tax asset by 9 million pounds during the fourth quarter, due to an estimate change of the future realization of the company’s deferred tax assets.

    Cash Position
    As of December 31, 2006, GCUK had 40 million pounds of cash and cash equivalents. In 2006, GCUK generated cash from operations (before interest payments) of 61 million pounds and made interest payments of 26 million pounds on its senior secured notes and capital leases. GCUK made net loans of 28 million pounds to subsidiaries of Global Crossing Limited and used 26 million pounds for capital expenditures and principal payments on capital leases. In addition, it spent 53 million pounds on the acquisition of Fibernet; Fibernet had a cash balance of 8 million pounds at December 28, 2006. The acquisition was funded through the sale of additional senior secured notes in December 2006, which resulted in net proceeds of 56 million pounds.

    Non-GAAP Financial Metrics
    Consistent with the Securities and Exchange Commission’s (SEC’s) Regulation G, the attached schedules include definitions of EBITDA and adjusted gross margin, which are non-GAAP (generally accepted accounting principles) financial metrics, as well as reconciliations of such measures to the most directly comparable financial metrics calculated and presented in accordance with International Financial Reporting Standards (IFRS).

    International Financial Reporting Standards
    GCUK’s results reported here include audited consolidated financial results for the years ended December 31, 2006 and 2005, unaudited consolidated financial results for the three months ended December 31, 2006 and 2005 and audited consolidated balance sheets as of December 31, 2006 and 2005, in accordance with IFRS, as adopted by the European Union. GCUK’s fourth quarter 2006 and 2005, as well as full year 2006 and 2005 results were included in Global Crossing’s consolidated results previously reported on March 16, 2007, in accordance with U.S. GAAP.

    Conference Call
    Management has scheduled a conference call for Thursday, April 19, 2007, at 9:00 a.m. EDT/2:00 p.m. BST to discuss GCUK’s financial results. The call may be accessed by dialing +1 212 346 6553 or +44 (0) 870 001 3140. Callers are advised to dial in 15 minutes prior to the 9:00 a.m. EDT start time. The call will also be Webcast at investors.globalcrossing.com/results.cfm.

    A replay of the call will be available on Thursday, April 19, 2007, beginning at 11:00 a.m. EDT/4:00 p.m. BST and will be accessible until Thursday, April 26, 2007, at 11:00 a.m. EDT/4:00 p.m. BST. To access the replay, dial +1 402 977 9140 or +1 800 633 8284 and enter reservation number 21336317. UK callers may access the replay by dialing +44 (0) 870 000 3081 or 0800 692 0831 and entering reservation number 21336317.

    ABOUT GLOBAL CROSSING (UK) TELECOMMUNICATIONS LIMITED
    Global Crossing (UK) Telecommunications Limited provides a full range of managed telecommunications services in a secure environment ideally suited for IP-based business applications. The company provides managed voice, data, Internet and e-commerce solutions to the strong and established commercial customer base, including more than 100 UK government departments, as well as systems integrators, rail sector customers and major corporate clients. In addition, GCUK provides carrier services to national and international communications service providers.

    Global Crossing (UK) Telecommunications operates a high-capacity UK network connecting 150 towns and cities and reaching within just over one mile of 64 percent of UK businesses. The UK network is linked into the wider Global Crossing network that connects more than 300 major cities in 29 countries worldwide, and delivers services to more than 600 cities in 60 countries and 6 continents around the globe.

    ABOUT GLOBAL CROSSING
    Global Crossing (NASDAQ: GLBC) provides telecommunications solutions over the world’s first integrated global IP-based network. Its core network connects more than 300 cities in 29 countries worldwide, and delivers services to more than 600 cities in 60 countries and 6 continents around the globe. The company’s global sales and support model matches the network footprint and, like the network, delivers a consistent customer experience worldwide.

    Global Crossing IP services are global in scale, linking the world’s enterprises, governments and carriers with customers, employees and partners worldwide in a secure environment that is ideally suited for IP-based business applications, allowing e-commerce to thrive. The company offers a full range of managed data, voice and security products, to approximately 40 percent of the Fortune 500, as well as 700 carriers, mobile operators and ISPs. Its Professional Services and Managed Solutions provide VoIP, security and network consulting and management services to support its Global Crossing IP VPN service and Global Crossing VoIP services. Global Crossing was the first — and remains the only — global communications provider with IPv6 natively deployed in its network.

    Please visit www.globalcrossing.com or blogs.globalcrossing.com for more information about Global Crossing.

    ###

    This press release contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties that could cause GCUK’s actual results to differ materially, including: The ability to successfully integrate the Fibernet business and realize the benefits anticipated from the acquisition of Fibernet; increased competition in the marketplace and pricing pressures resulting from technology advances and regulatory changes; competitive disadvantages relative to competitors with superior resources; the concentration of revenue in a limited number of customers, and the rights of such customers to terminate their contracts or to simply cease purchasing services thereunder; the reliance on a limited number of third party suppliers; covenants in the senior notes indenture which restrict the company’s financial and operational flexibility; slower than anticipated adoption by customers of next generation products; the dependence on a number of key personnel; the influence of the company’s parent, and possible conflicts of interest of the parent or of certain of GCUK’s directors and officers; exposure to unreserved contingent liabilities; and other risks referenced from time to time in the company’s filings with the Securities and Exchange Commission. The company undertakes no duty to update information contained in this press release or in other public disclosures at any time.

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