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2004

In his address to the THUS Group plc Annual General Meeting in Glasgow, William Allan, Chief Executive, will today say the following:

Trading Performance

Our rate of revenue growth for the first quarter has exceeded the performance for the last financial year, with stronger growth in the core business segment of data and telecommunications, and solid expansion of Internet services.

Cash flow performance for the quarter has remained strong, with the Company cash flow positive after interest and capital investment, compared to a negative £6.8 million cash outflow for the same period last year. THUS has now achieved its third consecutive quarter of sustainable positive free cash flow.

The revenue mix issues experienced at the year end have continued into the first quarter, together with a weaker than expected revenue and margin performance from the non-core Interactive segment. Notwithstanding the above, overall revenue and cash flow remains strongly in line with year-end expectations.

Strategic Focus

The Company has made clear its objective to become the pre-eminent alternative telecommunication service provider to business customers in the UK, and has kept under review its strategic options for its two non-core segments of Interactive and Contact Centre. To reinforce this objective and give greater clarity on underlying operating performance, the Company is announcing today three new initiatives:

i) The deployment of richer IP based converged services, running over the THUS MPLS based UK national network. THUS has entered into an agreement with Nortel Networks for Softswitch technology, which will be fully integrated into our national network and service capability this year (see separate announcement for further details).

ii) The Company has identified its first ten exchanges for enhanced broadband services, where THUS has sufficient customer density to economically deploy local loop unbundled technology. This programme is underway with an initial capital investment of £1.5 million, contained within current forecasts.

iii) The disposal of the non-core Contact Centre business to Response Handling Limited, with expected completion by 31 July 2004 (see separate announcement for further details).

Following the poorer than expected performance from the non-core Interactive services segment, the Company is reviewing its options for this segment and will make a further announcement by the half-year.

The above actions will reinforce the Company's core business activity and provide sharper focus on the Company's strengths in data, telecommunication and IP service provision.

New Contracts

The company will announce today a new agreement with ScottishPower for the renewal of a multi-million pound contract over two years for voice and data services across all its UK sites.

During the quarter an additional contract for managed voice services has been secured with Glasgow City Council, and new contracts with FARICE, London Metropolitan Networks and The Royal Bank of Scotland were agreed. Our agreement with Tele2 has been further expanded for Tele2 to offer Internet access services, beginning with standard dial-up.

Outlook

The revenue mix issues we explained at our year-end are expected to continue throughout the year. These trends include faster growth in the data and telecommunication segment, the substitution of broadband for narrow band dial-up Internet access, and the continuing strong growth in carrier pre-select services. Although these products are gross margin dilutive, they continue to require lower levels of operating and capital expenditure, and remain accretive to underlying cash flows.

The announcement today on the implementation of richer IP services and local loop unbundling will contribute to longer term margin expansion.

Although we remain cautious on the general economic outlook and the competitive dynamics of the existing market structure for UK telecommunications, adjusting for the Interactive segment and the disposal of the Contact Centre, we remain comfortable with the range of market expectations for the full year, and will now exit the year EBIT positive.