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2005

THUS Group plc (“THUS”) announces that on 27 July 2005 it submitted a proposal to the Board of Chelys Limited (“Chelys” or the “Company”), the company that owns Energis, to acquire 100% of the equity of Chelys.

In response, THUS received a letter from the Chairman of Chelys on 1 August 2005 informing THUS that Chelys was in a period of exclusivity with another party.

As a result of Chelys’ size relative to THUS and its private company status, the proposed combination would be a reverse takeover of THUS under the UK Listing Rules. Accordingly trading in THUS Ordinary Shares has been suspended. THUS will contact its key shareholders to consult with them on this announcement. The Board of THUS will keep the developing situation under review.

In summary:

• THUS proposes the transaction in order to create the leading alternative business telecommunications carrier in the United Kingdom
  
  
  • The combination would bring together the capability and scale to provide enhanced customer service, delivering improved shareholder returns and future growth
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• The proposal (the “Proposal”) submitted to Chelys offers to acquire the Company for £800 million (including cash balances)
  
  
  • £600 million in cash or assumed liabilities and £200 million in THUS shares
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  • The cash component is to be funded through debt and a pre-emptive equity issue to existing THUS shareholders
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  • Support received from a well-respected AA rated financial institution in relation to the debt finance and Citigroup is advising THUS in relation to the equity issue
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• The Proposal is conditional on due diligence, finalisation of financing arrangements and the approval of a sale and purchase agreement by the Boards of THUS and Chelys
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• Following initial discussions in January 2005 and a meeting with Chelys on 7 July, THUS’s latest proposal was made on 27 July 2005
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• THUS being advised by Greenhill and Citigroup
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On 12 August, Cable & Wireless plc announced that its proposal to acquire Energis will not be increased in value under any circumstances and will fall away if 75 percent by value of the holders of Energis' debt have not signed the acceptance by 5.00pm on Monday 15 August 2005.

The THUS Board encourages Chelys stakeholders not to accept any proposal from any third party until the Board of Chelys has initiated a process allowing THUS to present a definitive proposal to Chelys stakeholders.

Background to THUS’s interest in Chelys

THUS’s latest annual report notes that consolidation within the UK Telecoms sector would improve the sector’s overall financial viability. Consolidation will also assist in delivering sustainable competition in business telecommunications for customers while improving the overall service offering.

THUS believes that it is well placed to lead consolidation in UK business telecoms, utilising the skills of the senior executive team that has been in place since 2000. During this period, while many of its competitors have struggled to grow and to generate cash, THUS has delivered a strong operating and financial performance and established an industry leading service and network platform. Despite difficult market conditions THUS has since the year ended 2000/01:

• Maintained its focus on offering telecoms solutions to business customers
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• Delivered sustained double digit revenue growth, with revenues from continuing operations increasing at a compound rate of over 15% per annum
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• Moved EBITDA margins from -11% of Revenue to +11%, equating to £39.9 million in the year to 31 March 2005
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• Generated free cash flow after capital expenditure and interest payments in the year to March 2005 and moved EBITDA – Capex, a measure of underlying cashflow, to +£4m from -£183m, despite continued investment in continuing operations at over 10% of revenue
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• Improved year on year the quality of its overall revenue mix, and progressively reduced operating costs
  
  
  • in the year to March 2005 some 21% of revenue from continuing operations was generated from complex managed solutions and all non core divisions had been disposed of
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• Led the market in network development and service provision, developing a scaleable business model
  
  
  • THUS developed the first national network capable of offering fully integrated services based on Internet Protocol and Multi Protocol Label Switching, moves subsequently mirrored in BT’s planned 21st Century Network
  
  
  • THUS has developed one of the most comprehensive suites of telecom products, services and solutions for the business customer available in the UK, the world’s 4th largest telecoms market
  
  

A THUS and Energis combination

The THUS Board believes that THUS is well placed to create value from a combination with Energis. Combining with Energis would increase THUS’s overall reach and network density as well as adding an attractive business customer base and additional high quality and motivated staff.

The combined group’s positioning in the UK would be significantly enhanced and consequently offer an opportunity to grow revenues and profits faster than either business could achieve on a standalone basis.

In addition, the THUS Board believes that cost synergies from any combination would be significant. As THUS’s network is already 21CN compatible, a large part of Energis’s anticipated network upgrade capex would no longer be necessary and ongoing maintenance capex would be greatly reduced. This would reflect the use of the existing THUS core network, while maintaining Energis metropolitan distribution where this provides additional economic reach and density. Significant network opex savings would also be achievable, for example through rationalising overlapping points of presence, reduced interconnect costs from more ‘on network’ traffic and deeper reach, as well as the reduction of duplicated back office and engineering systems and sites. There would also be the opportunity to deliver other benefits resulting from increased scale.

Implementing growth and delivering further cost disciplines and synergies would build on the work achieved by THUS over the last 5 years, where revenue growth has been delivered from a progressively smaller operating cost base.

The combined business would be the largest operator focusing purely on business communications services in the UK.

Discussions to date

THUS initially approached Chelys in January 2005 registering its interest in acquiring Chelys. Since that time, THUS has sought to engage with Chelys to discuss a combination. At a meeting on Thursday 7 July between Chelys and THUS’s representatives, THUS was informed that any proposal would need to contain a significant proportion of cash in order for the Chelys board to contemplate discussing our interest further.

THUS’s proposal

THUS submitted a letter outlining a proposal to acquire Chelys on 27 July 2005. The proposal values Chelys debt free at £800 million comprising £600 million in cash or assumed liabilities and £200 million in THUS shares.

THUS intends to fund the cash component of the consideration in part through a new acquisition debt facility and in part through a pre-emptive equity issue. THUS has held detailed discussions with a well-respected AA rated financial institution in relation to the debt finance and Citigroup in relation to the equity issue and, on the basis of these discussions and subject to due diligence, THUS and its advisers believe that the required debt and equity financing will be available.

THUS’s proposal includes a mix and match option to ensure that both those Chelys stakeholders wishing to participate more fully in the equity upside and those that wish to see a higher cash component are accommodated to the extent consistent with the overall transaction terms. The proposal also includes confirmation that THUS is prepared to consider increasing the equity component of the offer or to investigate options to increase further the cash component of the proposal.

The proposal is conditional on due diligence, the negotiation of a sale and purchase agreement, finalisation of the financing arrangements and final approval of the Boards of THUS and Chelys. Any sale and purchase agreement would be conditional on THUS shareholder approval, acceptance by Chelys stakeholders and securing the necessary regulatory approvals.

Chelys stakeholders

The THUS Board encourages Chelys stakeholders not to accept any proposal from any third party until the Board of Chelys has initiated a process allowing THUS to present a definitive proposal to Chelys stakeholders.

THUS is being advised by Greenhill and Citigroup.

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FURTHER ENQUIRIES

THUS Group plc	020 7360 4900
William Allan, Chief Executive	(until midday)

Smithfield Financial	020 7903 0665
John Antcliffe

Greenhill & Co. International LLP, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting for THUS Group plc and no-one else in relation to this announcement. Greenhill will not be responsible to anyone other than THUS Group plc for providing the protections afforded to its clients or for providing advice in relation to the contents of this announcement

Citigroup Global Markets Limited is acting for THUS Group plc and no-one else in relation to this announcement. Citigroup Global Markets Limited will not be responsible to anyone other than THUS Group plc for providing the protections afforded to its clients or for providing advice in relation to the contents of this announcement

Notes for editors:

Chelys issued a press release setting out financial results for the year to March 2005 on 13 June 2005, which is shown below:

"Energis announces £1.3 billion of contracts

Energis today announced that it has been awarded £1.3 billion worth of contracts in the last financial year.

As the only major telecoms company focused exclusively on the largest organisations in the UK and Ireland, Energis’s success is driven by its absolute focus on delivering superior levels of service and sourcing and building individual solutions for customers.

Major contracts include:

• BBC with Siemens Business Services
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• Caudwell Communications
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• Northrop Grumman
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The last year has seen Energis successfully managing the decline of its narrowband ISP business by replacing it with lucrative, long term business from the high end corporate market:

• £1.3 billion of contract signings to the year end 2005 – with over £930 million of new wins
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• consistent 9% per annum revenue growth from non-ISP business
• average annual value of corporate contracts rising from £1.6 million to £2.5 million over the last two years
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• value of top 30 contracts increasing by over 20% to nearly £200 million per year
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• 40% of new contracts over 5 years in duration
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• nearly two thirds of capital expenditure over the last 12 months was channelled towards delivering individual solutions for new customers
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John Pluthero, chief executive of Energis, commented: “Our transformation continues apace and our contract signings in 2005 of £1.3 billion clearly establish us as the leading altnet in the corporate market.

"This was our most successful year ever for contract wins; a sign that our approach to service is valued by customers."

2005 results:

Profit and Loss

£million	2004	2005
Revenue	745	720
EBITDA* before exceptional items	125	116

* FY04 EBIT of £10m pre-exceptional items

Cash Flow

£million	2004	2005
Capital expenditure	(67)	(94)
Free cash flow	66	23
Cash balance	171	154

Notes on 2005 results:

• Results for year ended 31 March.
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• The 3% revenue decline reflects the impact of the decreasing narrowband internet business and masks a consistent 9% year on year growth in core activities.
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• EBITDA before exceptional items was strong at £116 million despite the impact of the decline in the narrowband internet business. 2004 EBITDA included £9.5 million of retrospective benefit resulting from the Regulator's decision to reduce BT's Intelligent Network charges.
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• Capital expenditure in 2005 was £94 million compared to £67 million in 2004, an increase of 40%. This investment has delivered tailored solutions for customers, improvements in delivery processes and customer-facing systems as well as ongoing upgrades to the core network.
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• Free cash flow for the year to March 2005 was £23 million compared to £66 million for the year to March 2004 and mainly reflects increased capital expenditure.
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• The year end cash balance of £154 million represents a net cash generative position since Energis’s renewal in 2002 and provides significant headroom for investment over the following year."
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