2011 Annual Report / Colt Group S.A. 2011
The information delivery platform for European business
2011 Annual Report Colt Group S.A. For the year ended 31 December 2011
Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Key financial data
Five year revenue summary Five year EBITDA1 summary
€2,000m €400m 30%
1,679.6 1,675.4 1,622.5 246.7 235.6 1,583.6 1,554.3 330.2 332.0 212.4 318.7 194.2 195.4 +3.6% +0.5% 303.9 +4.9% 590.3 523.8 459.1 +9.6% 415.7 367.6 277.4
€1,000m €200m 15% 172.6 186.2 125.3 156.1 101.7 790.7 794.9 801.1 805.1 740.9
€0m €0m 0% 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011
Total revenue Five year EBITDA summary Carrier Voice EBITDA margin % Corporate and Reseller Voice Managed Services 1 EBITDA is profit for the year before net finance costs, tax, depreciation, amortisation, foreign exchange and exceptional items. Data
Cash & deposits and debt summary Five year free cash flow summary
€450m €150m
343.7 309.9 300.4 273.6 231.1 101.4
€0m €75m (262.2) (262.2) 9.7 3 2 2.9 19.1 2 49.0 45.7 1 43.3 37.3
€-450m €0m 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011
Cash and cash equivalents and current asset investments 1 Included exceptional inflows of €17m Debt 2 Restructuring payments 3 Excluding MarketPrizm cashflow
Contents OUR BUSINESS 02 Group at a glance OUR PERFORMANCE 04 Chairman’s statement 06 Chief Executive’s review 08 Colt Group S.A Board of Directors OUR GOVERNANCE 10 Report of the Board of Directors 40 Corporate governance statement 53 Directors’ responsibilities statements 54 Corporate Social Responsibility 59 Directors’ remuneration report FINANCIALS 66 Consolidated financial statements 67 Independent auditor’s report 100 Five year summary (unaudited) 102 Company only Annual Accounts 103 Directors’ report 105 Independent auditor’s report 115 Colt’s principal European sales offices 115 Investor information
21101.04 8/02/12 Proof 4 Our vision
To be trusted by all to help organisations run smarter, faster, further
Our mission Our business
To be Europe's leading information delivery platform, providing organisations with: • Best-in-class customer experience • Integrated computing and network services that make a difference to their businesses
Our strategy
• Integrate compute and network services
• Focus our resources on key growth opportunities/markets Our performance • Operate seamlessly and transparently across all our markets • Simplify how we buy, sell and contract • Automate our service and delivery model
Our strategic priorities
High performance Business operational Customer intimacy Innovative solutions excellence portfolio culture Our governance
Our go to market
Communication Services Enterprise Services Data Centre Services Serves small and medium Serves large enterprises Serves medium to sized businesses and service with large-scale large sized corporates providers through branded data centre space
and unbranded solutions Financials
Our assets
Seamless, integrated pan-European sales and service capabilities
Deep network Next Generation Integrated support 19 data centres coverage across Technologies functions (green modular) Europe
ICT portfolio of component based solutions
Colt Group S.A. / Annual Report 2011 1 Stock Code: COLT.L
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What makes us different
European Integrated experience Agile and responsive With pan-European By bringing together assets, systems and computing and network Our unique size and scale processes coupled with services using advanced enables us to quickly local presence and systems and processes, respond to customers. multi-language support we are able to offer We are faster to deliver we are able to go further customers a truly smarter and willing to configure in offering our customers integrated end-to-end solutions to customer a truly consistent experience. needs. experience across Europe.
Some of our awards
Market 1st Winner European partner leader ‘Data Centres in certified to deliver and MEF Ethernet Winner GTB Innovation Europe awards’ VMware’s vCloud Service Provider awards 2011 award for energy data centre of the Year service 2005-2010 centres 2011
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Helsinki
Oslo
Stockholm
Dublin Manchester Copenhagen
Birmingham Amsterdam Hamburg London The Hague Rotterdam Hannover Warsaw Antwerp Berlin Ghent Dusseldorf Cologne
Brussels Frankfurt Luxembourg Paris Prague To USA Stuttgart Our business Zurich Vienna Basel Munich Budapest
Bern Zug Lyon Lugano Geneva Milan Romania SSC Turin
Porto Marseille Bucharest Madrid
Barcelona Rome Lisbon
Valencia Our performance
Helsinki
Oslo
Stockholm
Gurgaon Our governance
Dublin Manchester Copenhagen
Birmingham INDIA Amsterdam Hamburg London The Hague Rotterdam Hannover Warsaw Antwerp USA Boston Berlin New York Ghent Dusseldorf Cologne Chicago Newark Brussels Frankfurt Luxembourg Paris Prague Financials Stuttgart
Bangalore Zurich Vienna Basel Munich Budapest
Bern Zug Lyon Lugano Geneva Milan Turin
Porto Marseille Bucharest Colt data centre – 19 data centres across 10 countries Madrid Metropolitan Area Network (MAN) – 39 cities in 14 countries Barcelona Colt connected city – more than 100 connected cities including four in the USA Rome Lisbon Operational network managed end-to-end – 35,000km of network with direct fibre into 18,000 buildings Valencia Shared service operations – SSCs in Barcelona in Spain, Gurgaon and Bangalore in India, and Sibiu in Romania Network connections between cities are logical paths and may not reflect actual routes.
Colt Group S.A. / Annual Report 2011 3 Stock Code: COLT.L
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Tim Hilton / Chairman
Colt made progress in 2011; we have built a solid foundation and continued to improve revenue mix. We completed the most extensive reorganisation in our history. Our mission to become the leading information delivery platform for European business remains consistent and we are well positioned to take advantage of growth opportunities. Our clear objective is to return Colt to sustainable growth, at the same time being mindful of the challenging economic environment in which we operate. We are ready for the journey ahead.
2011 Focus Strategy Colt has seen many changes over the last five years and Our strategy has not changed and resonates more than 2011 was a year of continued transformation. In line with ever as our customers and their IT departments our strategy to create growth, we completed our move increasingly wrestle with managing real time information, from a geography based to a customer focused model and operating in a regulatory environment and managing created an innovative support structure. We have capital constraints. We have made considerable progress organised our business into three customer-centric in our information delivery platform mission as we leverage Business Units, leveraging shared assets, to serve our our unique compute and network assets to offer an agile customers better. The business is supported by two key platform for sharing, processing, storing and delivering Units; one combines the disciplines of IT, Technology and vital business information. Operations and the other integrates our shared service centres and in-country resources to provide seamless We continue to maintain our competitive advantage by business support. Our customers and people have innovating in the data centre space, investing selectively in welcomed the simplified structure. This year we are our network reach and growing our IT and compute providing individual reporting and business strategy for services as well as extending our overall managed services each of the revenue generating Units. capabilities. We have broadened our industry capabilities and have consolidated our strength in the financial sector Of course implementing change on this scale is always with the MarketPrizm acquisition. challenging, nevertheless I am pleased to report that revenues met market expectations and our balance sheet Corporate Governance remains healthy. We have a strong capital position to Good governance is an important part of our culture and support future profitable growth. It is currently not our values. As a Luxembourg company with a UK premium policy to make dividend payments as our priority remains listing we endeavour to ensure compliance in both to re-invest in people, processes and assets. jurisdictions. We have always been committed to full reporting in compliance with the UK Corporate Governance Code and we have developed our Governance Statement in the Annual Report further this year.
4 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
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Board and Management CSR We were pleased to welcome Anthony Rabin to the Board In 2011 we took the next steps on our CSR journey. We and Audit Committee as a new non-executive Director as successfully delivered the world’s first 100% renewably part of our planned Board refresh programme. Anthony is powered dual-sourced data centre in Iceland. Our future a former CFO of Balfour Beatty plc, with significant recent sustainability plans will concentrate on continuing to Our performance and relevant financial expertise. reduce our impact on the environment and helping our customers reduce their impact on the environment, On 31 December 2011 Richard Walsh stepped down from through innovations such as our award winning modular the Board after serving for over six years. Colt has data centre design. We have enhanced our CSR reporting benefited enormously from his HR expertise, especially on this year. the Remuneration Committee. Finally, Michael Wilens joined the Board on 1 January 2012 and brings with him a Conclusion wealth of experience in the financial services and Overall 2011 was a year of progress. Colt continued to information technology sectors. execute the growth strategy and delivered in line with market expectations amid challenging economic times, Our governance On 22 February we agreed the plans for Hans Eggerstedt despite the distraction of an extensive internal to retire from the Board at the forthcoming Agm to be reorganisation. held on 26 April 2012. It is proposed that he will succeeded as Chairman of The Audit Committee by Anthony Rabin I would like to thank Rakesh, his executive team and and as Senior Independent Director by Sergio Giacoletto. everyone at Colt for their hard work, commitment and Colt is very grateful for his contribution and leadership focus. over the years. In 2012 we will celebrate our 20th anniversary as a We wish Richard and Hans all the best for the future. business. We are ready to invest to serve our customers
better and to deliver profitable growth for our Financials shareholders. Although it is hard to predict the future, I believe that Colt is well prepared and ready to deliver a solid performance for the years ahead.
Tim Hilton / Chairman
22 February 2012
Colt Group S.A. / Annual Report 2011 5 Stock Code: COLT.L
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Rakesh Bhasin / Chief Executive Officer
2011 was a transformational year for Colt. We are pleased with the financial performance having aggressively driven forward our new organisation model, simplifying the way we do business while remaining totally focused on serving our customers. We are Europe's leading information delivery platform and the hard work by our team in 2011 lays a strong foundation to return to revenue growth.
Our progress in 2011 Overall our product mix continued to shift to Data and In January 2011 we launched Colt’s new operating model Managed Services with these products accounting for which was designed to drive growth, increase efficiency roughly 64% of revenue compared with 61% in 2010. and improve service effectiveness. The transformation in the way we serve our customers was executed to a tight We achieved EBITDA growth for the seventh consecutive timetable and remains on target to deliver agreed net year. EBITDA of €332.0m included additional expenses of savings of €20.0m in a full year. I am very pleased that the €7.0m associated with the development of the reorganisation caused no major disruption to our MarketPrizm business which was acquired in 2011. customers. Changing our focus, however, did distract our Reductions in both cost of sales as well as operating sales force somewhat. While hard to measure, the expenses driven by our restructuring programme and tight distraction in the form of the bookings rate did have some cost management helped offset the revenue decline. impact on our growth. Twelve months on our customers Operating profit declined primarily due to increased have embraced the change and our sales force has depreciation from our investment programme. Much of adopted the new approach, allowing us to have a more this investment is related to long-term assets which will focused approach on product development and service support our future growth. delivery. Our investment programmes are organised around opportunities for growth specific to particular We delivered a strong cash performance in the fourth markets which is resonating well with our customers. quarter. Whilst some of the cash generated is due to timing around the payment of vendors, cash from As part of the reorganisation we added more depth to the operating activities grew by 20%, excluding the cost of our Executive Committee by recruiting Simon Walsh to lead restructuring programme. We ended the year with the Enterprise Services business and Bernard Geoghegan €343.7m of cash and short-term investments on our to lead the Data Centre Services business. Mark Ferrari, balance sheet. previously a non-executive Director, became CFO. They all bring an immense amount of capability to the team and of Strategy equal importance, strengthened the team dynamic. I am Our strategy is built around the changing IT landscape. We increasingly confident that we not only have a team that believe we have unique assets and the right operating has the depth of experience and the ambition to deliver model to take advantage of this change. Our investment growth but it is also a team that wants to work together to programme, which is reflected in increased capital spend deliver our goals. totalling €279.5m in 2011, is focused on three key areas: expansion of capacity and reach in our data centre and Data and Managed Services showed moderate growth network assets; development of network and compute rates while Voice revenue declined by 7.7%, mainly due to solutions and systems / tools to enable end-to-end service regulatory driven price declines, though this stabilised integration; and streamlined interaction with our over the latter half of the year. Voice revenue from customers. wholesale trading increased due to enhancements made in the platform in 2010/2011.
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Over the last two years we significantly increased our We have significantly increased spend on our information investment in our data centre capacity business to support systems. This allows our customers a seamless experience our growth. Our innovative modular design is transforming to buy and manage their network and compute services in the industry and in September we announced our first an integrated and easy to use manner. Our new go-to- modular data centre to be installed at a customer site in market approach and the benefits being realised by our Our performance Iceland. It is the first of this scale to be shipped overseas, customers through our investment programmes resulted in the first wholesale data centre in Iceland and the first 100% an increase in customer satisfaction in the year. renewably powered dual-sourced data centre in the world. The time for Colt to design and implement a modular data We believe our investment programme is vital to capturing centre solution is only four months. This agile approach the opportunities in the IT and network markets. The means that future requirements can be assessed on a far widespread rate of adoption of cloud computing is more frequent basis, allowing our customers and Colt to increasing daily and we predict that it is the future. make far less speculative investments. Through our investments we are building the foundations for the long term. In 2011 we continued to reinvest in our network footprint, Our governance increasing our capacity and reach even further. Our Outlook customers are telling us where the opportunities are and Colt enters 2012 as a stronger business. Notwithstanding we are focused on identifying areas of dense computing current macro-economic uncertainties we have such as data centre locations to drive expansion. strengthened relationships with our customers who want to procure more of our services. The groundwork laid On the products and services side, we are making through our reorganisation and investment programmes significant progress in the development of our cloud gives Colt a solid foundation to continue the computing services within our Managed IT Infrastructure, transformation from a network connectivity provider to an Managed Network Services and Unified Communications integrated compute and network services provider. We
offerings. We accelerated our investment in transitioning expect to return to revenue growth in 2012 and beyond. Financials ‘end of life’ technology from service, including migrating 3,000 customers to our next generation IN platform. We also expanded our vertical sector capabilities and strengthened our financial services sector position though the acquisition of MarketPrizm, a trading technology company, in May. This attainment enables us to offer our customers market data content through ultra-low latency exchange connectivity and proximity hosting.
Rakesh Bhasin / Chief Executive Officer
Colt Group S.A. / Annual Report 2011 7 Stock Code: COLT.L
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01 02 03
04 05 06
01 04 Andreas Barth Hans Eggerstedt Non-executive Director, 67, was appointed to the Board on Senior Independent Director, 73, was appointed to the Board 1 September 2003. Andreas was formerly a member of the on 2 June 2003. Hans is a non-executive Director of Jeronimo Supervisory Board of TDS Informationstechnologie. He was Martins (Portugal) and Jeronimo Martins Dystrybucja previously Senior Vice-President of Compaq Computer (Poland). Hans was previously Group Finance Director of Corporation and has also worked for Thomson-CSF, Texas Unilever. Instruments and Ford. 05 02 Mark Ferrari Rakesh Bhasin Executive Director, 54, appointed to the Board on 1 January Chief Executive Officer, 49, was appointed to the Board on 2009 as a non-executive Director and became CFO on 13 December 2006. Rakesh was previously President and Chief 31 March 2011. He is also an advisory board member of KVH. Executive of KVH Co. Ltd, a Fidelity Asia-focused telecom and He was previously Chief Operating Officer of Fidelity Capital data centre services provider based in Tokyo and remains as and Devonshire Investors and Fidelity Broadband Group and non-executive Chairman of that company. Rakesh has served as Chairman of FIML Natural Resources and Backyard previously held senior positions at AT&T and Japan Telecom Farms Holding LLC and as director on the boards of a number Company Limited. of other Devonshire portfolio companies. Prior to joining Fidelity, Mark was Vice President of Finance at Kronos Inc and 03 began his career at Ernst & Young. Vincenzo Damiani Non-executive Director, 72, was appointed to the Board on 06 23 July 2002. Vincenzo is President of VIDA Consulting Srl. Gene Gabbard Vincenzo is also Partner of Multipartner SpA and non- Non-executive Director, 71, was appointed to the Board on executive Director of Mediatica SpA. He is a former 6 January 2005. Gene was previously Executive Vice President non-executive Director of Banca di Roma and was previously and Chief Financial Officer of MCI Communications Corporate Vice-President of EDS Corporation, President of Corporation (now Verizon), founder, Chairman and CEO of Digital Equipment Europe and General Manager of IBM Telecom USA and President of M/A-Com DCC. He also served Europe. as advisor to the Walt Disney Company, Telecom Italia and Nippon Electric Company. Gene is a member of the boards of NetCracker Technology Corporation, Knology, Inc., and Tower Cloud Inc.
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07 08 09 Our business
10 11 12
07 10 Sergio Giacoletto Anthony Rabin Non-executive Director, 62, appointed to the Board on 22 July Non-executive Director, 56, appointed to the Board on 20 July 2009. Sergio was Executive Vice President of Oracle 2011. He has been an executive Director of Balfour Beatty plc Corporation, Europe, Middle East and Africa. Prior to joining for nine years, six as Chief Financial Officer and three as Our performance Oracle he was President, Value Added Services at AT&T having Deputy Chief Executive, where he has global responsibility for previously spent 20 years with Digital Equipment Corporation the Group’s Investment Division and for Risk Management and in various senior management and executive roles. He is Assurance across the Group. He is a Fellow of the Institute of currently the Senior Independent Director of Logica Plc, a Chartered Accountants in the UK. non-executive Director of CSR plc, Chairman of Telepo Ltd, an Operating Partner with Advent International and a non- 11 executive Director at Oberthur Technologies SA. Richard Walsh Non-executive Director, 65, was appointed to the Board on 08 1 June 2005 and resigned on 31 December 2011. Richard serves
Simon Haslam as a Managing Director of Fidelity Investments and is a Our governance Non-executive Director, 54, was appointed to the Board on director of FIL Limited. Richard has held a number of other 16 January 2007. Simon is President of the Moonray Investors senior positions within the FMR and FIL organisations and was division of FIL Limited. He is a director of FIL Limited and of previously with Digital Equipment Corporation. various of its subsidiaries and of funds managed by FIL Limited and its subsidiaries, and is also a non-executive 12 Director of KVH Co. Ltd. He is a Fellow of the Institute of Caroline Griffin Pain Chartered Accountants and was previously an audit and Company Secretary, 47, was appointed as Company Secretary consulting partner with Deloitte, and a non-executive Director to the Board in April 2005. Caroline joined Colt from a Reuters of Euroclear plc. joint venture, Radianz, where she was Company Secretary Financials having previously held senior management positions at 09 Antfactory and Rea Brothers Group plc where she was General Tim Hilton Counsel. Chairman, 59, was appointed to the Board on 26 May 1999 and as Chairman on 16 January 2007. Tim is Chairman of DI International, a private equity affiliate of Fidelity Investments. Michael Wilens Tim previously served successively as President of Fidelity Non-executive Director, 58, was appointed to the Board on Capital, Fidelity Broadband, Fidelity Ventures and Devonshire 1 January 2012. Michael has served as President of both Investors. Before joining Fidelity Investments in 1996, Tim was Fidelity’s Asset Management division and Fidelity’s Enterprise a partner of the US corporate law firm Sullivan & Worcester Technology and Operations division. He was previously CEO LLP. of Thomson Reuters North American Legal division (Westlaw) and CTO at Thomson Reuters. He also served as CEO of Legion, a division of Group Lagard and was CEO/co-founder of several software and information company start-ups.
Colt Group S.A. / Annual Report 2011 9 Stock Code: COLT.L
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Colt delivers best-in-class media connectivity for the Lagardère Group The Lagardère group delivers heterogeneous business critical stream workflows and broadcast live content through Colt’s reliable connectivity services
The face of the media industry is changing at a rapid rate. Lagardère, operating across services including books, press, broadcast, digital, travel, retail and press distribution, sport industry and entertainment, required the ability to publish content to customers in a variety of different formats but with superior reliability. Colt’s information delivery platform and technical expertise in this market ensures high speed data connectivity and video streaming, coupled with a comprehensive range of market leading solutions.
“Working with Colt for the last eight years means working with a trusted partner who has become an expert in its field. We appreciate that Colt developed its solutions after establishing a deep understanding of the Lagardère business and media specific requirements. As we step forward within the fast changing media and digital environments, we look forward to Colt's support in harmonising our business enabling infrastructure and services”. Thierry Auger, Deputy Chief Information Officer, Lagardère
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The Directors submit their report and audited consolidated financial statements for the year ended 31 December 2011. For the purposes of this report, ‘Company’ means Colt Group S.A. and ‘Group’ or ‘Colt’ means the Company and its subsidiary undertakings.
Principal activity Customer intimacy: We are investing in solutions that The Company is the holding company for the Group and is address specific industry challenges. We are able to domiciled in Luxembourg. The principal activity of the design, build and manage complex computing and Group is the provision of business communications and IT network solutions across Europe. In embracing our solutions and services within Europe. The Company has a customers' agendas we are part of their ‘virtual’ team. premium listing on the London Stock Exchange. Innovative solution portfolio: We will continue to launch Business review innovative products and services in the computing and This Report of the Board of Directors sets out an overview network space. Our modular build data centre solution of the development and performance of the business, a enables delivery of fully functional data centre and description of the principal risks and uncertainties facing pan-European capabilities in a fraction of the time it Colt and an indication of likely future developments. normally takes.
Group Strategy High performance culture: We are operating a culture Our business To help our customers succeed by providing where we live our values with openness and transparency, comprehensive integrated computing and network where we think and behave as one company and where we services that are delivered and managed seamlessly focus on delivering a best-in-class customer experience throughout Europe and beyond. every time.
Our strategic priorities are: Organisation development and business model In 2011 we completed our organisational simplification Business operational excellence: We are developing and which was designed to drive growth, increase efficiency and automating our core processes to enable repeatable improve service effectiveness. We are on track to deliver solutions. This enables us to reduce our unit costs and related net recurring annual efficiency savings of €20.0m. provide our customers with reliable solutions which are We believe we have created a business model which will
delivered with minimal customer overhead and maximum create and deliver value for our shareholders. We now have Our performance customer service. three market serving Business Units (see below and pages 19 to 28) focused on the needs of their customers, each mandated to shape their business to best meet those needs and to identify and take advantage of growth opportunities. These Business Units are supported by the internal service units: Infrastructure Services Unit (see page 30) and our Business Services Units (see page 31).
Business Unit Market segment Channel Solutions offered
Managing Managed IT Unified Our governance Networking Solutions Comms and Solutions Collaboration Corporates and Enterprises Solutions Direct
Services Vertical Propositions Enterprise
Integrated SME and Large Enterprises Voice Financials Data Network and Branded (indirect) & IN
Agent) Compute offering (telesales, (telesales, Franchise, Franchise, Distribution Distribution
Services Colocation, Large Enterprises Voice Managed IT Data Unbranded (indirect) & IN Services and Communication
Reseller) Cloud Computing (Carrier + (Carrier Wholesale
Wholesale Data Centre Large Service Providers Large, turnkey, modular data centres on Colt or customer site Indirect Direct and Direct Services Data Centre Data
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Chief Financial Officers Review “I am pleased to report that in 2011 despite a challenging economic environment we have continued to improve gross margins, increase EBITDA and generate solid cash returns despite the impact of higher restructuring spend and capital expenditure. We end the year with net funds of €343.7m.”
Mark Ferrari / Chief Financial Officer
Financial review
Our financial progress in 2011 Exclusive of self-initiated churn of less profitable 2011 was a year that saw significant change in our customers and asset sales, Managed Services revenue organisation as well as turbulent economic conditions in would have grown by 6.9%. Data centre revenue from Europe, particularly over the latter half of the year. We are external customers of €36.5m grew by €11.1m due to new pleased that overall we maintained our financial contracts related to our modular data centre in London as performance in light of these factors as well as significant well as sales of modular components to enterprise regulatory led declines in voice pricing. customers.
Looking at the broader financial picture, total revenue Voice revenue fell by 7.7% overall for the year with declined by 1.9% (2.4% in 2010) with growth in Data and the majority of that occurring in the first half (11.3% Managed Services being offset by declines in Voice decline compared to 3.9% for second half of 2011). The revenue. Gross margin percentage and EBITDA increased stabilisation of Voice revenue over the latter part of 2011 slightly while operating profit before exceptional items was driven by increasing revenue from our wholesale declined by 17.0% due to increased depreciation resulting trading unit. We expect the pace of regulatory driven from our investment programme. The Company generated declines in 2012 to slow from the pace seen in 2011 €43.3m in cash during the year despite the funding of our which included a 50% reduction in German mobile reorganisation and our investment programme. termination rates.
Total revenue Total revenue for 2011 amounted to €1,554.3m, a decline of 1.9% over 2010. The decline in Voice continued to offset growth in Data and Managed Services revenue.
Data revenue grew by 0.5% with Ethernet growth of Five year revenue summary 10.6% being offset by declining legacy products and €2,000m lower asset sales.
1,679.6 1,675.4 1,622.5 Managed Services revenue, including data centre related 1,583.6 1,554.3 246.7 235.6 212.4 revenue, grew by 7.9% due to a variety of factors including 194.2 195.4 underlying recurring revenue from Managed Services and 590.3 523.8 459.1 415.7 367.6 increased revenue from our wholesale data centre business. Managed Services revenue grew by 1.6% €1,000m (exclusive of wholesale data centre revenue). 172.6 186.2 125.3 156.1 101.7 790.7 794.9 801.1 805.1 740.9
€0m 2007 2008 2009 2010 2011 Total revenue Carrier Voice Corporate and Reseller Voice Managed Services Data 12 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
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Cost of Sales and Gross Profit Operating Profit2 declined by €13.7m (17.0%) due to an Cost of sales before exceptional items decreased by 2.2% increase in overall depreciation reflective of the to €1,096.0m in 2011 as a direct result of declining voice Company’s investment programme which is described in termination costs. Gross profit before exceptional items more detail in our discussion of Cash Flow and Capital declined by 1.1% as compared to the 1.9% decline in Expenditure. revenue. As a percentage of sales, Gross Profit before 1 EBITDA is profit for the year before net finance costs, tax, depreciation, exceptional items increased slightly to 29.5% (29.3% in amortisation, foreign exchange and exceptional items. 2010) due to the change in product mix and improving 2 Reported amount is excluding the exceptional items in 2010. Voice direct margin.
Data direct margin fell slightly due to a higher volume of off net locations related to new sales.
Five year gross profit summary Five year operating profit summary (before exceptional items) (before exceptional items) €500m 50% €100m 10%
452.8 462.7 459.9 463.4 458.3 86.3
80.6 Our business 76.3 66.9
€250m 25% €50m 55.3 5%
€0m 0% €0m 0% 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Our performance
Gross profit Operating profit (excluding exceptional items) Gross profit % Operating profit margin
Operating expenses (before exceptional items) Exceptional Items Operating expenses (before exceptional items) of €391.4m There were no exceptional items in 2011. The Company (2010: €382.8m) increased by 2.2% (€8.6m) as savings realised a charge of €30.1m in 2010 related to severance from the restructuring programme were offset by costs associated with the restructuring of its organisation. inflationary increases, spending by MarketPrizm and other During 2011, the programme was executed according to depreciation from recent IT investments. plan with a cumulative cash outflow of €22.0m through to
31 December 2011 related to the programme. A remaining Our governance EBITDA and Operating Profit provision of €7.5m is included in the balance sheet at that EBITDA1 increased slightly (0.5%) in the year reflecting the date to cover final actions related to the programme which general comparability of gross profit and selling, general will occur in 2012. The Company has achieved its targeted and administrative costs between 2011 and 2010 albeit on savings from the programme for 2011 and overall expects lower revenues. to deliver net cost savings in line with the €20m target.
Five year EBITDA summary MarketPrizm acquisition During Q2 2011 Colt completed the acquisition of a €400m 30% majority stake in MarketPrizm which offers a market trading platform utilising ultra-low latency technology Financials which allows customers to access multiple financial 330.2 332.0 318.7 exchanges to support execution of best price equity and 303.9 +3.6% +0.5% +4.9% other financial instrument trades. The acquisition enables 277.4 +9.6% Colt to deepen its offering in its largest sector – financial services. MarketPrizm is included in Managed Services €200m 15% revenue and contributed €3.4 million in revenue and an EBITDA loss of €7.0m in the period.
€0m 0% 2007 2008 2009 2010 2011
Five year EBITDA summary EBITDA margin %
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Taxation Cash flow The Group recognised a taxation charge for the year of The normal statutory cash flow format has been amended €9.7m compared to a credit of €24.2m in 2010. The tax in the presentation below to include free cash flow, a key credit realised in 2010 resulted from recognition of performance indicator of the Group. deferred tax assets related to tax loss carry-forwards as a result of improved operating results in certain tax 2011 2010 jurisdictions. The current tax charge for 2011 of €7.7m €m €m Cash and cash equivalents at start of year 150.4 199.9 increased over that in 2010 of €3.8m due primarily to the
expiration of tax holidays in India. A deferred tax charge of EBITDA 332.0 330.2 €2m was also recognised in 2011 as some tax attributes Non-cash items 1.4 1.2 were realised during the year. Movements in provisions (excluding restructuring) (6.2) (6.2) Total gross tax asset Income taxes paid (3.0) (2.9) 2011 2010 €m €m Movements in payables (10.9) (37.3) Group tax losses carried forward Movements in receivables 26.5 (2.4) – without time limits 2,045.6 1,905.31 Restructuring payments (19.1) (2.9) Group tax losses carried forward Net cash generated from operating – time limited 221.0 234.9 activities 320.7 279.7 Total gross tax losses 2,266.6 2,140.2 Other timing differences 1,084.3 1,146.4 Net interest 2.1 1.1 Total gross tax asset1 3,350.9 3,286.6 Capital expenditure (279.5) (231.8) Free cash inflow 43.3 49.0 1 Total gross tax assets includes recognised and unrecognised tax assets.
The majority of the brought forward time limited losses Acquisition of subsidiaries – (63.5) expired during the year and the balance must be utilised Redemption/(purchase) of bank deposits 90.0 (40.0) by 31 December 2026; all must be utilised in the country of Net movement in cash and cash origin. They remain subject to legislative provisions and to equivalents 133.3 (54.5)
agreements with the various tax authorities in the Effect of exchange rates on cash balances 5.0 jurisdictions in which the Group operates. The other timing – Cash and cash equivalents at end of year 283.7 150.4 differences mainly arose from our assets being Add back 3-12 month deposits 60.0 150.0 depreciated more quickly in our financial accounts than in our tax accounts. Net cash and deposits at end of year 343.7 300.4
Profit after tax Free cash flow, excluding the impact of restructuring Profit after tax (before exceptional items) decreased by payments (€19.1m in 2011 and €2.9m in 2010) increased to 38.5%, mainly attributable to the movement in the tax €62.4m from €51.9m in 2010. Net cash generated from charge and higher depreciation expense. Including the operating activities (excluding restructuring payments) 2010 exceptional restructuring charge of €30.1m, profit increased to €339.8m, up by 20.2% over 2010 due to an after tax decreased by 12.5% to €62.3m (2010: €71.2m). improvement in working capital management. We saw a significant improvement in collections over the second half of 2011 following centralisation of our credit and collections operation in Barcelona earlier in the year. Trade receivables ended the year €7.5m lower than 2010. Working capital also benefited from lower outflows on the payment of trade payables due to the timing of our calendar year end. We would expect that approximately €25.0m of this benefit will reverse in the first quarter of 2012.
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Net capital expenditure increased by €47.7m to €279.5m Cash and deposits and debt summary (2010: €231.8m) reflecting continued spend on expanding our data centre and network footprint and capacity; €450m significant investment in the Company’s IT infrastructure to drive cost efficiency and, more importantly, to provide a 343.7 309.9 300.4 platform for selling integrated computing and network 273.6 solutions; and ongoing product development, including 231.1 the development of our cloud computing platform as well as an upgrade of our IP and IN Voice platforms. €0m (262.2) (262.2) Capital expenditure
2011 2010 €m €m Customer order related 122.0 113.4 Data Centre Services 49.3 24.1 Internal IT 45.1 29.3 €-450m Product and Services Development 28.0 27.5 2007 2008 2009 2010 2011 Network 28.6 34.1 Cash and cash equivalents and current asset investments Other 6.5 3.4 Our business Debt Total 279.5 231.8
Capital expenditure relating to customer order revenue is Statement of financial position primarily expenditure on new equipment both on Non-current assets increased by €9.9m to €1,449.0m customer premises and elsewhere in the network to (2010: €1,439.1m) with the impact of capital expenditure support the acquisition of new customer contracts. These being largely offset by the higher depreciation charge and contracts are typically medium to long term in nature. exchange differences arising on translation of non-Euro Capital expenditure in relation to customer orders grew by denominated operations. €8.6m in 2011 to €122.0m. The movement in net working capital balances, comprised Capital expenditure relating to data centre capacity in 2011 of receivables, payables and provisions are discussed in Our performance increased by €25.2m mainly related to the expansion of the cash flow section on page 14. data centres and the installation of modular build halls in the UK and France. Colt continues to invest in three to six month bank deposits, which are classified as current asset investments. Internal IT represents spend on internal systems and increased by €15.8m in 2011 to provide a platform for Net cash and deposits of €343.7m increased by €43.3m, selling integrated cloud computing and network solutions. reflecting the free cash inflow for the year. Revenue-driving Product and Services Development spend Shareholders’ funds increased by €77.0m to €1,448.2m increased by €0.5m. (2010: €1,371.2m) mainly due to the profit for the year. Our governance Spend on network capacity and upgrades reduced by €5.5m after significant upgrades in 2010. Financials
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Key performance indicators Colt’s key performance indicators (KPIs) for 2011 are detailed overleaf and discussed within the Financial Review.
The Board of Directors monitors the financial performance of the Group’s operations on a regular basis. The KPIs have been calculated in line with the values presented in the financial statements unless otherwise stated. Details of the most significant KPIs used by the Group along with explanations of how the KPIs have been calculated and their purpose in assessing the performance of the business are set out below.
Group revenue 2011 €1,554.3m Revenue and its growth are used for internal performance analysis 2010 €1,583.6m to assess the overall performance of the business.
Data revenue 2011 €805.1m The level and growth of higher margin Data revenue is also used to 2010 €801.1m assess the performance of the business.
Managed Services revenue 2011 €186.2m The level and growth of higher margin Managed Services revenue 2010 €172.6m is also used to assess the performance of the business.
EBITDA 2011 €332.0m EBITDA is profit for the year before net finance costs, tax, 2010 €330.2m depreciation, amortisation, foreign exchange and exceptional items. We believe that EBITDA represents a meaningful measure of the underlying operating profitability of the Group. The acquisition of MarketPrizm in 2011 reduced EBITDA in that year by €7.0m.
Profit before tax and 2011 €72.0m Profit before tax is used as a measure of the overall profitability of exceptional items 2010 €77.1m the Group.
Free cash flow 2011 €43.3m Free cash flow is net cash generated from operating activities less 2010 €49.0m net cash used to purchase non-current assets and net finance costs paid. Free cash flow provides a measure of the cash generated from the Group’s operations. Exclusive of payments for restructuring and MarketPrizm, cash flow would have been €72.1m in 2011 and €51.9m in 2010.
Capital expenditure 2011 €279.5m Cash capital expenditure is the amount of the Group’s funds which 2010 €231.8m have been spent on the purchase of assets retained within the business.
Mark Ferrari / Chief Financial Officer
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Colt helps Shurgard increase annual turnover by €5m Shurgard converts more business opportunities by answering an additional 50% of incoming calls
A unified communications and collaboration solution from Colt is helping Shurgard, the European self-storage leader, to dramatically improve its sales response rate and convert many more prospects to customers. Phone enquiries are the primary source of Our governance sales for Shurgard but the company was previously managing to answer only 60% of its incoming calls. It needed to take control of its phone channel with increased visibility of call pick-up rates and the ability to capture all incoming calls and route them to a suitable answering point, whilst reducing the recurring costs of its Europe-wide telephony services. The Colt solution provided this and Shurgard is now answering 90% of incoming calls.
“Colt’s European scale makes it an ideal partner for our activities. Thanks to the Colt solution we’re meeting our target of answering at least 90% of incoming calls – that’s 50% more than before. Financials We can generate daily, weekly and monthly reports easily and efficiently, and use them as a basis for optimising our service to customers and our income flow. I’d never thought that an integrated IT system could play such an essential role in improving the performance of an enterprise.” David Coupez, Chief Information Officer, Shurgard Europe
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Commerzbank selects Colt for the modernisation and future operation of its wide area network in Germany
The optimisation of the wide area network is taking place following the conclusion of the integration of the Dresdner Bank IT into the systems of Commerzbank. In the course of this IT integration, Commerzbank focused on the successful modification of the applications and the migration of data. The performance of the network needed to be enhanced through the deployment of new technology, thus enabling short reaction times at the bank even under changing requirements.
“Colt not only offers highly available and fast data transfer but also a high degree of service quality. This has been demonstrated in the course of our long-standing cooperation.” Boris Wiegmann, Senior Project Manager at Commerzbank AG.
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Colt Enterprise Services (CES) “Colt Enterprise Services is focused on serving the infrastructure needs of our customers, typically delivering technology solutions to mission-critical and revenue generating business agendas of Chief Information Officers. We deliver this through the combination of technology, processes and tools, all fully supported through ITIL skilled resources across Europe. Our latest customer solutions have seamlessly glued together the network, compute, data centre, storage, applications, services and utility billing, which has helped our clients reduce time-to-market, increase their revenues and reduce their costs.” Our business
Simon Walsh / Executive Vice-President
CES at a glance Our strategy Colt Enterprise Services solves IT-related business problems, expressed in terms of the business needs that We serve medium to large sized corporates typically our enterprise customers are seeking to resolve. We focus through the internal IT organisation. We provide a range of on four key customer priorities: technical solutions that address the business needs of our
customers. Our services include Managed Networking, Our performance Business transformation Managed IT services and Unified Communications Turning IT into a strategic tool for the business; finding the solutions, including the provision of the underlying right balance of efficiency and effectiveness (optimising IT technical architectures as well as the 24×7 support for for business needs); helping the business to innovate; and permanent availability. ensuring that IT can adapt quickly and easily to evolving business needs (e.g. through more flexible IT delivery We have packaged our capabilities into a seamless suite of models that can respond quickly to changes in demand). offerings that we refer to as the ‘information delivery platform’. It is through this platform that we combine our Cost control assets, our processes, our people and tools, to deliver a Managing tight budgets; optimising balance of capital fully integrated, seamless service, irrespective of whether
expenditure and operating expenditure for the business; Our governance it is compute, storage, network, applications or operating creating the most efficient operations possible; and freeing services. resource for use in advancing business strategies. The information delivery platform helps leverage the Speed to market power of infrastructure-as-a-service, platform-as-a-service Being able to position the business for growth with the and software-as-a-service delivery models to transform help of more flexible IT; helping people work more our customers business. When combined with Colt’s effectively; enabling the business to develop and market strong heritage and assets in networking and solutions, products and services more easily; being able to communications we enable our customers to get to expand into new markets faster or to quickly integrate market faster, reduce risk, manage compliance effectively Financials with partners; being generally more agile and flexible; and and control costs with the reassurance of end-to-end being more innovative in pursuit of business growth. service management. Risk and compliance management Our customers Protecting brand/reputation and intellectual property by We are focused on serving enterprise customers across improving security of systems and data; ensuring business Europe. We provide mission-critical IT and network continuity; and addressing European and national services to national and multinational organisations within compliance requirements effectively. financial services, public sector, media and professional services. We serve 24 of the world’s top 25 financial Our assets institutions, more than 25 European stock exchanges/ Colt Enterprise Services utilises the Group’s core network Multilateral Trading Facilities, 13 European central banks, and data centre assets, whilst adding IT and service the top five providers of financial news and market data delivery expertise to enable our enterprise customers to and seven of the top ten European media broadcasters. outsource their IT and network support needs.
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Colt’s shared services centre in Barcelona provides The changes we implemented in the first half of 2011 are multi-lingual 24x7 support services, whilst our network starting to show positive returns. We are noticing that our operations centres in Europe and India provide 24x7 customers are embarking on more complete adoption proactive remote infrastructure management services. plans rather than just technology change alone. Whilst we see this as increasingly positive for our business, we see Competition the sales cycles as a little longer, given customers' Colt Enterprise Services competes against a range of integrated needs for network with compute services, to different providers, depending on the technical solution achieve their cloud infrastructure services realisation. and the geography. These include network service providers (such as BT Global Services, Cable & Wireless, MarketPrizm Deutsche Telecom, Orange Business Services, Savvis, Colt acquired MarketPrizm in May 2011 furthering our focus Telefonica, Verizon Business), systems integrators (such as in providing managed services for trading firms. This Accenture, CapGemini, Dimension Data, Fujitsu, Orange vertical proposition strengthens our relationships with our Business Services, T-Systems), hosting providers (such as finance sector customers and leverages our information Amazon, Equinix, Interxion and Rackspace) and computing delivery platform to provide ultra low latency market data hardware and software service providers (such as EMC, HP, services to the finance sector. It also provides a gateway to Microsoft and Oracle). We continue to leverage our a more global model and entry into a fast growing Asia pan-European assets to increase both our customers and Pacific region. Recent legislation has created a need for share of wallet of our existing customers, through the trading firms to access multiple exchanges/MTFs. With expansion of our portfolio and increased services focus. fragmentation came complexity and cost as financial services firms needed to replicate network, data, Financial performance colocation, and execution services with multiple In 2011 we embarked upon a significant change exchanges. MarketPrizm provides a single interface/API via programme that involved restructuring our sales force to which customers can access market data from multiple meet our customer needs. Implementation of this change exchanges enabling a lower unit cost and more flexible had an impact on revenue performance, particularly in the model for traders. first half of the year. Data revenue fell by 0.5% with continued demand-led growth in Ethernet revenue offset MarketPrizm’s ‘vendor of record’ status and colocation by reduced demand for legacy Data products. Voice presence in 23 venues in the EMEA region allows revenue declined by 10.0% due to continuing competitive customers to deploy their applications in colocation with pressures and reductions in mobile termination rates no contracting headaches and a faster time to market. In arising in Germany with the remainder spread across other addition, MarketPrizm’s prebuilt preconfigured ultra low markets. The decline slowed compared to the reduction in latency network enables the best data distribution paths 2010. Managed Services revenue grew by 1.5% as revenue to and across venues in Europe. MarketPrizm customers from new customers more than compensated for a are both sell-side and buy-side clients seeking low latency deliberate strategy to bring certain customer contracts to solutions in multiple markets without the fuss of traditional an early termination to free up space at premium data DIY solutions, offering greater flexibility and speed. centre locations. MarketPrizm is launching PrizmNet in Asia in Q1 2012 with EBITDA decreased by €3.4m to €100.8m (2010: €104.2m) Japan, Australia and Singapore as initial markets. We will primarily as a result of the revenue decline mentioned provide raw and normalised data to clients in Asia and above. Our direct Data margins also declined slightly as a those in the USA and EMEA wanting to trade Asia for consequence of an increased mix of ‘off net’ locations in equities and derivatives. Future markets in 2012 Q2 and Q3 new wins. Selling, general and administrative costs were include India, HK and Korea. broadly flat, balancing short-term revenue performance with a longer term view of skills needed to grow our solutions capability.
20 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Report of the Board of Directors / continued Our business Our performance Scalability on demand from Colt allows Sega Europe to reduce games testing time by 70% Games publishing becomes digitalised for Sega Europe with the Colt Enterprise Cloud
Sega Europe develops and tests games products across the year with fluctuating frequency and so needed an ‘always available’ IT infrastructure which didn't incur a high CAPEX and OPEX burden. The Colt Managed IT solution allows Sega to manage infrastructure availability and costs in a far more flexible way, allowing the team to easily scale up capacity when needed and reduce when not needed. This can be achieved almost Our governance instantly and without the CAPEX and infrastructure management burdens previously experienced. By moving the code delivery of new games to an Enterprise Cloud Environment, Sega has improved the testing experience for both its internal and external testers, whilst reducing testing time by 70%. This means getting a better quality, bug free game to market sooner.
“Unlike with other suppliers, we now have an infrastructure where we understand the end-to-end environment, and we have a strong
SLA to match. Colt provides us with a virtual data centre all over Financials Europe which allows our customers to benefit from improved latency within their test environment. We’ve always known Colt as a world class service provider, but we’ve since realised that working with them is effortless. Their communication and project management skills are superb, it’s been a pleasure.” Francis Hart, Systems Architect, Sega Europe
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Value-added distributor Magirus appointed as Colt’s first cloud services distributor Magirus to offer its reseller partners access to Colt’s cloud infrastructure
Colt has appointed value-added distributor, Magirus as its first cloud infrastructure services distributor. This move represents a new direction for Colt’s channel partner programme with the introduction of an IT distributor to its partner community for the first time. This will enable Colt to benefit from the expertise of a specialist network of IT resellers further extending the reach of its VMware vCloud Datacenter Services to markets across Europe. Colt specifically selected Magirus as its first distributor partner for its extensive expertise and focus on infrastructure solutions including data centre, virtualisation, storage and security. Magirus' broad European footprint and close relationships with Colt’s technology partners, VMware, EMC and Cisco were also factors.
“Colt’s vCloud service offering is an important first building block in our cloud services strategy for the channel, allowing our reseller partners to immediately start to build their own cloud services offerings with Colt’s infrastructure service at the core. This strategic partnership establishes an important role for distribution in the future of cloud computing. It’s natural that we partner with Colt as its pan- European footprint matches ours and its cloud data centres are built on the Virtual Computing Environment (VCE) integrated VMware, Cisco and EMC platform – technologies which we already distribute across EMEA.” Christian Magirus, executive vice-president & Chief Operating Officer (COO), Magirus
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Colt Communication Services (CCS) “Colt Communication Services provides the information delivery platform to both large service providers and to a network of partners and agents who service SME customers at a local level. The core infrastructure of Colt is utilised and enhanced by focusing on transactional products and services that enable us to deliver high quality, repeatable solutions to our customers that will be easy for them to order and implement.”
Francois Eloy / Executive Vice-President Our business
CCS at a glance
We specialise in the provision of services through a range Our Strategy of indirect sales channels to serve the business needs of Channel transformation small and medium-sized businesses and enterprise Today customers are seeking highly specialised local IT customers. resellers to help them navigate cloud-based services. We have all the right assets and product sets to support this Our services include designing highly configurable shift and in response to customer requirements we are Our performance solutions, from simple telephony, Internet and network extending our geographic reach by broadening our services, to ‘pay as you go’ software as service offerings. partner base to help our customers adopt these new We manage both the network and data centre cloud-based services. infrastructure and offer built-in resilience, security and performance that few can match. Our portfolio is We have built two new channels this year, a ‘Franchise’ supported by customer service in local language through channel and a specialist distributor. Our ‘Franchise’ our pan-European network of partners and agents. channel is designed to support small and medium-sized customers with a reseller business model. In November we Our offering includes a broad range of voice, broadband appointed a specialist distributor, Magirus, our first cloud and data communications services, including IT and services distributor. This move allows us to reach a network services for fixed and mobile network operators, specialist network of IT resellers who have the necessary Our governance internet service providers and telecoms and IT skills to sell cloud services to small and medium-sized resellers. Our network and services are available to other businesses. Magirus was selected as Colt’s first distributor communication providers, which gives them an alternative partner for its extensive expertise, broad European to building their own network infrastructure. footprint and close relationships with Colt’s technology partners, VMware, EMC and Cisco. Our customers Through our pan-European selected resellers, agents and Automation franchises we serve more than 26,000 small and medium- We are also continually looking at ways to improve the sized enterprises (SMEs) across Europe. Our wholesale way we deliver services to our customers and as part of customers are fixed and mobile operators, internet service this focus, we are creating a 'factory' capability that will Financials providers (ISPs) other communication providers and enable us to deliver high quality, volume-capable, resellers. We have over 1,600 such customers across standardised, scalable solutions to our customers that will Europe; many of these providers are also competitors. be easy for them to order and implement.
Network expansion Colt’s wholly owned network is critical to delivering reliable comprehensive communication services to our customers. Our network includes direct fibre to more than 18,000 buildings across 22 countries with Metropolitan Area Networks (MANs) in 39 cities. As one of the leading pioneers of next generation converged networks, our European Ethernet and IP networks connect seamlessly and securely to major European cities. We are strengthening our geographic coverage to provide
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wholesale and retail customers with deeper and wider Financial performance coverage nationally and internationally. Our strategy is Data revenue in 2011 grew by 1.4%. The Ethernet portfolio focused on connecting new buildings, strategic business continues to deliver strong revenue growth, particularly in sites and expanding our long distance network connecting the UK, Germany and France, and our IP services have also new cities. started to return to growth. Revenue from legacy Data products continued to decline partially offsetting the Assets Ethernet and IP growth. In 2011 we began to see growth in CCS utilises the Group’s core network and data centre Managed Services revenue of 2.3%. Carrier Voice revenue assets, whilst adding IT and service delivery expertise to reversed the declining trend seen in recent years and support our customers’ needs. Colt's shared services increased by 0.6% driven by International traffic and centre in Barcelona provides multilingual 24×7 support extensions in Voice over IP-based interconnect desk services, whilst our network operations centres in relationships, helping to offset regulated rate declines. Europe and India provide 24×7 proactive remote Corporate and Reseller Voice revenue declined by 12.3% infrastructure management services. due to continued competitive pressures and German mobile termination rate reductions. There have however Competition been signs of growth in demand for our white label voice In the fixed-line market Colt competes primarily with the offering. The reduction in total revenue combined with an local and national incumbent Public Telephone Operator increase in bad debt charges, resulted in a decrease in (PTO) and for voice, data and managed services traffic EBITDA of 1.5% to €186.4m (2010: €189.2m). with a number of alternative service providers and for cross-border business with pan-European operators. The voice market is also subject to competition from VoIP operators, who have offerings in the small and medium size corporate markets.
Intercall continues to lead the European conferencing industry with the support of Colt’s voice network Colt supplies reliable connectivity to connect InterCall EMEA conferencing platforms. These connections deliver approximately 60 million minutes of voice conferencing traffic per month
As the world’s leading conferencing supplier, InterCall requires reliable, highly scaled network providers to deliver huge quantities of minutes to its conferencing platform on a daily basis. Conferencing participants are always geographically dispersed so InterCall needs a supplier that can deliver and equally high standard of service wherever the caller may be in the world.
“The scale and quality of Colt’s pan European network has helped us meet and exceed the expectation of our customers. The reliability of the network is a key component to the conferencing service we offer and Colt has consistently delivered throughout our long relationship together.” Tom Priestley, EVP Managing Director EMEA, InterCall
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L’Occitane en Provence secures critical applications to enable business growth in Europe with Colt Colt supports L’Occitane en Provence's new ERP foundations through the delivery of a core European WAN between the largest entities of the Group, along with SIP Trunk connectivity to enable VoIP and Video conference
L’Occitane en Provence provides high quality, luxury beauty products throughout the world via Our governance more than 200 retail agencies across Europe. Supporting the international growth of the group, its IT department undertook a major change to its SAP-based ERP to deliver faster and more secure access to its core business applications throughout key production sites, regional antennas, the company's headquarters in Manosque and its retail agencies. In order to achieve this, Colt was trusted to deliver a highly secure European IP VPN connectivity between core entities, along with SIP Trunking underpinning both VoIP and video conference.
“The scale and quality of Colt’s pan-European infrastructure and services has helped us meet and exceed the efficiency expectations for Financials our critical applications enabling our business growth. The reliability of the network is a key component to our private networking architecture and Colt has consistently made sure that we benefit from best-in-class security throughout our longstanding relationship.” Jerome Cruzmermy, Network, Telecoms and Security Manager, L’Occitane en Provence
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Verne Global opens for business five months earlier than a traditional build method enabled by Colt’s Modular Data Centre in Iceland Colt ships 500m2 of data centre for Iceland Verne Global, delivering the world's first dual sourced renewably powered wholesale data centre.
Verne Global, a data centre developer and operator, has selected Colt’s Modular Data Centre for its dual-sourced renewably powered facility in Iceland. Colt manufactured a 500m2 data centre hall in the UK that was shipped to Keflavik, Iceland. A total of 37 modules were transported by sea and assembled within weeks at the Verne Global data centre campus in Iceland. Verne Global’s data centre campus is strategically located so its customers benefit from Iceland’s unique power sources of 100% geothermal and hydroelectric power. Colt has customised its modular design to optimise Iceland’s temperate climate to ensure that free, fresh air cooling is available 365 days a year.
“Partnering with Colt enables us to have a purpose-built facility in operation, supporting our mission of delivering the world’s first dual-sourced renewably powered data centre. We see a strong demand in the colocation market and we required a partner who could provide highly resilient, flexible data centre space, configured to our specific technical requirements. With Colt’s modular approach, we have the ability to streamline the design process while leveraging Colt’s factory controlled fabrication process to ensure quality. This approach also provides Verne Global with the opportunity to quickly scale capacity to address customer demand in a rapid timeframe. By taking advantage of Colt's ability to deploy a fully operational data centre in just four months, Verne Global could open for revenue producing business at least five months earlier than with a traditional build method.” Jeff Monroe, CEO, Verne Global
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Data Centre Services (DCS) “Our new data centre looks and feels exactly like a traditional data centre but it can be built in four months compared with 18 months. It is truly flexible and scalable with a range of features so our customers can efficiently deploy capital. This is the solution many CIOs have been searching for. It is transforming the data centre industry.”
Bernard Geoghegan / Executive Vice-President Our business
DCS at a glance
We serve enterprises and corporates who require densely The time for Colt to design and implement a data centre powered, highly efficient data centre space to support solution is only four months. This means that future their compute infrastructure. requirements can be assessed on a far more frequent basis, allowing our customers to make more informed and The growth in data coupled with restrictions in capital practical decisions on their data centre requirements. They
have meant that CIOs are looking for dependable data can scale with their business and deploy capital only when Our performance centre solutions that can meet their needs in a cost- it is needed. efficient way. Colt is both a developer and end user of data centre space and so we have a good understanding of the Our proprietary data centre is constructed off-site, in needs of our customers. parallel to any ground work being completed at the final site. It is then transported to site in modules, where it is Colt has a strong foundation of operational excellence with assembled. As all of the best of breed components are 15 years’ experience in designing, building and operating pre-tested, the commissioning phase is shorter than usual. data centres. We have 19 data centres in ten countries. It is a similar to what happened in the car industry when We deliver secure, high quality, flexible technical space Henry Ford decided to switch from expensive, time through our heritage estate and our recent innovation: the consuming hand built cars to standardised production. Far Colt Modular Data Centre. from shrinking choices, this method of standardisation Our governance ultimately meant higher quality and increased options all With our data centre solution, we are transforming and at an affordable rate. In 2011 modular data centre leading the industry in design, delivery and operation. Our construction is becoming the de facto standard for a data ability to deploy high quality and flexible data centre centre build. capacity on one of our sites or a customer site within four months of the contract agreement has set us apart from our competitors. Our industry-leading efficiencies serve to further differentiate our offering. Financials Innovation for our Customers:
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Key advantages of a Colt data centre are: Competition Colt competes against two competitive sets. Firstly our • Leading power utilisation efficiencies data centre-as-a-service model where customers utilise • Low risk solution with quality, budget and delivery capacity on a Colt site. Our competitors in this space are certainty Sentrum, Digital Realty Trust, Infinity, Virtus, Equinix, • Flexibility with more than 125 design options on space, Global Switch, Interxion and Telehouse. These offer mainly power and redundancy wholesale and retail colocation space. They have fixed • Can be delivered in as little as four months. sites with generally inflexible solutions, as many are built speculatively before specific customer requirements are Our offering is unique in the marketplace. We continue to known. What sets us apart from these competitors is our add new features and enhance our offering to remain reputation, relationship, and reliability. market leaders. Our other competitive set is where we deploy our data CIOs are under increasing pressure to respond to business centre on a customer site. Our competitors in this space needs more effectively. Especially in economic uncertain are Bladeroom, Mace, HP, Laing O'Rourke, Digital Realty times they need to deliver accountable value to their Trust, and IBM. They provide a range of services from company, capital efficiency and provide future-proofed bespoke build to suit at customer sites, to more standard solutions for long-term needs. Colt's data centre solutions modular approaches. What sets us apart is our ability to are designed so customers benefit from long-term total deliver a complete operational product with certainty of cost of ownership efficiencies and outsourcing models to quality, cost and delivery. turn capital expenditure to operating expenditure. Financial performance Our customers DCS saw a 43.7% increase in external revenue from direct With an increasing propensity to outsource and the customers attributable to three new modular data centre increasing number of out-dated data centre facilities, Colt contracts. Two came online in our UK data centres during is in a position to service growing market demands. We the year and a modular data centre was delivered to a have customers in multiple European markets who lease customer site in Iceland. Interest in this award-winning space in Colt owned facilities and those who purchase our modular build product has been high. data centres for installation at their own site. We have customers in a number of industry verticals ranging from Internal revenue1 from data centre services provided to financial services to manufacturing, IT and managed CES and CCS end-customers increased by 5.6% due to services providers. Our customer base is not only external, increased demand. we are also focussed on servicing our internal customers CES and CCS, providing the foundation for Europe’s EBITDA increased by 21.7% to €44.8m (2010: €36.8m) due information delivery platform. to an increase in revenue which more than offset investment in selling, general and administrative costs to Our strategy drive growth. As Europe's information delivery platform, data centres provide the foundation for the whole Colt business. As an 1 Internal Managed Services Revenue represents the recharge by Colt Data industry in high growth phase we expect our data centre Centre Services to the other two customer facing Business Units for the services capability to respond positively to the provision of data centre space and services. Internal Managed Services Revenue is eliminated on consolidation. opportunities. As customers expand into more of a cloud-based managed service, we are focused on providing operationally efficient space to support it.
While CIOs need to tackle increasing data flow and storage they need to address it with less capital expenditure: this provides Colt DCS with an opportunity. Our outsourcing infrastructure-as-a-service model offers another option for CIOs to potentially turn capex to opex.
We are in a unique position to offer our data centre customers with complete service flexibility on network and IT cloud service. Working closely with our colleagues in CES and CCS we can offer competitive Colt IT and network products and services, but we are not prescriptive and will accommodate our customers’ choice.
28 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Report of the Board of Directors / continued Our business
Phoenix meets growing demand for flexible and efficient data centre capacity with Colt
Through market leading efficiencies Phoenix can expect to save almost Our performance £300,000 on a full 500m2 hall annually*
The specialist IT Services company, Phoenix, is meeting growing demand from its sales partners for secure, cost effective and energy efficient data centres by signing up with Colt in 2011 for ten years within Colt's London-3 facility. It is now occupying a 500m2 Modular Data Centre within one of Colt’s London facilities, enabling the company to quickly expand its range of exclusive services to its network of partners in the UK and throughout Europe. The Modular Data Centre provides Phoenix with its own Mechanical and Electrical (M&E) plant demarcation and its own complete security Our governance control. This solution delivers the benefits of a dedicated data centre within a shared facility. Phoenix’s strategy is focused on supporting its partners through offering a full spectrum of hosting services by supplementing their own capabilities.
“We have been looking to expand our data centre footprint for some time and the combination of time-to-delivery, high energy efficiency and quality of operation set Colt’s Modular Data Centre apart. In addition, the solution’s scalability provides us with an Financials offering that will enable us to remain highly competitive and rapidly deliver on changing market demands. Colt has provided us with the extremely low PUE of 1.21 by virtue of the free air cooling. Traditional cooling was only used for 80 hours in 2011, which is a significant green IT development.” Philip Walter, Operations Director, Phoenix
* based on current UK power prices comparing Power Usage Efficiency of 1.21 against an industry standard of 1.8
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Infrastructure Services Unit (ISU) “This year we have successfully integrated Colt’s Network Operations and Managed Services Operations together with our former Technology and IT divisions. The new Infrastructure Services Unit gives a single focus across managed services and the network. We deliver key components of Colt’s information delivery platform and have a big role to play in Colt's drive for growth.”
Mark Leonard / Executive Vice-President
ISU at a glance
As part of the 2011 reorganisation, Colt integrated the four As part of Colt’s Long Distance Network expansion we laid technology divisions (Network Operations, Managed down 1,600km of new fibre across Italy, thereby expanding Services Operations, Technology and IT) into the our footprint by selling high capacity Ethernet and Infrastructure Services Unit (ISU), which provides us with a Wavelength services to Rome, Bologna, Genoa and Parma. significant competitive advantage. In Luxembourg we brought our existing customer connected buildings onto our own network. We eradicated the traditional silos found in most service providers, and built a modern ITIL-based service delivery Led by our innovation and prototyping team we also organisation, supported by a simple service model with piloted a ‘Femto-as-a-Service’ proposition in the market clear end-to-end ownership and accountability. designed to allow mobile network operators (MNOs) to cost effectively build out and generate value from At the heart of the ISU is the principle that our customers femtocell technology. In this model Colt owns, hosts and want to consume both network and compute as an manages a multi-tenant, Femto Core, which then offers its integrated service. The new structure allows Colt to capacity to multiple MNOs. provide the service and delivery of both the network and compute platforms without the traditional technology Investment in IT boundaries. We have also adopted a common design We continued our investment in 2011 into our new CRM process which supports the design, assessment and order management provisioning and integrated ordering, delivery of complex customer solutions. This, along with delivery and ticketing system. our ‘concept to market’ process, has helped funnel opportunities from concept to high level design in less Colt’s 35,000 European customers now also benefit from than ten weeks, thereby significantly reducing our time to our investment into a state-of-the-art multimedia contact market. centre. This platform is a real differentiator for Colt and makes it easier for our customers to do business with us. Partners We continue to work with our market-leading strategic partners to enhance our enterprise cloud computing portfolio for Colt’s customers.
Investment in revenue serving capabilities In 2011 we accelerated our investment in existing ‘end of life’ technology. This is essential for keeping our high availability network running as efficiently as possible and to make room for future growth plans. We successfully completed the major migration project to move over half a million service numbers to a new intelligent network platform which offers user friendly web tools and increased customer functionality.
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Business Services Unit (BSU) “I am proud that we have established a support unit that integrates our shared service centres and in-country resources to provide seamless business support. Our strategy is based on end-to-end service delivery and operational quality and efficiency with a continuous focus on cost.”
Dr Jürgen Hernichel / Executive Vice-President Our business
BSU at a glance
As part of the 2011 reorganisation Colt merged the country Throughout 2011 we implemented a number of organisation, some corporate functions and the Shared programmes: payroll outsourcing, transition of HR Service Centres (SSC) in Spain (Barcelona), India (Gurgaon administration processes to an HR Shared Service Centre, and Bangalore) and Romania (Sibiu) to form the Business expansion of marketing operations services, centralisation Services Unit (BSU). of credit and collection including a new collection software system, end-to-end optimisation of billing processes, Our performance We are focused on driving cost efficiencies and business integration of Longline (today the SSC in Romania) into operational excellence through a dynamic Shared Service Colt and the integration of the country operations into the Centre model which enables an end-to-end service- new Colt operating model. oriented approach. The integrated Shared Service Centre approach, the in We offer a range of services to support the company and country resource model and the support offered in are critical to the revenue generating Business Units (CES, multiple local languages gives us a strong cost advantage, CCS and DCS). Services include finance and administrative whilst at the same time providing customers and services, business analytics and reporting, billing services, employees with unified consistent support. marketing operations, HR and legal services, sourcing, facilities management and business process management. Our governance
Each service has an end-to-end service owner responsible for ensuring service quality and cost efficiency for their respective area. Each service has a set of standards to enable rigorous monitoring and to highlight performance management levels and potential areas of concern or development.
The BSU focuses on: Financials a) Increasing efficiency and quality for the existing services b) Expanding the service portfolio with new services in adherence to Colt's operating model.
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Regulatory environment
Whilst the market for business communications is highly Member States, some aspects of the regulation are still the competitive, it is still influenced strongly by regulation and subject of controversy. Colt is part of that debate and we Colt expects it to remain so in the future. Colt is subject to will ensure the solution Colt offers its customers can economic regulation such as competition law, enable them to comply these new rules. communications sector regulations as well as other forms of regulation such as those relating to data protection, Colt will continue to monitor all relevant policy energy efficiency, or environment and trade regulations. developments and engage constructively with all key stakeholders. In the communications sector, National Regulatory Authorities (NRAs) in the European Union operate within a common regulatory framework. This focuses economic Macroeconomic context regulation on Communications Providers who dominate defined economic markets which vary between Member The global macroeconomic environment was subjected to States. NRAs conduct regular market reviews to assess significant volatility during 2011. The recent debt crises, whether there is effective competition and, if one or more and associated financial interventions, in the US and providers has a dominant position, they can impose some Eurozone have been primary contributors to these form of regulatory remedy. For Colt, the existence of the conditions. After a very volatile second half of the year, European Framework is generally beneficial, since it uncertainty remains at the forefront with certain provides the basis for NRAs to regulate the terms and economies showing signs of daylight ahead, while Europe pricing controls upon which Colt can purchase wholesale continues to struggle with its sovereign debt issues. services from incumbent operators. The financial services sector, which is Colt’s largest The EU revised regulatory framework of 2009 now industry segment, has faced increased regulation around contains additional measures to ensure closer management of risk with particular focus on increased harmonisation across Europe. The framework is still being capital reserves. On the one hand, this has deferred the transposed at national level by some EU Member States. decision process for many customers as they sort out how Although generally positive for Colt, the way in which the to both raise capital and determine what business lines to relevant markets are defined at national level and the way pursue. While difficult to measure, this clearly had some regulation is then applied by NRAs will ultimately impact on growth rates experienced by the company in determine the precise outcome for Colt. 2011. On the other hand, with capital reserve protection as the backdrop, large financial institutions are more In addition to communications sector regulation, other receptive than ever in pursuing more capital efficient and policies and regulations can also create compliance costs lower cost outsourced compute and network services. as well as new commercial opportunities. Examples include These trends are being felt across other customer data protection, network security and environmental segments as well. sustainability. For example, policy developments in the field of energy efficiency impact the data centre services The Eurozone sovereign debt issues remain the most market. Data protection legislation impacts Colt directly, significant factor that could affect Colt’s macroeconomic but also indirectly. picture. The three largest markets for Colt are Germany, the United Kingdom and France. Growth in these countries While some forms of regulation impose costs on Colt, was modest in 2011, between 1% and 2%. Outlooks vary others create new opportunities for Colt to help its and are dependent on how resolution of the sovereign customers reduce their cost of compliance with rules debt issues are managed. Even with no significant applicable to them. As an example, the overhaul of the negative impact from this issue, growth is still expected to financial services regulatory framework requires more be modest in these countries. sophisticated data storage and processing and Colt can help its financial services customers comply with new rules Italy, Spain and Portugal represent smaller markets for effectively and at a lower cost. Colt, although still important to its overall performance. The growth outlook in these economies is more limited. Similarly, on the IT side, virtualisation and cloud computing However, while some markets may be shrinking, we are growing in importance. At some point it is expected continue to see consolidation of vendors and an increase that European NRAs and Government policy makers will in outsourcing. impose rules rendering some aspects of market development in this area more complex. Colt is well placed We believe we have assets and solutions that play well to to benefit from some of the opportunities that regulation the consolidation and outsourcing trends. Our in this area may create, for example due to the ubiquity of reorganisation in 2011 has focused the three customer Colt data centres. facing units on identifying specific opportunities within our target markets. We also believe that there are A revised EU data protection framework is expected to be opportunities in terms of customer spend with our existing adopted and implemented in 2012–2013 with potentially customers to grow revenue. While pipelines and order significant impacts on Colt, its competitors and its rates look positive going into 2012, ultimately the overall customers. While there are likely to be benefits of the new economic picture will likely impact revenue trends for Colt. regulation due to greater harmonisation between EU The best that can be said at this time is that uncertainty remains in the marketplace.
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The outlook for 2012 remains uncertain from an economic We expect that managed services and data centre services standpoint. As in the past year we do not expect there to will continue to be Colt’s key sources of revenue growth be any material changes in the dynamics of the IT services along with managed network services. To achieve growth and communications markets in which we operate. and success, we will continue to develop and deliver new However we do see interest in outsourcing and Enterprise services and solutions in all of these areas. Cloud computing clearly increasing. We expect the uptake of managed services, especially in the cloud, to accelerate Our shared service centres and owned assets give us a and become more prevalent in our customers’ attention competitive advantage and flexibility from a pricing and our revenue mix. This market, along with others in perspective. In 2012 we expect to continue to work closely which Colt participates, will continue to be highly with these and additional partners to deliver added value competitive with ongoing innovation and technological solutions to our customers. We will expand our data centre change. estate across Europe and opportunistically into other regions during the coming year, while continuing to add to Our priorities around delivering operational excellence, our network footprint in select, strategic areas where customer intimacy, innovative solutions portfolio and a opportunities exist. high performing culture remain unchanged in 2012. We will continue to seek to grow overall revenue as we introduce We are convinced that our information delivery platform is Our business more innovative services and technologies, improve our a fundamental differentiator in the market and a main solution portfolio’s mix and margins, manage costs and driver of our revenue growth in the future. Colt will invest capital expenditure and, ultimately, deliver improvements further in its customer services capabilities to support its in Ebitda. entire customer base in the retail and wholesale sectors. This focus will enable Colt to continue delivering a best-in- class customer experience across all segments of the market.
Principal risks and uncertainties The management of Colt’s business and the execution of Our performance the Group’s strategy are subject to a number of risks and uncertainties. The key risks facing the business are set out below:
Risk Mitigation
Regional economic conditions The Company operates on a pan-European basis and A fragile Eurozone with weak growth prospects could as such, cannot completely mitigate the risk associated adversely affect Colt’s results. Much of our business focuses on with the Eurozone. However, the Company's budget and implementing information technology solutions for corporate forecasting processes have historically allowed for appropriate and government customers across Europe. Such economic management of cost in relation to revenue performance. The Our governance conditions may cause existing and potential customers to Company's cash concentration system allows for overnight delay or avoid the purchase of such solutions, or may lead to investment into selected money market funds and other consolidation of customers or increased bad debt. Reduced short term vehicles. Our investment policy is restricted to revenues and cash inflows can also lead to an increased risk of AAA money market funds and deposits with approved asset impairment. However, it may also increase opportunities counterparties. We have reviewed these funds for exposure to as our customers seek to reduce costs and outsource their sovereign debt. operations. In addition our standard processes include: The Company also invests in short-term investments which are managed by financial institutions which could have exposure • Credit: We have a rigorous credit and due diligence process
to european sovereign debt. These investment vehicles and/or for customers and suppliers. Financials financial institutions could adversely be impacted by default on • Investment planning: Introduction of capital expenditure and such debt. investment boards to enhance prioritisation of initiatives and resource utilisation as well as monitor spend in relation to business growth. • New opportunities: Ongoing assessment of potential new opportunities that may present themselves during the economic crisis, such as new cost-saving propositions for customers.
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Risk Mitigation
Changes in laws and regulation Colt has an established legal and regulatory function to The communications industry is highly regulated in all understand and manage the implications as they relate to the countries where Colt provides services. In addition, Colt’s operations. Legal representatives are also situated in Colt is required to respond to a number of new regulatory the Business Units to further ensure rigour and compliance. developments including environment laws and new EU security Further, our Group Tax team is monitoring changes across the regulations. The Group is therefore subject to uncertain and EU. changing regulatory issues that could potentially affect the way it operates in different jurisdictions, and have an impact on In regard to environmental and security regulation, Colt has its results, including the level of interconnect costs. done the following:
• Environmental management: We have implemented the ISO14001 Environmental Management Standard. • Group security: We are actively working with the regulators and the business to address recent EU Article 13 and ND1643 regulation requirements.
Risk Mitigation
Customer service and satisfaction Customer service and customer intimacy is one of our key As Colt continues to increase its services and solutions strategic priorities. As such, there has been significant focus on offerings for its customers, this results in the need to the following: understand our customers more closely, delivering services to exacting customer requirements and providing high levels of • Service assurance: We operate an extensive ITIL-aligned customer service, including continuity and security. service delivery organisation. • Automation and tools: We utilise best-in-class tools to In addition to reputational damage and possible loss of proactively monitor, manage, avoid and resolve service customers, failure to provide high levels of customer service delivery matters. and security to any of our customers could result in a breach • Service performance: We measure all of our service delivery of service level agreement thresholds for minimum levels of capabilities against stringent quality targets around service performance. Due to the nature of the IT and communications delivery, build and transition. services that we provide, service level targets can be very high. • Certifications: We have achieved ISO20000 against the ITIL If these service level thresholds are breached, we may be liable V3 standard for our service desk and network management for non-performance penalties. services.
Risk Mitigation
Infrastructure operations Colt has established processes to effectively deal with this risk Colt serves its customers through an extensive multi- and reduce the exposure including: technology network, multiple regionally located data centres and shared service delivery centres. In addition, Colt has • Resilience in design: Colt has implemented its European extensive internal management networks hosting multiple network using best practice principles around resilience. systems and servers. • Service assurance: Colt has dedicated teams to manage and maintain the infrastructure and equipment to ensure failures There is an inevitability that technical faults and outages can are minimised. occur. A major disruption in the form of a critical physical loss, damage, failure or limitation of capacity to one or more of • Monitoring: Colt’s Operations Centre proactively monitors Colt’s data centres, network management centres or network key network equipment and data centres, and has defined could disrupt our business or customers’ business. This could processes for fault resolution. have an adverse impact on the Group’s business and financial • Business continuity and crisis management: Colt has an condition including asset carrying values and operating results. established business continuity team and crisis management plans exist to ensure orderly management over response and recovery procedures.
Risk Mitigation
Information technology and security Mitigating actions to reduce the exposure include: Colt’s dependence on IT systems is significant and continues to increase – for example to support our managed services • Planned upgrades and maintenance: We have a continual growth strategy. If the Group fails to develop, implement, road map for upgrades and on-going maintenance and maintain and secure its internal and commercial IT systems development of our IT systems. successfully or fails to protect the systems against the • IT operations and security policies: Our established policies increased complexity of cyber-crimes, security breaches or are cascaded and regularly validated across the organisation. data loss, Colt’s business and operations could be negatively • Security operations centre: We proactively monitor our affected. network and infrastructure for security anomalies and investigate accordingly. • Cyber-security incident response: our procedures and resources ensure an orderly and specialised response to potential cyber-attacks. • Developing new services: As standard, we include security requirements when developing new services and systems. Security tools: We have implemented various best-in-class security infrastructure and tools.
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Risk Mitigation
Changes in technology and competitive risk Colt has established effective business planning processes as The information and communications technology sector is well as business development and strategies to proactively subject to rapid technological change which may represent counter this risk. As such, we see this risk as a potential both opportunities and/or risks. opportunity. Mitigating actions include:
It is not possible to predict with exact certainty the effect of • Proactive innovation and prototyping methodology: We any such technological change on Colt’s business. evaluate and develop solutions that embed new technologies with appropriate services to address our customers’ business Further, the IT services and communications industries are needs. Examples include: Colt is recognised as a market highly competitive. Competition in the industry is based leader in high speed/high resilience Ethernet networks and upon a number of factors including strategy, ability to deliver Modular Data Centre services. value-added propositions, innovation, price, network footprint • Competitor risk: Colt’s Business Units work to develop and quality, appropriate technology and qualitative customer strategies to leverage our architecture, our assets and new service. technologies to ensure that on-going market developments are aligned to what our customers’ businesses need. Failure to deliver on any of these aspects could have an adverse effect on Colt’s business and financial condition, including asset carrying values, and operating results. Our business Risk Mitigation
Geo-political risks with particular emphasis on Colt's Mitigating actions to reduce the exposure include: shared service centres Colt has an established pan-European presence as well as • Physical risk: We perform assessments across Colt locations being present in the US and India. These operations are subject to identify and address any unacceptable risks. to differing geographic and political risk profiles that can be • Communications: Our group and regional security teams subject to unforeseen change, especially in view of the current have established procedures to ensure that any emerging economic climate and the increase in natural disasters in recent geo-political threats are communicated and responded to years. appropriately. • To address the additional risk associated with SSCs, the We operate shared service centres (SSC) in India (Gurgaon following mitigations exist: Business continuity: We operate multi-site operations in India and Bangalore), Spain (Barcelona) and Romania (Sibiu). These • Our performance centres represent concentration points where many processes, and Spain, to ensure we can continue to run our operations. critical to the effective daily operations of Colt, are located. We also have dedicated business continuity specialists in India and Spain and at a Group level to test these processes. Physical loss, damage, network isolation or restriction of timely • Locations: In India, two sites are 2,000km apart with access to the Group’s SSCs could disrupt Colt’s business or our separate connectivity, and Spain’s SSC has multiple offices to customers’ businesses. This could have an adverse impact on decentralise locational risk. the Group’s business, financial condition and operating results. • Certifications: India, the larger SSC, is accredited against the British business continuity standard BS25999.
Risk
Supply chain Mitigating actions to reduce the exposure include: Our governance The Group is reliant on a number of key IT software, service and communications equipment suppliers to ensure a • Sourcing: We operate dedicated procurement functions consistent and effective supply chain and to meet its business to manage supplier relationships, establish dual vendor plan commitments. strategies and monitor key suppliers’ ability to serve our needs. Any financial or operating weakness of key IT software • Inventory: We operate an established “hub and spoke” suppliers, service suppliers or communications equipment inventory distribution system, including buffer supplies and suppliers, which affects their availability, consistency and/or use of a globally recognised distribution partner. reliability of delivery could affect the Group’s performance. Financials The risk management process directly links to the strategic objectives and enabling actions of Colt and is aligned to the annual budget process. This ensures risk related spends are considered, and where necessary, incorporated in the budget. On an annual basis both senior management and non-executive Directors collectively evaluate the Group-level risk landscape to ensure that the overall risk management process remains aligned to Colt’s business objectives and the operating environment. A Risk Advisory Committee was formed in 2011 consisting of senior management, which meets at a minimum on a quarterly basis to update and reassess priorities.
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Treasury policy The Group operates a centralised Treasury department that is accountable to the Board for managing treasury activities in accordance with a framework of treasury policies and procedures approved by the Board. It is an overriding policy that trading in financial instruments for the purpose of profit generation is prohibited, with all financial instruments being used solely for risk management purposes.
Within the policy framework the Treasury department’s principal responsibilities are: • to manage the Group’s core funding, liquidity and working capital requirements • to ensure the Group has access to a variety of short and longer term funding options • to manage exposure to foreign currency movements; • to manage exposure to interest rate movements • to control and monitor bank credit and counterparty risk; and • to manage the Group’s relationship with debt capital market investors, banks and rating agencies.
The Group’s principal treasury risk exposures are as follows:
Risk Mitigation
• Liquidity risk: That the Group does not have sufficient funds • The Group prepares rolling short-term and medium-term to meet its liabilities. cash forecasts to ensure that it retains sufficient funds to meet its liabilities as they fall due. The Company's investment policies restrict investment of surplus cash with regard to long-term financial investment vehicles.
• Foreign exchange risk: The Group’s principal revenue, costs, • The Group seeks to match foreign currency assets and assets and liabilities, including intercompany debt financing liabilities where possible and hedging is considered for were denominated in Euros during 2011. Of the remaining significant foreign currency transactions. currencies, Sterling is the largest exposure along with the US Dollar.
• Interest rate risk: Interest is earned on short-term cash • The Group seeks to maximise the return earned on surplus deposits at variable as well as fixed rates; changes in interest cash invested, but does not enter into derivative or other rates will impact the amount of interest income earned. financial instruments to hedge this risk.
• Counterparty credit risk: Financial assets which potentially • Cash and short-term investments are invested either in AAA subject the Group to concentration of credit risk consist unsecured money market mutual funds or placed on term principally of trade and other receivables, cash and current deposit with approved counterparties. Management believes asset investments. the concentration of credit risk associated with trade and other receivables is minimised due to distribution over many Cash includes short-term and money market deposits as well customers in different countries and in different industries. as liquidity funds investments, all deposited for up to three The Group has not experienced any losses to date on its months. Current asset investments include bank deposits of deposited cash or current asset investments. three to six months' duration.
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Credit rating Share capital Two credit rating agencies, Moody’s Investors Service and Details of the changes in the number of the Company’s Standard & Poor’s Ratings Services, publish credit ratings ordinary shares in issue are set out in the Statement of for the Group. During the year Standard & Poor's upgraded Changes in Shareholders’ Equity on page 70. The Directors its rating on Colt to BB from BB- with a stable outlook; have authority to allot ordinary shares in the Company and Moody's kept its rating unchanged with a stable outlook to disapply pre-emption rights, as permitted under the indication. Company’s Articles of Association. The Directors intend to comply with the Association of British Insurers’ and the As at 31 December 2011 and 31 December 2010, the National Association of Pension Fund's guidelines with Group’s long-term credit ratings provided by these two respect to the allotment and pre-emption limits with agencies were as follows: regard to the issue of ordinary shares in the Company.
Rating Rating Outlook Rating Outlook Agency 2011 2011 2010 2010 The AGM notice will also contain a resolution asking shareholders to grant the Company authority to purchase Moody’s Ba3 Stable Ba3 Positive its own shares. No shares have been purchased and no Standard & Poor’s BB Stable BB- Positive contract has been entered into under any such authority in the past. The Board views the continued improvement of the credit Shareholders rating of the Group as important to the efficient operation Our business of the Group’s activities. Details of the trust set up for facilitating the holding of shares in the Company by employees and the executive Further information is provided in note 26 of the attached Directors, including the number of the Company’s ordinary financial statements. shares held, are given in note 17 of the Financial Statements on page 87. Capital management The following table summarises the current capital As at 22 February 2012 the following shareholders have of the Group: notified the Company of their interest in 3% or more of the 2011 2010 Company’s issued ordinary shares: €m €m Cash and cash equivalents 283.7 150.4 Number Bank deposits – 3 to 12 month term 60.0 150.0 of ordinary % Share Shareholder shares Capital Our performance Net funds 343.7 300.4 Equity attributable to the owners of the FMR LLC1 322,079,326 36.12 Company 1,449.6 1,371.2 Info Tech Fund I LLC2 104,357,703 11.70 Share capital 1,403.0 1,402.9 FIL Limited3 147,532,309 16.55 Orbis Investment Management Limited4 45,691,686 5.12 The Group’s increase in equity during 2011 was mainly due Ruffer LLP5 45,085,714 5.06 to the Group’s profit for the year. 1 FMR’s interest is held (i) directly by FMR, 307,991,614 ordinary shares and The Board regularly reviews the Group’s funding and (ii) through the holding of a wholly owned investment advisory subsidiary, Strategic Advisers, Inc., that as manager of a charitable foundation has capital requirements. The Group’s long-term policy is to voting power over 14,087,712 ordinary shares for the Fidelity Non-Profit Management Foundation. finance the Group centrally using a mixture of equity and 2 Info Tech Fund I LLC is a Delaware limited liability company the Manager Our governance debt, accessing both longer-term capital markets and of which (Star Horizon Management LLC) is owned by, and the members of which are, certain shareholders and employees of FMR. By virtue of this short term bank finance as circumstances require. The relationship both FMR and Star Horizon Management LLC are interested in Group’s capital structure is reviewed on a regular basis in these shares. 3 FIL Limited’s interest in ordinary shares is held (i) through a nominee response to business developments. The Group continues account in respect of its own holding of 147,184,268 ordinary shares and FIL Foundation’s holding of 236,493 ordinary shares over which FIL to believe that there are significant growth opportunities retains the voting rights through a voting trust and (ii) through a holding for the business and in this context has not declared a of 111,548 ordinary shares over which FIL exercises voting control but which are beneficially owned by the MoneyBuilder UK Index Fund, a dividend in 2011. sub-fund of Fidelity Investments Fund OEIC. 4 Held by funds managed by Orbis Investment Management Limited. Orbis Investment Management Limited is a Bermuda company. Creditors and supplier payment policy 5 Ruffer LLP is an English LLP whose registered office is at 80 Victoria Financials Where goods or services have been supplied in Street, London SW1E 5JL, UK. accordance with terms agreed with a supplier, it is the policy of the Group that the supplier is paid in accordance with those terms. The Company is a holding company and has no trade creditors. At 31 December 2011 the number of days of annual purchases represented by year end creditors for the Group was 44 days (2010: 35 days).
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Fidelity Relationship Agreement Directors’ interests In 2006 the Company entered into a Relationship The interests of the Directors in the Company’s ordinary Agreement with FMR LLC, Info Tech Fund I LLC and FIL shares at 1 January 2011 or if later, their date of Limited (‘Fidelity’). Under the Agreement, Fidelity, and appointment,1 and at 31 December 2011 or if earlier, their where appropriate its affiliates, have agreed to vote at the date of resignation,2 were: AGM to ensure that more than half of the Directors of the Number of ordinary shares Company will be non-Fidelity related Directors, that Director 1 Jan 11 31 Dec 11 Fidelity will not compete with the Group on network services without the consent of the non-Fidelity related Andreas Barth 28,593 28,593 Directors and that any agreements between Fidelity and Rakesh Bhasin 500,000 808,148 the Group will be on an arm’s length basis and subject to Vincenzo Damiani 76,929 76,929 the approval of the non-Fidelity related Directors. Hans Eggerstedt 33,543 33,543 Additionally, the Relationship Agreement provides that Mark Ferrari 1,566 101,566 Fidelity will not acquire ordinary shares of the Company if Gene Gabbard 15,580 15,580 that would result in the Company ceasing to comply with Sergio Giacoletto – – the UKLA’s requirement for an adequate free float to be Simon Haslam – – maintained. The Agreement continues in force while Tim Hilton 69,708 69,708 Fidelity or its affiliates hold at least 30% of the issued Anthony Rabin1 – – ordinary shares of the Company. Richard Walsh2 66,102 66,102
1 On 20 July 2011 Anthony Rabin was appointed to the Board. The current Fidelity related Directors under the Agreement 2 Richard Walsh retired from the Board on 31 December 2011. are Rakesh Bhasin, Mark Ferrari, Simon Haslam, Tim Hilton There was no change in these interests between and Michael Wilens. Richard Walsh, who retired on 31 31 December 2011 and 22 February 2012. December 2011 is also related to Fidelity. Details of transactions with Fidelity and its affiliates in 2011 are given Shareholding policy for executive Directors in note 28 of the Financial Statements on page 98. Executive Directors are required to build a shareholding equivalent to at least one year’s basic salary, over a period Directors of five years, to align their interests with those of the The Directors of the Company and those who served shareholders. The status of executive Directors' holdings during the year are listed with their biographical details on as at 31 December 2011 under this policy are: pages 8 and 9.
Anthony Rabin, who was appointed to fill a vacancy as non-executive Director on 20 July 2011 will be formally 548,694 by 27/7/15 808,148 proposed for appointment to the Board at the AGM to be Rakesh held on 27 April 2012. Richard Walsh retired from the Bhasin Board on 31 December 2011. On 1 January 2012 Michael Wilens was appointed to fill a vacancy as a non-executive 101,566 318,783 by 31/3/16 Director and he will also be proposed for appointment to Mark the Board at the 2012 AGM. Ferrari
In accordance with the Company’s Articles of Association, all the Directors will retire at the AGM. With one exception, 0 500,000 1,000,000 all of the retiring Directors, being eligible, will stand for re-election as Directors. Hans Eggerstedt will retire at the Minimum shareholding required by date Actual shareholding as at 31 December 2011 2012 AGM.
Details of the Directors’ interests in options over the Company’s ordinary shares are on page 65. Details of the Directors’ service agreements are on page 63.
Indemnities and insurance The Company has entered into indemnities with each of the Directors. Notwithstanding the fact that the Company is not a UK incorporated company, the indemnities are in the form of Qualifying Third Party Indemnity Provisions consistent with s.234 of the UK Companies Act 2006. The indemnities are available for inspection at the registered office of the Company.
38 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Report of the Board of Directors / continued
It is the responsibility of the Company Secretary to ensure to take part in any meeting of shareholders in person or by appropriate insurance cover is maintained in respect of proxy. Additional provisions may apply under Luxembourg legal action against the Directors. The level of cover is law. In 2011 new legislation in Luxembourg was currently €35m. Neither the indemnities nor the insurance implemented requiring shareholders to register their provide cover where the Director has acted fraudulently or intention to vote at least 14 days before the date of the dishonestly. meeting. This new requirement will be communicated separately to shareholders. In addition all the Directors have access to the advice and services of the Company Secretary and can take g) Shareholders’ agreements with transfer restrictions independent professional advice at the Company’s Colt Group S.A. has no information about any agreements expense in the furtherance of their duties. between shareholders which may result in restrictions on the transfer of securities or voting rights. Auditor PricewaterhouseCoopers S.à r.l. is the independent auditor h) Appointment of Board members, amendment of Articles of the Company. Their reappointment as the Company’s of Association auditor together with authority for the Directors to fix The appointment and replacement of Board members and their remuneration, will be proposed at the AGM. the amendment of the Articles are governed by Luxembourg Law and the Articles (in particular Chapters 3 Article 11 report and 4). The Articles are published under the Investors Our business The following disclosures are made in compliance with section on www.colt.net. Article 11 of the Luxembourg Law on Takeovers of 19 May 2006. i) Powers of the Board of Directors The Board of Directors is vested with the broadest powers a) Share capital structure to manage the business of the Company and to authorise Colt Group S.A. has issued one class of shares which is and perform all acts of disposal and administration falling admitted to trading on the London Stock Exchange. No within the purposes of the Company. other securities have been issued by Colt Group S.A. The issued share capital of Colt Group S.A. as of 31 December In common with the Articles of Association of other 2011 amounts to €445,821,646 represented by 891,643,292 Luxembourg public limited companies, the Company’s shares. Colt Group S.A. has a total authorised share capital Articles of Association provide full power to the Board to of €1,250,000,000. All shares issued by Colt Group S.A. issue shares on a non pre-emptive basis. However, the Our performance have equal rights as provided for by Luxembourg Board has confirmed that, as a matter of policy, it intends Company Law and as set forth in the Articles of to comply with the pre-emption guidelines supported by Association (the Articles). the Association of British Insurers and the National Association of Pension Funds to the extent practical for a b) Transfer restrictions Luxembourg company. Furthermore, under the current As at the date of this report all the Colt Group S.A. shares authorisation given by the shareholders, the Board may are freely transferable but shall be subject to the purchase, acquire or receive Colt Group S.A.’s own shares restrictions on shareholdings set forth in Article 8 of the in the Company representing up to 10% of the issued share Articles. capital from time to time on behalf of Colt Group S.A., subject to prior authorisation by the general meeting of Our governance c) Major shareholdings shareholders and on such terms as the Board may decide The details of shareholders holding more than 3% of the in accordance with the law. The Board intends to seek a issued share capital of Colt Group S.A. as notified to Colt new authorisation at the AGM to be held in 2012. Group S.A. are on page 37. j) Significant agreements or essential business contracts d) Special control rights The Board of Directors is not aware of any significant All the issued and outstanding shares of Colt Group S.A. agreements to which Colt Group S.A. is a party and which have equal voting rights and there are no special control take effect, alter or terminate upon a change of control of rights attaching to shares of Colt Group S.A. the Company following a takeover bid. The Board of
Directors has considered essential business contracts and Financials e) Control system in employee share scheme concluded that there is none. Colt Group S.A. is not aware of any issues regarding section e) of Article 11 of the Luxembourg Law on k) Agreements with Directors and employees Takeovers of 19 May 2006. No agreements exist between Colt Group S.A. and its Board members or employees that provide for f) Voting rights compensation if the Board members or the employees Each share issued and outstanding in Colt Group S.A. resign or are made redundant without valid reason, or if represents one vote. The Articles do not provide for any their employment ceases because of a takeover bid other voting restrictions. In accordance with the Articles a than as disclosed in the Remuneration Report on page 63. record date for the admission to a general meeting may be set and certificates for the shareholdings and proxies shall be received by the Company a certain time before the date of the relevant meeting. In accordance with the Articles the Board of Directors may determine such other conditions that must be fulfilled by shareholders for them
Colt Group S.A. / Annual Report 2011 39 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Corporate governance statement
“The Board is committed to high standards of Corporate Governance. We regard this as an important part of Colt’s value proposition as it underpins our culture. This year, Colt commissioned its first independent external Board evaluation and spent time focusing on Board Composition Guidelines and NED succession planning. We will continue to work to improve Board effectiveness and achieve the optimal governance framework for Colt.” Tim Hilton
The UK Corporate Governance Code (‘the Code’) is published by the UK Financial Reporting Council and is available on their website www.frc.org.uk. As a company with a premium listing of shares on the London Stock Exchange, we are required to explain how we apply the main principles and how far we complied with the provisions set out in the Code. Throughout the year ended 31 December 2011 the Company complied with the provisions of Section 1 of the Code in all respects save only for the matters set out below. We want to highlight and explain the two principal areas of departure from the Code. These relate to Remuneration Committee composition and metrics for long-term incentive plans.
Exception Explanation Resolution
Remuneration Committee composition: Mr Walsh has significant recent and Mr Walsh resigned from the Board the Remuneration Committee should relevant executive experience of HR and the Committee on 31 December comprise solely of independent non- and remuneration. He is a very senior 2011, therefore going forward Colt executive Directors. During the year executive specialising in HR and for this complies with the provisions of the Richard Walsh, a non-independent non- reason the Board concluded that it was Code. It is anticipated that future executive Director, served as a member in the best interests of Colt to include appointments of independent NEDs will of the Committee. Mr Walsh had been Mr Walsh as a member of the Committee. include membership of Remuneration a member of the Committee since he Committees and/or HR expertise as a joined the Company on 1 June 2005. Colt notes that the 'comply or explain' part of the role profile. approach permits us to make sensible arrangements based on skill sets available.
Metrics for long-term incentive plans: Until 2012 awards under the Share Grant Shareholder representative groups' the rules emphasise stretching targets Plan were made on the basis of a three- comments were duly noted. The internal and focus on the ‘long-term success’ of year vesting period but with single year reorganisation has been implemented the Company. Metrics should be based metrics set at the beginning of the first, and the growth strategy confirmed. The on challenging performance criteria set second and third years of the award. The Share Grant Plan awards to be made over at least a three-year period. Company was undergoing considerable in 2012 will be made subject to three- change at the time, and the strategy year metrics and accordingly, Colt now was evolving. Given the background complies with this provision. of considerable internal and external change, and having regard to the volatility in the markets, the Committee felt the interests of the shareholders were best served if performance metrics were selected on a yearly basis.
40 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Corporate governance statement / continued
Board Composition as General Sales/ICT Investment/ Sales/IT at 31 December 2011 management sector finance sector /ICT expertise expertise expertise expertise
Rakesh Sergio Simon Vincenzo Bhasin Giacoletto Haslam Damiani
Strategy & Financial Anthony Tim Hilton M&A expertise Rabin expertise The Colt Board
HR Richard Hans Financial
expertise Walsh Eggerstedt expertise Our business
Gene Andreas Mark Gabbard Barth Ferrari
General Technology/ commercial/ Financial finance IT sector expertise expertise Our performance expertise
t den en Chairm ep rs an Division of responsibility d to in c - re E There is a clear division of responsibility between the n i xe o D c N u Chairman, Tim Hilton, and the Chief Executive Officer, t 1 iv e Rakesh Bhasin, with neither having unfettered powers 2 D
i r of decision with respect to substantial matters. The 2 e
c
t Chairman is responsible for leading the Board and o
r s setting its agenda including major decisions on Our governance strategic direction and financial transactions and for ensuring that the Board functions effectively. His commitments other than to the Group are set out on
6 page 9. They were disclosed to the Board prior to his In d appointment and have not changed during the year. e pe The Chief Executive Officer is responsible for nd en t Directors executing strategy and executive management, operation and development of the Group’s business.
The non-executive Directors have the opportunity to Financials discuss Colt strategy and Board business individually Board with the Chairman and the CEO regularly throughout the year.
Audit Remuneration Nomination Hans Eggerstedt (Ch) Vincenzo Damiani (Ch) Tim Hilton (Ch) Andreas Barth Andreas Barth Andreas Barth Gene Gabbard Gene Gabbard Vincenzo Damiani Sergio Giacoletto Richard Walsh Anthony Rabin
Colt Group S.A. / Annual Report 2011 41 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Corporate governance statement / continued
2011 Board and Committee membership
Name Status Audit Remuneration Nomination Andreas Barth Independent non-executive Director
Rakesh Bhasin CEO, executive Director
Vincenzo Damiani Independent non-executive Director Chairman
Hans Eggerstedt Independent non-executive Director Chairman
Mark Ferrari Non-executive Director
Gene Gabbard Independent non-executive Director
Sergio Giacoletto Independent non-executive Director
Simon Haslam Non-executive Director
Tim Hilton Chairman, non-executive Director Chairman
Richard Walsh Non-executive Director
Anthony Rabin Independent non-executive Director
Member
Senior Independent Director The SID reports the discussions of any meetings with Hans Eggerstedt is the Senior Independent Director (SID) shareholder representatives to the Board. At the end of and will retire from the Board at the AGM in 2012. As part every Board meeting executive Directors, management of the Board’s succession planning process Sergio and Fidelity related Directors withdraw and the SID chairs Giacoletto will be appointed as SID from the AGM. a meeting of the independent non-executive Directors to Mr Giacoletto has previous experience as a SID for a UK provide a forum for any issues to be raised. The SID listed company. maintains open lines of communication with the internal and external auditors and the brokers of the Company and The role of the SID is to act as an alternative conduit to the holds regular meetings with them. Board for the communication of shareholder concerns, to act as chairman of meetings of the independent non- executive Directors which are not attended by the Chairman and to lead the annual performance evaluation of the Chairman.
42 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Corporate governance statement / continued
Attendance Calendar of Activities for the Board In 2011 there were no absences from Board meetings save Board meetings are held in Luxembourg or elsewhere by that Richard Walsh missed one Board meeting. In the exception. The articles prohibit any decisions being made event that a Director were to be unable to attend all in the UK. The programme, which is set three years in meetings of the Board or Board Committees of which he is advance, involves four meetings timed to review the a member, the Director would be invited to confirm that he quarterly results and a shorter meeting principally to remains committed to the role and has the requisite time approve the budget. Meetings are held over a two or available to perform the role. three-day period, to include site visits, formal and informal meetings with local management and Committee In 2011 the Board held five scheduled meetings and interim meetings. Occasional single purpose interim meetings are telephone meetings as required. held by conference telephone to deal with out of cycle requests. Operation of the Board The attendance of each of the Directors at the scheduled Board Meeting 2011 Activities Board meetings held in 2011 while a Director was: The Board approved the 2010 financial statements and the 2010 Annual Report together with the 2011 Annual General Meetings Meetings Percentage Director held attended attended Meeting and Extraordinary General Meeting notice and Andreas Barth 5 5 100% received the results of those shareholder meetings. Rakesh Bhasin 5 5 100% Our business Vincenzo Damiani 5 5 100% During 2011, the Board devoted time to reviewing the Hans Eggerstedt 5 5 100% overall strategy for Colt and for each of the Business Units. Mark Ferrari 5 5 100% The Board also reviewed the progress of the Infrastructure Gene Gabbard 5 5 100% Services Unit and the Business Services Unit. The Board Sergio Giacoletto 5 5 100% approved a proposal to invest in MarketPrizm and Simon Haslam 5 5 100% monitored the progress of the business during the year. Tim Hilton 5 5 100% Candidates for new Board appointments were reviewed Richard Walsh 5 4 80% and the Board approved the appointments of Anthony Anthony Rabin 2 2 100% Rabin and Michael Wilens. Average % attendance 98.2 The Board also approved each of the 2011 Q1 and Q3
The Board is scheduled to meet five times in 2012. Interim Management Statements and the H1 financial Our performance Additional meetings will be held as required. results and associated announcements. The Board reviewed periodic reports on the business. Other matters The Board is primarily responsible for decisions on Group reviewed during the year included the external Board strategy, including the approval of strategic plans, annual evaluation and succession planning. budgets, interim and full year financial statements and reports, accounting policies and all material capital At each meeting the Board received reports from each projects, investments and disposals. There is a schedule of Chairman of the Audit Committee, Remuneration matters reserved for approval by the Board. Committee and Nomination Committee on the business conducted by those Committees.
Each Director is provided with monthly reports which Our governance include financial information and updates on the business. When there is a Board meeting, this information is circulated to the Directors in advance of the meeting, together with details of all other business items to be considered at the meeting. Directors receive regular articles on industry news and analysts’ and press reports on Colt. The Directors are encouraged to supplement this information through direct contact with the Group’s senior management and the Company Secretary facilitates regular informal meetings throughout the year. Direct Financials access to senior management is encouraged. Other members of the senior management team regularly attend Board and Committee meetings.
Colt Group S.A. / Annual Report 2011 43 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Corporate governance statement / continued
How the Board spent its time in 2011 and senior management and a familiarisation with investor and analysts’ perceptions of the Group. Meetings are arranged with representatives of significant shareholders r Othe and key advisors including lawyers, brokers and auditors. Legal advisors, Slaughter and May provided a tailored it is V seminar on Directors’ duties and legal issues relevant to e % it 6 S Colt for Anthony Rabin as part of his induction. % 5
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d
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i G t 1 a 4 l insurance, Code of Business Conduct, share dealing and % u M m other corporate policies and procedures, together with O o r p n i o e to F recent Board materials and presentations. ra r t in io g n s The Directors’ knowledge and understanding of the Group’s business is refreshed throughout the year, with briefings as necessary on corporate governance and regulatory compliance. The training needs of the Directors During 2011 the Board focused on developing a growth are periodically reviewed. Presentations by key members strategy for each of the Business Units. In common with of the relevant teams are supplemented by reading many of its competitors Colt has seen declining total materials. Ad hoc informal training on issues relevant to revenue for a number of years and it is the Board’s Colt such as new technologies and network development objective to return Colt to revenue growth. The Board also is regularly provided by management upon request during devoted a significant portion of time to risk, including the year. Additionally, as part of ongoing training and discussions on Group risk appetite, the impact and development, Directors receive fortnightly summaries of mitigation of key risks and the framework for risk control. Colt specific and industry news.
Induction, information and ongoing development On appointment, Directors undertake a comprehensive induction process in accordance with Icsa best practice. This is designed to develop their knowledge and understanding of the Group’s business through visits to various key sites including data centres and offices, presentations on relevant technology, products and services, one-to-one meetings with executive Directors
44 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Corporate governance statement / continued Our business Our performance
Evaluation In summary, the conclusion was that the Board and For 2011 Colt retained the services of Dr Tracy Long of Committees are performing effectively, with the right skill Our governance Boardroom Review to undertake an independent sets and a culture which enables openness and high evaluation of the effectiveness of the Board. Boardroom quality debate. Review provides no other services to Colt. It is intended that in future Colt will use external consultants to conduct the evaluation every three years, in compliance with the Code.
The review process took the form of confidential interviews between Dr Long and each Director and the
Secretary, together with a review of Board papers. Dr Long Financials attended and observed an entire Board cycle including formal Board and Committee meetings and informal sessions including dinners. Results from the evaluation were collated by Boardroom Review and considered by the Chairman and Chief Executive. Subsequently, Dr Long presented the full report and summary observations and recommendations to the Board, and the Board discussed the findings.
Colt Group S.A. / Annual Report 2011 45 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Corporate governance statement / continued
Nomination Committee “In recent years having a stable Board has been important for Colt. In 2011 we have focused on succession planning, with a phased, orderly, planned refresh of experience and skill sets. Our objective will be to preserve the excellent quality of the current Board and at the same time bring new experience to the table.” Tim Hilton
Nomination Committee 2011 Activities Appointment process Tim Hilton is the Chairman of the Nomination Committee As part of the Board’s ongoing refresh programme and to and the other members are Andreas Barth and Vincenzo maintain a balanced team of independent non-executive Damiani. The Nomination Committee met five times in Directors, the Nomination Committee prepared a role 2011. The attendance of each of the Directors at the profile for a new independent non-executive Director. meetings held in 2011 while a Nomination Committee member was: In respect of Anthony Rabin, the Company retained MWM, an independent search firm specialising in non-executive Meetings Meetings Percentage Director held attended attended Director recruitment, to conduct the search. The Nomination Committee conducted the initial interviews Andreas Barth 5 5 100% then the successful candidate was reviewed by each Vincenzo Damiani 5 5 100% member of the Board before a recommendation for Tim Hilton 5 5 100% appointment was made. Average % attendance 100% Summary of the role profile Anthony Rabin The duties of the Nomination Committee are to Recent and relevant financial CFO of Balfour Beatty plc recommend to the Board a succession planning strategy, expertise, familiarity with the 2002–8, attending the Audit to select and recommend a preferred candidate for workings of Audit Committees Committee; UK qualified appointment to the Board or to a specific role on the chartered accountant Board or Board Committee and to review the time commitment of non-executive Directors and recommend Experienced strategist Substantial experience, to the Board their continuation in office. Deputy CEO Balfour Beatty plc from 2008 to date with The Terms of Reference of the Nomination Committee are global responsibility for the set out on Colt's website at www.colt.net. During 2011, the Group’s Investment Division Committee approved the selection process for a new independent non-executive Director and reviewed short International, especially Balfour Beatty plc is an listed candidates. This concluded in the recommendation pan-European, operating international construction of Anthony Rabin to be appointed to the Board and Audit experience and support services group Committee. The Committee also agreed a role profile for based principally in Europe the next appointment of an independent non-executive and the USA Director. The Committee reviewed the appointment process for Fidelity related Directors. Other activities of Personality to include ability Comply the Committee during 2011 included developing Board to challenge constructively composition guidelines and reviewing the time with an independent mindset commitments of Directors. and collaborative style
The Nomination Committee maintains a matrix of skills and Independence within Code Comply competencies for the Board and periodically reviews this definition against Colt’s strategic objectives.
46 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
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In respect of Michael Wilens, FMR put forward the Succession planning: candidate for review. The Nomination Committee set out A timetable has been set for continuous refresh and the appointment process. The Nomination Committee replacement and supplemental skillsets identified. reviewed Mr Wilens’ experience against their matrix of skills and competencies and noted that his experience was Culture: highly relevant to support Colt’s strategic objectives. Each Colt will seek to maintain a balance of personalities and a of the independent non-executive Directors then range of attributes. The Nomination Committee will interviewed the candidate and unanimously recommended consider all aspects of diversity as part of its deliberations the appointment of Michael Wilens. The Nomination including age, gender, ethnicity, nationality and business Committee then recommended the appointment to the experience both within and outside Colt industries. Board. Diversity policy: Fidelity related Directors abstain from voting on a Fidelity The Guidelines acknowledge the importance of diversity, related candidate. including gender diversity, as a desirable component of Board culture. At the present time it is not appropriate to Board composition guidelines set specific targets for female representation as Board During 2011 the Nomination Committee developed Colt’s appointments are based on a spectrum of factors Board Composition Guidelines. These non-binding including experience, skills and diversity. Nevertheless, the Guidelines addressed tenure, balance, continuous refresh, Board will place special emphasis on gender diversity Our business succession planning and culture. when considering the appointment of the next NED.
Tenure: There is a presumption of a maximum six-year term for independent NEDs unless exceptionally waived by the Board for an additional period of up to three more years to maintain continuity.
Size and balance: Assume a Board of 11–12 members with a majority of independent NEDs (excluding the Chairman) to comply with the Code and a majority of non-Fidelity related Our performance Directors. Executive members will be the CEO and CFO. Our governance Financials
Colt Group S.A. / Annual Report 2011 47 Stock Code: COLT.L
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Audit Committee “This year the Audit Committee placed special emphasis on the review of risk. During 2011 we evolved our framework and approach for reviewing risk to enable the Board to set the risk appetite for Colt.” Hans Eggerstedt
Membership and attendance Operation of the Committee Hans Eggerstedt is the Chairman of the Audit Committee. To promote transparency, in accordance with best The other members of the Audit Committee are Andreas practice, it is the usual practice of the Committee for the Barth, Gene Gabbard, Sergio Giacoletto and Anthony executive team to withdraw at the end of each meeting, to Rabin. give the opportunity for the Vice-President, Group Internal Audit & Risk Management to meet with the Committee Hans Eggerstedt, Gene Gabbard and Anthony Rabin are and the independent external auditor (PwC), to raise any the Audit Committee members identified as having recent concerns. Following this meeting the Committee meets and relevant financial experience. Anthony was appointed alone with the independent external auditor for a private as a member of the Committee on 20 July 2011. session. At the end of the meeting, the Committee meets alone. After each meeting the Chairman of the Committee The Chief Financial Officer, the Vice-President, Group provides a summary report of the deliberations to the Internal Audit & Risk Management and representatives Board, identifying any matters on which it considers that from the independent auditor usually attend meetings of action or improvement is needed and making the Audit Committee. recommendations on steps to be taken. Additionally, all Board members receive a copy of the Committee papers The Committee met five times in 2011. The attendance of and are invited to raise any questions with the Chairman of each of the Directors at the meetings held in 2011 while an the Committee. Audit Committee member was: Audit Committee 2011 Activities Meetings Meetings Percentage Director held attended attended The Terms of Reference of the Audit Committee are set out on the www.colt.net website. During 2011, the Andreas Barth 5 5 100% Committee recommended to the Board for approval the Hans Eggerstedt 5 5 100% 2010 full year results, Q1 and Q3 Interim Management Gene Gabbard 5 5 100% Statements and H1 financial results and associated Sergio Giacoletto 5 5 100% announcements. Other activities of the Committee Anthony Rabin 2 2 100% included reviewing risk, group corporate policies and Average % attendance 100% Anti-Bribery Act compliance. At each meeting the Committee reviewed periodic reports from both the internal and independent external auditors, reviewed the annual internal audit plan, received any reports from whistle-blowers and approved Fidelity related services and independent external auditor non-audit related services.
48 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Corporate governance statement / continued
Duties The risk management process formalises management’s The duties of the Committee are to review the integrity of activities around the identification, prioritisation and the financial statements including significant financial ongoing assessment of risks. Changes in both the external reporting judgements and any formal announcements and internal environments are reviewed on a periodic basis relating to the Company’s performance, to review the to ensure their impacts on Colt’s risk profile and exposure effectiveness of the internal control process, to review the are understood and mitigated if necessary. procedures for managing risks, to monitor and review the effectiveness of the internal audit function, to consider the Each year a series of risk management workshops, appointment and remuneration of the independent auditor facilitated by the Group Internal Audit and Risk and to review procedures for handling allegations from Management team, are held. At the business and service whistle-blowers. unit level, bottom up risk assessments are performed and risk mitigation strategies are discussed. The risk The Committee assesses annually the qualifications, management process directly links to strategic objectives expertise and resources, and independence of the and enabling actions. The views of independent non- independent auditor and the effectiveness of the audit executive Directors on the Audit Committee are also process. The Committee’s assessment is made with sought for a full perspective. Outputs are then taken to the reference to a satisfaction survey of the independent Risk Advisory Committee for their executive evaluation external auditor, completed by and interviews with and top down assessment of risks across the Group. The members of senior management and the Committee. The Risk Advisory Committee reviews the Group-level risks to process is facilitated by the Deputy CFO. Our business ensure that risks which may prevent the achievement of strategic objectives and priorities are identified, Internal Control and Risk Management including Risk understood and mitigated, and the overall risk Advisory Committee management process remains aligned to Colt’s business The Board has overall responsibility for the Group’s system objectives and the operating environment. of internal control and risk management.
Colt has embedded risk management and reporting As a result, top Group risk priorities are defined and processes which enable the business to identify risks, actions, ownership and implementation dates are agreed assess them and mitigate them. The process is managed at accordingly. The progress of mitigation activities is tracked an executive level through the Risk Advisory Committee by dedicated ‘risk champions’ in the business. The Group and reported to the Board regularly. In 2011, Colt risk landscape is also formally revisited at mid-year to established the Risk Advisory Committee, which includes reassess priorities. Update reports on top risks and Our performance significant participation from senior management, to progress of mitigation are provided on a regular basis to enhance the risk governance and review process as well as the Audit Committee who has the overall responsibility for to drive greater awareness both upward and downward in risk management on behalf of the Board. the organisation to the Board and line management respectively. The constitution and positioning of the Risk Advisory Committee is as follows:
Colt Board
Colt Audit Committee Chief Executive Officer Our governance
Accountable for risk management
Colt Risk Advisory Committee
Chairman Chief Financial Officer
Strategy Group Internal Audit EVP – Group Strategy and Business Development
and Risk Management Financials VP – Internal Audit Commercial EVP – Colt Enterprise/Communication Services
Technology and Infrastructure Security, H&S and BCM EVP – Infrastructure Services Unit VP – Security Data Centres EVP – Colt Data Centre Services Finance VP – Corporate Finance Business Services EVP – Business Services Unit
General Counsel People VP – Legal and Regulatory EVP – Human Resources
Accountable for Line Management risk management
Employees
Colt Group S.A. / Annual Report 2011 49 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Corporate governance statement / continued
Internal controls The Audit Committee conducts reviews of the risk The Board has overall responsibility for the Group’s system management process and system of internal controls. To of internal control and for reviewing its effectiveness. The achieve this, the Audit Committee receives regular updates system of internal control is designed to manage, rather on key risks and control priorities such as business than eliminate, risk of failure to achieve business objectives controls, IT security, business continuity planning, tone at and can only provide reasonable and not absolute the top, and anti-fraud and anti-bribery procedures. The assurance against material misstatement or loss. This Audit Committee also reviews the results of all internal and system of internal control is in line with the revised 2010 external audits performed over systems of internal controls UK Corporate Governance Code. and tracks management’s response to any identified control issues. Colt’s systems of internal control ensure key risks are managed through: Anti-Bribery • the management structure with delegated authority During 2011 the Committee reviewed Colt’s implementation levels, segregation of duties, functional reporting lines approach for the UK Bribery Act. Colt reported on actions and accountability; taken to comply with each of the six principles enshrined • comprehensive budgeting, forecasting and financial in the legislation. A detailed risk assessment was reporting processes which compare actual performance performed and the Code of Business Conduct (Code of to budget and forecast on a monthly basis; Conduct) was revised to support compliance with the Act. • authorisation processes for all capital expenditure, other The CEO led internal and external communications to purchases and expenses, and an investment assessment confirm Colt’s commitment to high ethical standards. board; • a number of controls including reconciliations, system- Whistle-blowing based and review controls over the consolidation of the Whistle-blowing arrangements are set out in the Code of Group’s results; Conduct. The Code of Conduct is signed by each • monitoring of financial and operational performance, employee as part of their induction and refreshed by and compliance controls on a continuing basis to compulsory online training which requires both manual identify and respond to business risks as they arise; and electronic confirmation of compliance. Colt uses a • ‘whistle-blowing’ procedures allowing employees to third-party provider to supply a free, confidential 24-hour contact the Corporate Compliance Committee in reporting facility to enable whistle-blowers to raise confidence; concerns by telephone. Also whistle-blowers can email or • annual risk identification and management reviews, write to the Corporate Compliance Committee which which include assessments of strategic, commercial, comprises of the Deputy CFO, the Company Secretary and operational, financial, regulatory, fraud, anti-bribery and the Vice-President, Group Internal Audit and Risk business continuity risks; Management. Whistle-blower reports or allegations • monitoring of risks by the Risk Advisory Committee, and relating to fraud are reported to the Audit Committee. the Audit Committee periodically; and • formal reporting to the Board on specific areas of External auditor financial and operational risk. PricewaterhouseCoopers S.à r.l. (Luxembourg) has been the Company’s independent external auditor since 2006 Compliance with systems of internal control is subject to when it listed on the London Stock Exchange. Prior to that, regular review by Group Internal Audit and Risk PricewaterhouseCoopers LLP UK (‘PwC’) was the auditor Management. On an annual basis, Group Internal Audit and of the predecessor company, COLT Telecom Group plc, Risk Management develops a risk-based Internal Audit from that company’s IPO in 1996. The Committee Plan which links to the Group-wide risk assessments, is considers that the relationship with the auditor is working aligned to Colt’s strategic priorities and provides well and remains satisfied with its effectiveness. appropriate coverage across the Group. Group Internal Accordingly, the Company has not considered it necessary Audit delivers a programme of independent end-to-end to require the auditor to tender for the audit work. The audit reviews. The objectives of these audits are to external auditor is required to rotate the audit partners independently evaluate and provide assurance on responsible for the Group audit every seven years and governance across the Group, to review process there has been full compliance with this practice. There are effectiveness and to assess the design and effective no contractual obligations restricting the Company’s operation of key manual and automated controls. Where choice of external auditor. control improvements are needed, action plans are agreed and monitored through to completion. Group Internal Audit and Risk Management embraces and complies with the standards of the International Institute of Internal Auditors (IIA).
50 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Corporate governance statement / continued
A key factor that may impair auditors’ independence and Investor relations objectivity is a lack of control over non-audit services The Group has a policy of maintaining an active dialogue provided by the external auditors. To guard against this, with institutional shareholders through individual meetings Colt maintains a policy on the Provision of Services by the with senior management and participation in conference External Auditor, consistent with ethical standards calls. The views of shareholders expressed during these published by the UK Auditing Practices Board in meetings and calls are reported to the Board. Board December 2004. Under the terms of this policy the members also receive regular updates in their Board independent auditor will not be approved to perform a papers about investor relations and reports from service in which: investment analysts. • it participates in activities that are normally undertaken by management; The Company produces an electronic report for • it acts in an advocacy role for Colt; or shareholders and other interested parties, which provides • it may be required to audit its own work. information on its performance during the year. Together with the annual and the half-yearly financial results To preserve the independent auditor’s independence and announcements, and interim management statements, objectivity the policy on the Provision of Services by the these form the principal means of communication with External Auditor requires that any service provided by the shareholders. The Group uses its website, www.colt.net, to independent auditor must be approved by the Committee communicate a wide range of information about the or within a category pre-approved by the Committee, and Group. Our business within the maximum charge set by the Committee. When considering potential non-audit services by the Investor meetings take place throughout the year. During independent auditor, the Committee also has regard to the the year, the CEO, CFO and the Deputy CFO met with overall proportion of audit and non-audit fees to ensure 26 different funds, representing almost 20% of the that the auditor’s independence and objectivity is not Company’s issued share capital and more than 65% of the impaired. free float (the issued share capital not held by majority shareholders). The policy on the Provision of Services by the External Auditor includes a list of the types of prohibited services Colt also maintains dialogue with shareholder which include, but are not limited to, bookkeeping, internal representative groups. During 2011 meetings were held audit outsourcing, certain tax assignments, HR services with Hermes, ABI, RREV, and PIRC. The discussions and legal services. The Policy is available on the website at focused on NED independence and long-term metrics for Our performance www.colt.net. Colt also discloses a breakdown of non-audit long-term incentive plans. See page 40 in the Corporate fees charged by the independent auditor in note 3 in the Governance Statement for more information. notes to the consolidated financial statements. The largest non-audit assignment during 2011 related to tax Meetings were also held with the credit rating agencies, structuring work, which amounted to €0.6m of the total Standard & Poor’s and Moody’s (see page 37). Such €0.9m of non-audit services. Management was required to briefings, together with regular announcements of tender this work with three external bidders. Management significant events affecting the Group, are part of the considered the capabilities of the three firms which investor relations programme undertaken to keep the tendered and decided that, based on the strength and Company’s investors and potential investors informed of specialism of the specific service team, PwC should be developments at Colt. The Board regards this programme Our governance engaged to complete the work. The Committee reviewed as an important contribution to continually seek to the proposal and were satisfied that PwC were the improve investors’ awareness of the business and for the strongest candidate for the project and that arrangements Board to maintain an understanding of investors’ priorities. were in place to safeguard the auditor’s objectivity and independence, through the use of separate engagement The Board recognises that one of the main opportunities teams for the audit and tax work. for individual shareholders to question the Board is at the Annual General Meeting and for this reason it is the The Audit Committee has completed its assessment of the practice that each of the Directors attends the meeting independent auditor for the financial period under review whenever possible. The Chairman of the Board, the and is satisfied as to PwC’s qualification, expertise, Chairmen of each of the Committees and all the other Financials resources and independence and the effectiveness of the Directors and the Company Secretary attended the audit process, in line with the Financial Reporting Council 2011 AGM. Voting records are set out in detail on our Guidance on Audit Committees issued in December 2010. website. Any shareholder is free to contact the Group’s Accordingly, it has recommended to the Board, for Senior Manager, Investor Relations or Senior Independent approval by shareholders, the reappointment of Director at any time. PricewaterhouseCoopers S.à r.l. as the Company’s independent auditor and approved its fees and terms of engagement.
Colt Group S.A. / Annual Report 2011 51 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Corporate governance statement / continued
Shareholder distribution Statement of Directors’ responsibilities The statement of Directors’ responsibilities and required 100% disclosures on the Luxembourg Law of Takeovers is included within the Report of the Board of Directors. 94.9
Going concern The Directors, after making appropriate enquiries, believe that they have a reasonable basis for concluding that the Group has adequate facilities to continue in operational 50% existence for the foreseeable future. Accordingly, the financial statements have been prepared on a going concern basis.
Business model The Board believes the Company has a business model 0.5 0.8 2.2 1.6 that will create and deliver shareholder value. This is 0% described on page 11. Zero – 10,001 – 100,001 – 500,001 – >1,000,001 10,000 100,000 500,000 1,000,000 Corporate Social Responsibility Percentage of issued share capital The Corporate Social Responsibility (CSR) review on pages 54 to 58 sets out the charitable donations made by the Group, the employment policies of the Group and action taken to involve employees in the business of the Group. Number of shareholders by size of holding The CSR review also covers how Colt addresses environmental matters. That review forms part of this 100% report by cross reference. 95.6 Dividends The Directors are not recommending the payment of a dividend (2010: €nil).
Annual General Meeting and Extraordinary General 50% Meeting The Annual General Meeting of the Company (AGM) is to be held at K2 Building, Forte 1, 2a rue Albert Borschette, L-1246, Luxembourg on Thursday 26 April 2012, starting at 11.00 am (Luxembourg time). The notice convening the meeting is in a separate document sent to shareholders. 2.5 1.0 0.3 0.6 0% There will be an EGM immediately following the AGM to Zero – 10,001 – 100,001 – 500,001 – >1,000,001 amend the articles to reflect changes in Luxembourg 10,000 100,000 500,000 1,000,000 legislation. All proposals in the notice of the meeting to be considered at the AGM and EGM will be decided by a poll Percentage of holders of shareholders.
Approved by the Board of Directors and signed on its behalf by
Caroline Griffin Pain / Company Secretary
22 February 2012
52 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Directors’ responsibilities statements
The Directors confirm that, to the best of each person’s knowledge: a) the consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union give a true and fair view of the assets, liabilities, financial position and profit of Colt Group S.A. and the undertakings included in the consolidation taken as a whole; and b) the Report of the Board of Directors includes a fair review of the development and performance of the business and the position of Colt Group S.A. and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
So far as the Directors are aware there is no relevant audit Our business information of which the Group’s auditor is unaware and they have each taken all the steps that they ought to have taken as a Director to be aware of any relevant audit information and to establish that the Group’s auditor is aware of that information.
The financial statements are published on the Company website. The maintenance and integrity of the website is the responsibility of the Directors. Legislation in Luxembourg governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Our performance
Approved by the Board of Directors and signed on its behalf by Our governance
Caroline Griffin Pain / Company Secretary
22 February 2012 Financials
Colt Group S.A. / Annual Report 2011 53 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Corporate Social Responsibility
Taking the next step on our journey
2011 has seen Colt move beyond the initial progress and success we have had; by establishing a new set of goals and targets for ourselves we are continuing to live one of our core values and show we are passionate about our community and environment.
Colt’s Corporate Social Responsibility programme, Colt Each work stream is headed up by a new senior manager Cares, is structured around the four classic pillars: Our and together these sponsors constitute a new CSR environment; Our customers and suppliers; Our people; Steering Group, which continues to be chaired by our CEO, and Our community. The programme continues to be Rakesh Bhasin, who retains executive responsibility for driven by the CSR Steering Group and the work streams CSR. Further additions to the CSR Steering Group were that it oversees, but 2011 saw a major restructure of these also made to ensure that there was a representative from work streams as we took the next step in our CSR journey. each of our business and support units on the committee. The CSR Steering Group continues to meet on a quarterly By the end of 2010, it had become apparent that our initial basis and continues to not only monitor the progress of 11 CSR work streams had either achieved their objectives each individual work stream, but to set the wider CSR or had become established within the organisation as policies and direction for Colt. business as usual activities. Consequently, a review of our work streams was conducted during the first quarter of During 2011, we undertook a project to rationalise Colt’s 2011, consulting with key internal stakeholders as well as numerous policies, identifying and consolidating ten key identifying best practice and emerging trends externally. policies at the corporate level that all employees need to The result was the establishment of seven new work be aware of. This was an opportunity to revise Colt’s CSR streams with a particular focus on sustainability and our and Environmental policy and recommunicate it to all of people: our people.
Work stream Objective Last year we expanded the number of our CSR targets to nine, introducing a better mix of short and medium-term Establish water measurement and 1 Water goals which have been the focus of our activity during assess whether water consumption and cost is an issue for Colt 2011. We remain on track to deliver the majority of these targets, as seen in the table overleaf. The table also sets 2 Sustainability – Continue to reduce the impact we out the additional targets we have set ourselves for 2012. Internal have on the environment
3 Sustainability – Help our customers to reduce External the impact they have on the environment 4 Supply Chain Drive responsible supplier behaviour across all areas of Colt procurement 5 Diversity Increase Colt’s diversity to improve our performance
6 Well-being Align Colt to the requirements of OHSAS 18001 by end 2012
7 Community Encourage Colt people to get involved to make a difference
54 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
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What we said we would do What we did in 2011 What we will do in 2012 Environment All growth in our managed services Where applicable, all servers A further 3% reduction in PUE in in 2011 to be delivered on energy purchased in 2011 were ENERGY 2012. efficient equipment. STAR certified.
Change behaviour to ensure Realigned reporting systems to Continue to promote use of video that our investment in video track zero, one and two night trips. conferencing internally to meet our conferencing pays back in three More than 300,000 minutes of 2013 target. years. video conferencing used, saving an estimated €345,000.
Convert all customers to Ability to invoice customers Marketing campaigns to persuade e-Invoicing by end 2013. electronically rolled out to all Colt customers of benefits of switching countries. to e-Invoicing.
Maintain ISO 14001 accreditation in External audits conducted in seven Merge existing systems in all Colt countries. countries with recommendation to one Colt-wide EMS and achieve maintain certification. re-certification.
Our customers Develop a CSR ‘deep dive’ audit CSR ‘deep dive’ audit created and Complete CSR audit with all Our business and suppliers and pilot with five strategic trialled with five strategic suppliers remaining strategic suppliers. suppliers. including DHL, HP and NSN.
Increase customer satisfaction Exceeded our goal with customer 75% of customers satisfied by 2.7% above 2010 target. satisfaction 3.7% above 2010 according to our Transactional target. Satisfaction Surveys (TSAT).
Our people Align our Health & Safety Initial audits conducted and Complete alignment to OHSAS management system to OHSAS resulting action plans are being 18001 requirements. 18001 requirements by end 2012. implemented.
Colt India achieved OHSAS 18001 Our performance certification.
Pilot a formal graduate internship Programme in place with local Implement employability scheme. university for employability workshops and internships. workshops in February 2012 and Review pilot and make six-month internship from April recommendations on feasibility for 2012. expanded scheme.
Our community Increase to 600 days of 557 days of volunteering. Increase to 600 days of volunteering. volunteering. Our governance
Our environment
Becoming a low carbon company Through the process of analysing our key environmental The creation of our new CSR work stream on Internal aspects and impacts, we have identified that our main Sustainability will ensure that we continue to focus on environmental issue continues to be energy and carbon, reducing our impact on the environment. providing us with both risks to overcome and opportunities to seize. Energy prices continue to rise and Colt has maintained its environmental management we are aware of forecast energy demand set to increase Financials systems with external audits conducted by BSI in seven by 50% worldwide by 2030. This clearly affects our countries, all recommending that Colt retains its ISO 14001 bottom line costs but equally provides significant certification and reconfirming that we remain a low incentives for improving our energy efficiency. It also environmental risk company. We will be due for opens up commercial opportunities that are discussed re-certification in 2012, which provides us with the further in the next section: Our customers and suppliers. opportunity to bring together our three existing management systems into one Colt-wide system, taking Even though our data centre energy efficiency programme the best practices from each system into the new achieved its 10% PUE target in 2010, we have continued merged EMS. the work in 2011, such as improving air flow management and installing cold aisle containment into our remaining data centres and some of our major nodes. The result has been a further improvement in PUE by 14% to 1.79 across our 19 data centres, which is now equivalent to saving approximately €4.2m and 14,000 tonnes of carbon annually. We are determined to push the efficiency of our
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data centres even further and have therefore set the phase, the marketing and promotion of this functionality challenging target of achieving another 3% reduction in to our customers. We already have 2,000 organisations on PUE in 2012. This will be delivered through the completion e-Invoicing and are on track to meet our 2013 target. of cold aisle containment and the replacement of end of life equipment; for example, in one of our data centres we Finally, we have found that in the wider business have seen a 75% energy saving from the replacement of community, the issue of water resources and scarcity is old chillers. becoming significant and could soon be as important as carbon and related climate change. So we have created a In May we published our 2010 carbon footprint to the CSR work stream tasked with systematically measuring Carbon Disclosure Project. Following GHG Protocols we our water usage and determining whether this is a calculated that our footprint had increased by 3% to significant issue for Colt. We will feed back on the results
137,620 tonnes of CO2 equivalent. This figure covers our of this work stream in subsequent reports. scope 1 and 2 emissions together with our business air travel under scope 3. We have estimated that this figure would have been 10,000 tonnes higher had we not Our customers and suppliers instigated the energy efficiency programme within our data centres. Creating and demanding low emission alternatives The increasing focus on energy and carbon provides us Our operations in the UK fall within the Carbon Reduction with the opportunity to help customers reduce their Commitment (CRC) and we have nominated Bernard impact on the environment and this is the aim of the newly Geoghegan, EVP Data Centre Services as the individual established CSR work stream on External Sustainability. responsible for CRC within Colt. Following submission of our 2010–11 data, we were ranked 1,301 out of more than We believe that our energy efficiency projects across our 2,000 organisations. While we welcome the scheme’s shift networks and data centres since 2008 have been towards ranking on actual consumption over the next successful in establishing a ‘green foundation’ on which all couple of years, it is unfortunate that the breadth of the our products and services to customers are delivered. scheme makes it difficult to recognise the uniqueness of Moving forward we have specific propositions within each companies such as Colt. Particularly for our data centre of our solution sets that can help reduce customers’ and managed services, customers taking these solutions environmental impacts. This was recognised in Verdantix’s are effectively outsourcing part of their carbon to us, Green Quadrant research in Sustainable Telecoms Europe which we can manage more efficiently. 2011, which ranked Colt as one of the leading companies in its ‘Specialist’ quadrant. The research also highlighted To reduce our scope 3 emissions we invested more than Colt’s strength in sustainable hosting through a €1.0m in video conferencing equipment at the end of 2010. combination of our IT Managed Services and our highly During 2011 we have seen adoption of this technology efficient data centres. increase and across the whole year more than 300,000 minutes of video conferencing has been used by our Our flagship sustainability product remains our innovative people with an estimated saving of €345,000. We have Modular Data Centre, with a Design PUE* of 1.21 that is also adapted our travel reporting to enable us to track the 40% more efficient than a conventional data centre. In proportion of zero, one, and two night stays providing an 2011, a modular data centre was shipped to Iceland, where additional method to calculate the change in behaviour it became the world’s first dual sourced, 100% renewably and payback from our investment in video conferencing. powered wholesale data centre. The northerly location ensures that the data centre’s free air cooling is in Equally, our Office of the Future project, which invested in operation 365 days a year, while all the electricity to power areas such as Virtual Desktop Infrastructure (VDI) and the the IT load is sourced from hydro-electric or geo-thermal. promotion of flexible working policies, has resulted in a We have endeavoured to ensure that our IT Managed reduction in commuting amongst our employees. Our Services are as energy efficient as possible. In line with our second ‘Travel to Work’ survey revealed that the average 2011 commitment, where applicable, all servers purchased days per week spent working from home more than have been ENERGY STAR rated. In addition, roughly 20% doubled from 0.14 days in 2010 to 0.3 days in 2011. This is of purchased equipment has been in energy efficient an excellent example of the win-win philosophy behind our blades or larger servers for which the ENERGY STAR CSR activities: our employees benefit from a better rating is not yet available. work-life balance; Colt benefits from reduced office space costs and often increased productivity; and there is a cut Our customers continue to be at the heart of everything in emissions from commuting. we do and this is underlined by the increase in their satisfaction with Colt during 2011 of 3.7% over our 2010 Moving beyond carbon, Colt also has programmes to target, exceeding the 2.7% rise we had set ourselves. While tackle paper consumption and to investigate water usage. this measure of satisfaction will still be tracked in 2012, we Following the successful reduction in paper consumption have decided to put more emphasis on transactional in our offices in 2009 (29.0%) and 2010 (9.7%), we have satisfaction (TSAT) in 2012, focusing on ensuring that 75% shifted our attention to customer billing. To achieve our of customers are satisfied in our TSAT surveys. We feel 2013 e-Invoicing target we have completed the first phase that, through their actions, far more of our people can of the project in August 2011 by establishing the capability influence this TSAT measure, which makes it more relevant to invoice customers electronically in all Colt countries. as both a target and for inclusion within our annual Since then the project has moved firmly into its second incentive programme.
*PUE as defined by the Colt Design authority document DAPS-004 and based on standard PUE calculation methodology proposed by the Green Grid. This figure is based upon defined operating environments in specific geographic climates under sealed conditions. 56 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
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Within our supply chain we have recognised that security Our people of supply and the ethical sourcing of raw materials are increasingly important issues for Colt. As a result, we have Creating a great place to work worked with Business in the Community to produce a CSR The introduction of the UK Bribery Act occasioned a ‘deep dive’ audit that we have trialled with five of our review and revision of our Code of Conduct, together with strategic suppliers. The audit provides information on the specific training to key individuals. It was also an suppliers’ CSR activities and benchmarks, from which Colt opportunity to formally incorporate the International can learn, as well as helping us to understand the key risks Labour Organisation’s Fundamental Principles into our in our supply chain and how our suppliers are working to Code of Conduct and our Suppliers Code of Conduct. minimise them. This audit is part of a wider programme to Employees and suppliers are now obliged to join Colt in create a closer relationship with, and a better ensuring that we uphold these fundamental human rights. understanding of, our key suppliers. As such, we will ensure that all remaining strategic suppliers complete the One of the main aims of the restructuring of the CSR CSR deep dive audit in 2012. programme was to create more emphasis on our people and this has been achieved with the establishment of two A second facet of better understanding our suppliers is new work streams focusing on Well-being and Diversity. the calculation of the carbon footprint of our supply chain. Initially the Well-being work stream’s goals are We have started by focusing on the footprint of scope 3 predominately Health & Safety to ensure that we meet our indirect emissions within Europe. Before publishing this public target of aligning to OHSAS 18001 by the end of Our business figure we will check it against next year’s footprint to 2012. Within Diversity we are concentrating on gender and ensure that the methodology and results are robust, but age as the two areas that we can most easily track and initial indications are that our supply chain footprint is therefore influence at present. material to Colt. Importantly, the production of this footprint establishes a benchmark against which we can Our expanded Health & Safety team has created a new implement improvements that will again reduce not only H&S Portal in which employees can access all the carbon emissions but cost as well. information they need on Colt’s Health and Safety system including our harmonised set of 32 global procedures. The Portal also contains an incident reporting system for better monitoring of accidents and reporting to the Board. A dashboard of key metrics has been established and scored Our performance by all the business and service units across Colt, resulting in a series of action plans that are now being implemented. Our governance Financials
Colt Group S.A. / Annual Report 2011 57 Stock Code: COLT.L
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The team has also launched a training programme of other hand, in Spain, support for Hogar de Nuestra Señora one-day workshops for all key managers, which will be de los Desamparados, a local children’s home, has been delivered across Colt during an 18-month period. While the primarily through volunteering with employees helping at aim is to ensure alignment to OHSAS 18001 by end 2012, the home four nights a week. the system has already been fully implemented in Colt India, leading to their successful certification in December To maximise employee engagement, community activity is 2011. concentrated into two periods of the year: our Community and Environment month in June and our Christmas Charity Colt recognises that a diverse workforce is key to success Initiative. During June, employees in Germany and the in the modern business world; it is difficult to serve the Netherlands took part in sponsored runs, while our people needs of our customers if we do not reflect their diversity. in Austria and Denmark collected toys, games and other A Women’s Group has been established in Colt UK to items for their charity partners. For Christmas, many support and encourage the career paths of women in Colt. countries have put wishes from local children on the Overall, our gender gap has narrowed over the past year Christmas trees in their reception areas and are by 1% to stand at 74% male, 26% female. To encourage encouraging employees to buy a present for these children more young people to join Colt, we have been working by taking one of the wishes from the tree. with the East London Business Alliance (ELBA) and Queen Mary, University of London (QMUL) to create a trial We estimate that across Colt we have raised €24,829 for internship programme. This trial will begin in February our charity partners. This has been through employee 2012 with 15 recent QMUL graduates taking part in a series fundraising rather than donations from Colt. The end of of employability workshops run by Colt employees. To test 2011 though has seen the launch of our Customer the new skills that they have learnt, all the participants will Reference Programme, whereby Colt will make a donation then be interviewed with one successful graduate gaining to our relevant local charity partner to thank customers a six-month internship at Colt from April 2012. who agree to be the subject of case studies or speak at Colt events. Even though the Programme has just The appointment in 2011 of a new Director for Learning & launched, it has already donated more than €3,000 to Colt Development signals a longer-term determination to charities. No donations are made to political parties. encourage and foster the talent within Colt. We have introduced Personal Development Plans within our Our CSR Policy requires that every two years employees Infrastructure Service Unit (ISU) and already there are select the charity partners they would like to support around 1,000 employees with a plan in place. ITIL training locally in their country. The CSR Steering Group decided has been completed for all relevant employees across Colt that it was still appropriate to work with charities in the and for the first time, a two-day management training field of Children and Education, although it also expressed course was made available to all. a desire to focus, where possible, on the promotion of science and technology. Given this brief, the local CSR Country Champions drew up shortlists of charities, which Our community our employees voted on during a two-week period in October and November. From January 2012 we will be Getting involved to make a difference working with the successful charities for the next two 2011 was the second year of involvement with the years. education and children’s charities selected by our employees. In each Colt country, the Country Every Colt employee is entitled to two days a year to Representative is responsible for all CSR activity at a local devote to volunteering activities, either with our charity level, particularly our community involvement partner or for an organisation of their choice. In India, programmes. The Country Representative nominates a Portugal and the UK, some employees use this entitlement CSR Country Champion to organise and implement this to mentor local schoolchildren on an ongoing basis. Others activity. Monthly teleconferences of all CSR Champions use the days for one-off activities, for example five enable the coordinated delivery of Company-wide employees in Denmark spent half a day helping the initiatives and provide a forum for sharing ideas and best homeless in Copenhagen, while a finance team in London practice across the Group. used a day to create a herb garden and repair playground furniture at a local school. The objectives and programme of activity will vary in each country according to the needs of each individual charity Volunteering is included within some of our Learning and partner; they will generally be a combination of: Development programmes; for example, all senior managers in Colt India attending a two-day training • Fundraising workshop spent half a day improving the conditions of • Volunteering and business support local villages. It is also very much a part of our reward and • Awareness generation recognition of top performers; during their trip to Kerala, their itinerary included helping to finish a new science For example, in the UK, given the nature of the charity block for the St Thomas Girls’ School in Cochin. partner, Friendship Works, the focus has been on fundraising to enable the expansion of the charity’s In total, Colt employees have taken part in 557 mentoring programmes. This has been achieved through a volunteering days. This is slightly short of our target but variety of activities including cake bakes, golf days, does represent a 6% increase over 2010. We will continue auctions and the sale of Christmas wrapping paper. On the to pursue our target of 600 volunteering days in 2012.
58 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Directors’ remuneration report
The Directors’ Remuneration Report sets out the Group’s The Directors’ Remuneration Report, which has been policy on remuneration. The report also sets out for each approved and adopted by the Board of Directors, will be Director the remuneration earned in 2011, their interests in put to shareholders at the Annual General Meeting for long-term incentive plans and their contractual approval. The Report sets out how the principles of the relationship with the Company. Code have been applied.
“In 2011 the Remuneration Committee spent time focusing on Colt’s long-term incentive plans. It is vital that our executive remuneration plans directly support Colt’s strategy and for this reason the metrics are derived directly from our strategic business plans. We also scrutinised the alignment between pay and performance and are satisfied that there is a good alignment at Colt.” Vincenzo Damiani Our business Remuneration Committee Remuneration policy In 2011 the members were Andreas Barth, Vincenzo The Group’s policy is to place a significant emphasis on Damiani, Gene Gabbard and Richard Walsh. Vincenzo performance-related elements of total remuneration for Damiani is the Chairman of the Committee. Richard Walsh executive Directors and senior management and to align retired from the Remuneration Committee on their interests with those of shareholders. Pay elsewhere 31 December 2011. See future plans for the composition within Colt and in the external market is considered in of the Remuneration Committee on page 40. determining executive Directors’ remuneration.
Remuneration Committee 2011 Activities Base salary reflects an executive’s experience, The Terms of Reference of the Remuneration Committee responsibility and market value. Each year, performance are set out on the www.colt.net website. During 2011, the targets that are clearly aligned to the Group’s strategy Committee approved the 2010 Annual Incentive Plan and objectives are set for the Annual Incentive Plan. These Our performance bonus award achievement level for the CEO and members targets include both financial goals and non-financial of the senior management team and the terms of the CFO measures such as customer satisfaction. Secondment Agreement. The Committee also approved the 2010 Remuneration Report. The policies relating to each of the components of total remuneration are subject to regular review in order to The Committee also approved the design of the 2011 ensure that they remain competitive, motivating and Annual Incentive Plan and Deferred Cash Plan and the 2011 challenging. Increasingly we are taking a long-term view Share Grant Plan awards. The Committee also prepared of incentive arrangements. The total reward package is the framework for the 2012 Share Grant Plan metrics. geared towards driving exceptional effort through the variable elements of the package. The ability to have an Our governance There was also a review of European benefits. Other impact on shareholder value will influence the mix of the activities included approving the Sharesave Plan and total reward package. Base salaries and performance reviewing the performance of Colt’s Sales Incentive Plans. bonuses are benchmarked regularly against other appropriate sectors, in particular high technology A clawback policy was approved for future Share Grant companies and FTSE 150 – 250 companies. Plan and Annual Incentive Plan awards for members of the senior management team. The Committee considered Colt’s reward philosophy Shareholder representative group’s feedback on aspects of The key objective is to align remuneration strategy with the Remuneration Report. business strategy whilst properly taking account of
external best practice and developments in the regulatory Financials The Executive Vice-President, HR and Vice-President, environment. This includes ensuring that remuneration Performance & Reward normally attend meetings of the policy and plans are driving appropriate behaviours and Remuneration Committee in an advisory capacity. The priorities to deliver the strategic goals and improved Remuneration Committee also received advice from shareholder value, management of risk and opportunity Towers Watson on salary, benefits and other remuneration and ensuring linkage of awards to both short and long- trend data which was used when considering the term performance. We aim to create a culture of high appropriate level of remuneration for the executive performance, engagement and trust in which our people Directors and other Colt employees. In addition, Slaughter can realise their personal potential and effectively and May provided guidance on the rules of the long-term contribute to driving Colt forward in line with our values. incentive plans. High quality reward plans and processes that are well integrated into our overall approach to developing and managing our talent are critical in ensuring our success.
Colt Group S.A. / Annual Report 2011 59 Stock Code: COLT.L
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Colt’s reward principles Executive Directors’ bonus payments for 2011 were as Rewarding competitively – We reward competitively to follows: ensure we attract, motivate and retain the right talent. 2011 2010 • We regularly benchmark compensation levels in the Achievement Achievement 2011 2010 markets in which we operate, and internally, to ensure (as a % of (as a % of Achievement Achievement that we reward competitively but not excessively. In maximum maximum (as a % of (as a % of potential) potential) base salary) base salary) addition to benchmarking, we consider internal peer comparisons, role criticality, role fit, retention risk and Rakesh Bhasin 84% 79% 168% 158% remuneration history. We also have regard to the pay Mark Ferrari 80% N/A 140% N/A and conditions of employees across the Group.
Linked to performance – We set ambitious goals and The Bonus metrics for 2011 were set as follows: reward successful delivery whilst resisting excessive or Overall undeserved remuneration. Metric Details Weighting Achievement • We ensure there is scope in the Colt package to provide outstanding rewards for outstanding performance to Financial goals* 70%: Data, CMS, incentivise our people and reward their contribution. DCS Revenue • We operate a high quality performance management 30%: EBITDA 60% 77.5% * Each component of the financial goals was subject to challenging process with internal calibration of employees that is performance thresholds: To achieve 100% payout for each component it was necessary to achieve more than 108.5% of the target; at the other end linked to reward. of the range there was a nil payout if the achievement level was less than • Sales commission plans are clearly linked to robust 90% of the target. targets and demonstrate a high correlation between performance and rewards. Individual Business goals Mr Bhasin: Delivering the objectives of the annual plan, Transparent and fair – We deliver rewards in a transparent, implementing and operating the new business model and equitable and consistent way. delivering restructuring cost savings, developing a plan for • Our reward processes are fair, clear, transparent and well growth, identifying growth opportunities, reorganising the communicated. business for growth, and building the senior management • We ensure that reward supports and integrates with team. other key HR processes including career development and talent management. Mr Ferrari: Developing mid-term plan for growth, improving management and financial reporting, reviewing Elements of remuneration for executive Directors revenue procurement and expense management, ensuring Executive Directors receive base salary, annual proper control environment, developing finance function, performance bonus, long-term incentives, defined continuing to improve cash management forecasts. contribution pensions and other usual benefits payable to secondees. Payment of bonus and vesting of long-term Customer satisfaction incentives are dependent upon the achievement of Colt's customer loyalty index improved significantly during performance targets that are set beforehand by the 2011. This index is based on indepedently gathered Committee. feedback from 1,700 of Colt's customers. See CSR report on pages 54 to 58 for more details. Salary Base salaries for the executive Directors are set when they Further details of Rakesh Bhasin’s and Mark Ferrari’s are appointed to the role and are reviewed annually and remuneration are set out on pages 61 to 65. reflect experience, responsibility, market value, market conditions and pay levels across the rest of the organisation. The executive Directors did not receive an increase in base salary in 2011 and base pay is also frozen in 2012. The last time base pay was increased for the CEO was January 2008. The CFO was appointed in March 2011.
Annual bonus l a als Bonus amounts are based upon demanding financial du o vi G i ss targets and the achievement of personal predetermined d e In in s u business objectives. Bonuses are subject to upper limits of B % 0 200% of salary for Rakesh Bhasin and 175% for Mark 2
Ferrari. Annual bonuses do not form part of pensionable s
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60 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
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Proportion of fixed and variable remuneration Share Grant Plan The table below shows the approximate targeted The Share Grant Plan provides for awards to be made over proportion of fixed and variable remuneration for the Company shares. Awards are made to senior management executive Directors. The annual cash bonus plan supports and are designed to attract and retain senior employees to financial and operational performance, whilst the long- the Company. Subject to meeting performance conditions term incentive element is reward for superior performance which are challenging and reflect a real and meaningful over the longer term and the numbers in the table take improvement in performance, awards ordinarily vest on the into account the likelihood of payment. third anniversary of the date of grant. The maximum individual limits for awards are capped at 200% of base Mark Ferrari was not an executive Director for the whole of salary. However, the Remuneration Committee can grant 2011 and, to avoid inconsistencies, the various elements of awards in excess of this limit if it is of the view that there his earnings have been prorated for the period during are exceptional circumstances to justify such awards. To which he was an executive Director. date there have been no such awards.
Fixed Variable base long-term In our last report the Committee indicated that it would be Pay pension Benefits Bonus incentives* Total our intention to impose longer time frames for metrics at (%) (%) (%) (%) (%) (%) an appropriate time. The Committee considered carefully shareholder representative groups’ advice and the Rakesh Bhasin 30 1 4 51 14 100 provisions of the Code. After careful consideration it was Our business Mark Ferrari 31 3 22 44 0 100 decided that the 2011 awards should be subject to 3× one-year metrics. We did this because at the time of grant * Variable long-term incentive proportion is based on the 2009 Share Grant Plan award accrued and due to potentially vest in 2012 and any other the strategy for each of our new Business Units, from relevant long-term incentive plan (as a percentage of base salary). which the metrics are derived, was being updated and imposing single year metrics was in the best interests of 1 the Company. Rakesh 30 4 51 14 Bhasin As the business plans have now been finalised under the new operating model we can report that the 2012 awards Mark have been granted subject to three-year metrics and it is Ferrari 31 3 22 44 anticipated that in the future, awards will continue to be
made subject to three-year metrics. Our performance
In 2011 the Committee made awards to senior 0% 50% 100% management at the Company including Messrs Bhasin and Pay Ferrari. Mr Bhasin received an award equivalent to 150% of Fixed base pension basic salary and Mr Ferrari 100%. Details of awards under Benefits the Share Grant Plan are set out on page 65. Bonus Variable long-term incentives* For the 2011 award under the Share Grant Plan, year one metrics were set comprising the following elements and The Company has four plans currently available for long- weighting: term incentive awards. Share awards under the plans to Our governance Directors are set out in the table on page 65. Further Weighting Achievement* details of the plans are set out in note 17 on pages 87 to 89. Total revenue 50% 96.2% Deferred Cash Plan EBITDA 30% 96.3% As set out in previous annual reports, this plan related to Free cash flow 20% > 100% the financial results the Company was required to achieve * Adjusted for foreign exchange movements against target. during the financial year. The entitlements are detailed as These metrics were selected to support Colt's long-term below. growth strategy. The financial performance on which these
metrics are based was subject to audit by the external Financials In 2008 Rakesh Bhasin was awarded an entitlement under independent auditor. Overall, a weighted performance the Deferred Cash Plan. The maximum award was payout level of 67% was achieved in respect of year one. equivalent to 118% of basic salary for Mr Bhasin. The 2008 w flo Deferred Cash Plan was payable in two tranches in cash as h as one-third in March 2009 and two-thirds in January 2010 c e re provided that the participant remained with the Company F % 0
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Colt Group S.A. / Annual Report 2011 61 Stock Code: COLT.L
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Performance Summary Pension contributions and other benefits Pension contributions are made to defined contribution Share Grant Final vested Plan Award Year one Year two Year three % schemes.
2009 40% 40% 67% 49% Rakesh Bhasin and Mark Ferrari do not participate in the 2010 40% 67% N/A N/A Colt pension plans as they are secondees. The fees 2011 67% N/A N/A N/A payable by Colt to FMR in respect of the secondments include pension contributions of approximately 5% of base The 2009 award vested at 49% being 250,586 shares with salary (see table on page 64). a market value as at 31 December 2011 of €0.3m in respect of Rakesh Bhasin. These shares will be released to Benefits include, as appropriate: housing benefit and participants in March 2012. private health insurance.
At the end of each three-year vesting period for each Savings-related share option scheme (SAYE Scheme) award the Committee has discretion to adjust the number Participation in the Company’s SAYE Scheme is open to all of shares vested up or down by up to 20% to reflect any eligible employees and the executive Directors. The exceptional circumstances, provided that the maximum is executive Directors do not choose to participate in the the number of shares over which the award was made. SAYE Scheme. Under the SAYE Scheme, employees may save between a minimum of £5 and a maximum of £250 a It is anticipated that the Committee will grant awards on month with a savings institution and are granted options an annual basis. to acquire shares in the Company. After a three-year period (four-year period for France), employees can use Share Option Plan the proceeds of their savings account to exercise the The Share Option Plan is divided into two parts: the options at a price established at the beginning of the ‘Approved Part’ approved in the UK by HM Revenue & period. The option price is at the discretion of the Board of Customs for the purposes of the Income and Corporation Directors and can be up to a 20% discount to the then Taxes Act 1988 and the ‘Unapproved Part’ which is not so market price of the Company’s shares; to date no such approved. Options are granted at an option price which is discount has been applied and it is not the Company’s not less than the market value of the ordinary shares on policy to apply such a discount. The number of subscribed the date of grant. Subject to meeting performance options for the 2011 Sharesave Scheme was 1,512,005 conditions which are challenging and reflect a real and (2010: 597,329). meaningful improvement in performance, awards ordinarily vest on the third anniversary of the date of grant. The There are no Directors in the SAYE scheme. maximum individual limit for an award is 150% of base salary; however, the Remuneration Committee can grant awards up to 300% of base salary if it is of the view that there are exceptional circumstances to justify such an award.
There are no awards outstanding under the Share Option Plan. It is not the Committee’s current intention to make regular grants under this plan.
Deferred Share Bonus Plan The Deferred Share Bonus Plan allows grants of awards over matching shares based on shares purchased by participants with monies earned under the annual bonus plan. The award of matching shares is subject to performance conditions the same or similar to those relating to the Share Grant Plan. Participants must hold the shares for three years to obtain matching shares.
No awards were made during 2011. There are no awards outstanding under the Deferred Share Bonus Plan.
Share Incentive Plan The Share Incentive Plan enables eligible employees to acquire shares monthly through a one-year savings plan, or through the award of free shares and/or matching shares. The aggregate market value of free shares may not exceed £3,000 per annum.
No awards were made during 2011. There are no awards outstanding under the Share Incentive Plan.
62 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
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Non-executive Directors’ fees, notice and termination Termination Policy for executives arrangements For all senior executive contracts for those joining after The remuneration of non-executive Directors is reviewed the policy was approved in July 2010 the following periodically by the Board. Non-executive Directors abstain provisions will apply: from voting on their own remuneration. • maximum twelve months’ notice • no entitlement to unearned bonus The fees were last increased in January 2008. There was • provisions for use of mitigation and phased payments no fee increase in 2011 and, with the following exception, it • no entitlement to vesting or retention of long-term has been agreed that fees will also be frozen in 2012. With incentive plans effect from 1 January 2012, all members of the Remuneration Committee, including the Chairman of the All senior management contracts entered into since the Remuneration Committee, will receive an additional annual policy came into force are in compliance with this Policy. fee of €7,500 to recognise the increasing focus on remuneration and associated additional time commitment. Payments to former Directors and entitlements to long- All details are set out in the table on page 64. term incentives Tony Bates resigned on 31 July 2010 and, as set out in the 2012 2011 proposed 2010 Remuneration Report, in February 2011 he received annual annual €140,932, the final phased payment of his redundancy amount amount payment, after mitigation was applied. Type of Fee in € in € Our business Tony Bates retained 166,666 vested options over shares at Basic 60,000 60,000 Senior Independent Director 7,500 7,500 an exercise price of £2.30 in accordance with the rules of a Chairman of Audit Committee 15,000 15,000 previous long-term incentive plan, the COLT Telecom Chairman of Remuneration Committee 7,500 7,500 Group plc Group Share Plan: these options will lapse on Member of Audit Committee 7,500 7,500 4 May 2014. See note 17 on page 87 for more details of Member of Remuneration Committee nil 7,500 awards under this plan.
Stuart Jackson resigned on 31 December 2010 and as set No fees are paid to non-independent non-executive out in the 2010 Remuneration Report in February 2011 he Directors. received a post-termination payment of €290,965. All Mr
Jackson’s awards under the Share Grant Plan and Share Our performance Non-executive Directors’ remuneration is paid wholly in Option Plan lapsed on 31 March 2011. cash. It is not Colt’s policy to pay non-executive Directors’ remuneration in the form of options, pensions, benefits or Colt v MSCI Europe Telecom Services Index other incentives. The graph below shows the Company’s share performance against the Morgan Stanley MSCI Europe Telecom Services The Chairman and non-executive Directors are engaged on Index (both rebased to 100 as at 1 January 2007). This letters of appointment that set out their duties and Index was selected because it is the principal index of responsibilities. The appointment of the Chairman and the European Telecom Service providers. non-executive Directors can be terminated by them or by the Company giving three months’ notice. In every case, there is no right to compensation in the event of Our governance termination.
Directors’ service and secondment agreement dates 150 Rakesh Bhasin’s and Mark Ferrari’s services are provided under a secondment agreement with FMR LLC. The secondments can be terminated by FMR LLC or Colt at any time for any reason without compensation payable by 100 Colt. Therefore, the termination cost for Colt in respect of Rakesh Bhasin and Mark Ferrari would be nil. It is Financials anticipated that the secondment agreements will be 50 extended in due course*.
Notice period Current contract applicable at Termination Name cessation date* any time Cost to Colt 0 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Rakesh Bhasin 31 December 2013 nil nil Colt Group Mark Ferrari 30 March 2013 nil nil MSCI Europe Telecom Services Index
All contracts and appointment letters summarised above are available for inspection at the Registered Office of the Company.
Colt Group S.A. / Annual Report 2011 63 Stock Code: COLT.L
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Audited Information
Directors’ remuneration The table below sets out details of the remuneration paid by Colt in respect of 2011 for Directors of the parent company of the Group. The Directors represent the key management personnel of the Group.
Non-executive Directors €000 SID Audit Committee Total Total Name Fee Fee Comm. Fee Chair Fee 2011 2010
Andreas Barth1 60.0 – 7.5 – 67.5 67.5 Vincenzo Damiani 60.0 – – 7.5 67.5 67.5 Hans Eggerstedt 60.0 7.5 7.5 7.5 82.5 82.5 Mark Ferrari2 – – – – – – Gene Gabbard 60.0 – 7.5 – 67.5 67.5 Sergio Giacoletto 60.0 – 7.5 – 67.5 67.5 Simon Haslam3 – – – – – – Tim Hilton3 – – – – – – Anthony Rabin4 30.0 – 3.75 – 33.75 – Richard Walsh3 – – – – – – Total 330.0 7.5 33.75 15.0 386.25 352.5
1 In 2011 Colt also reimbursed €64,323 to Andreas Barth in respect of VAT on fees for the period 2006–2011. 2 Mark Ferrari is employed by FMR LLC and until 31 March 2011 he was a non-executive Director and received no remuneration from Colt. He became an executive Director on 31 March 2011 and his remuneration is set out below. 3 Simon Haslam is employed by FIL Limited and Mark Ferrari, Tim Hilton and Richard Walsh are employed by FMR LLC. They receive no remuneration from FIL Limited or FMR LLC attributable to their duties for the Company and, as set out in their letters of appointment, receive no remuneration from Colt. 4 Anthony Rabin was appointed to the Board on 20 July 2011 so his fee is for part of the year only.
Executive Directors Long-term Long-term €000 Pension Total Total incentives3 incentives Name Basic Salary Bonus Benefits 2011 20115 20104 2011 2010
Rakesh Bhasin1 557.0 935.8 68.9 12.3 1,574.0 1,642.3 263.3 – Mark Ferrari2 242.6 339.6 170.7 22.5 775.4 – – – Total 799.6 1,275.4 239.6 34.8 2,349.4 1,642.3 263.3 –
1 Total compensation for Rakesh Bhasin has been impacted by the longer vesting period applicable to his long-term incentive plan introduced in 2009 (previously two years and now three years). This means that no long-term incentive plan entitlements were scheduled to vest at the end of 2010, resulting in no awards being transferred to Rakesh Bhasin during 2011. Accordingly Mr Bhasin received no payment in respect of long term incentives in 2011. 2 Mark Ferrari was appointed as CFO on 31 March 2011 so his remuneration is for part of 2011 only. 3 Under the Share Grant Plan 2009 plan rules, an amount of €0.3m is accrued at the end of 2011 and is due to vest for Rakesh Bhasin in 2012 (2011: nil). 4 The 2010 amounts were restated to include pension amounts to ensure comparability with 2011. 5 If the amounts accrued in 2011 under the Share Grant Plans 2009, 2010 and 2011 were to be included in the table of emoluments, Rakesh Bhasin and Mark Ferrari's total emoluments would have been €2.0m (2010: €1.8m) and €0.8m (2010: nil) respectively.
Basic salary represents the total amount of: 1) salary paid during 2011 and 2) amount outstanding and due to be paid in respect of employment services in 2011. Rakesh Bhasin's and Mark Ferrari’s salaries are payable in US dollars and provided under secondment agreements with FMR LLC under which all the remuneration attributable to their duties to the Company was paid by the Company. The average P&L exchange rates for the year were used in the above calculations ($/€0.718) (2010: €0.754).
The total amount of bonuses represents the amount receivable at 31 December 2011 which is determined by reference to service and performance in 2011.
The benefits amounts include as appropriate: housing benefit, private health insurance and other similar benefits.
No Directors waived their emoluments during 2011 (2010: nil).
64 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
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Share grant plan
Date of Max no of shares Share price at Usual Value of shares Name original award in original award1 date of award vesting date vested in 2011 €000's2
Rakesh Bhasin May 2009 511,399 £1.01 Feb 2012 – Rakesh Bhasin Mar 2010 380,995 £1.35 Feb 2013 – Rakesh Bhasin Jul 2011 612,714 £1.17 Feb 2014 – Mark Ferrari Jul 2011 237,180 £1.17 Feb 2014 –
1 See performance summary on page 62 to show potential vesting rates. 2 Value of shares based on Colt Group S.A. share price of £0.91 as at 31 December 2011.
The rules of the Share Grant Plan provide that performance is subject to targets measured over three consecutive financial years and the awards vest only once the financial statements have been audited and provided the recipient remains with Colt. Practically this means that the award does not vest until the annual accounts are signed. On vesting the share awards will be transferred to the recipients.
Approved by the Board of Directors and signed on its behalf by: Our business
Vincenzo Damiani / Chairman of the Remuneration Committee Our performance Our governance Financials
Colt Group S.A. / Annual Report 2011 65 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Consolidated financial statements for the year ended 31 December 2011
Colt Group S.A. K2 Building Forte 1 2a Rue Albert Borschette L-1246 Luxembourg, BP 2174 L-1021 Luxembourg
66 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
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Audit report the entity’s internal control. An audit also includes To the shareholders of Colt Group S.A. evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the Report on the consolidated financial statements overall presentation of the consolidated financial We have audited the accompanying consolidated statements. financial statements of Colt Group S.A. (the “Company”) and its subsidiaries (the “Group”) which comprise the We believe that the audit evidence we have obtained is consolidated statement of financial position as at sufficient and appropriate to provide a basis for our audit 31 December 2011 and the consolidated income opinion. statement, consolidated statement of comprehensive
income, consolidated statement of changes in Opinion Our business shareholders' equity, consolidated statement of cash In our opinion, these consolidated financial statements flows for the year then ended and a summary of give a true and fair view of the financial position of the significant accounting policies and other explanatory Group as of 31 December 2011, and of its financial information. performance and its cash flows for the year then ended in accordance with International Financial Reporting Board of Directors’ responsibility for the consolidated Standards as adopted by the European Union. financial statements The Board of Directors is responsible for the preparation Report on other legal and regulatory requirements and fair presentation of these consolidated financial The Report of Board of Directors, which is the statements in accordance with International Financial responsibility of the Board of Directors, is consistent with Reporting Standards as adopted by the European Union, the consolidated financial statements. and for such internal control as the Board of Directors Our performance determines is necessary to enable the preparation of The accompanying Corporate Governance Statement on consolidated financial statements that are free from pages 40 to 52 which is the responsibility of the Board of material misstatement, whether due to fraud or error. Directors, is consistent with the consolidated financial statements and includes the information required by Responsibility of the “Réviseur d’entreprises agréé” the law. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International 22 February 2012 Standards on Auditing as adopted for Luxembourg by PricewaterhouseCoopers S.à r.l. the “Commission de Surveillance du Secteur Financier”. Luxembourg Our governance Those standards require that we comply with ethical Represented by requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the judgment of the “Réviseur
d’entreprises agréé” including the assessment of the risks Marc Minet Financials of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the “Réviseur d’entreprises agréé” considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
R.C.S Luxembourg B65 477 TVA LU17564447
Colt Group S.A. / Annual Report 2011 67 Stock Code: COLT.L
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Year ended Year ended 31 December 2011 31 December 2010 Before After exceptional Exceptional exceptional items items items Notes €m €m €m €m Revenue 2 1,554.3 1,583.6 – 1,583.6
Cost of sales Interconnect and network (883.9) (913.9) (2.3) (916.2) Network depreciation (212.1) (206.3) – (206.3) (1,096.0) (1,120.2) (2.3) (1,122.5)
Gross profit 458.3 463.4 (2.3) 461.1
Operating expenses Selling, general and administrative (338.4) (339.5) (27.8) (367.3) Other depreciation and amortisation (53.0) (43.3) – (43.3) (391.4) (382.8) (27.8) (410.6)
Operating profit 66.9 80.6 (30.1) 50.5
Other income (expense) Finance income 6 3.0 3.6 – 3.6 Finance costs and similar charges 6 (1.1) (4.9) – (4.9) Net foreign exchange gain (loss) arising on financing activities 3.2 (2.2) – (2.2) 5.1 (3.5) – (3.5)
Profit before taxation 3 72.0 77.1 (30.1) 47.0 Taxation 8 (9.7) 24.2 – 24.2 Profit for the year 62.3 101.3 (30.1) 71.2
Attributable to: Owners of the Company 64.0 101.3 (30.1) 71.2 Non-controlling interest 18 (1.7) – – – 62.3 101.3 (30.1) 71.2
Basic earnings per share 9 €0.07 €0.08 Diluted earnings per share 9 €0.07 €0.08
Details of exceptional items in 2010 are provided in note 7. All results derived from continuing operations.
Consolidated statement of comprehensive income
Year ended 31 December 2011 2010 Notes €m €m
Profit for the year 62.3 71.2 Actuarial gain (loss) on defined benefit pension scheme 8, 27 1.2 (1.5) Exchange gain differences on translation of foreign operations 12.6 27.1 Total recognised comprehensive income for the year 76.1 96.8
Attributable to: Owners of the Company 77.8 96.8 Non-controlling interest 18 (1.7) – 76.1 96.8
Items in the statement above are disclosed net of tax. The income tax relating to each component of other comprehensive income is disclosed in note 8.
The accompanying notes are an integral part of the financial statements.
68 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
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At 31 December 2011 2010 Notes €m €m ASSETS Non-current assets Intangible assets 10 125.9 124.6 Property, plant and equipment 11 1,267.1 1,256.5 Deferred tax assets 13 56.0 58.0 Total non-current assets 1,449.0 1,439.1
Current assets Trade and other receivables 14 246.0 266.2 Current asset investments 15 60.0 150.0 Cash and cash equivalents 16 283.7 150.4 Total current assets 589.7 566.6 Total assets 2,038.7 2,005.7
EQUITY Capital and reserves Our business Share capital and share premium 17 1,403.0 1,402.9 Other reserves 17 (191.5) (205.5) Retained earnings 238.1 173.8 Equity attributable to the Owners of the Company 1,449.6 1,371.2 Non-controlling interest 18 (1.4) – Total equity 1,448.2 1,371.2
Liabilities Non-current liabilities Provisions for other liabilities and charges 20 17.4 16.0 Retirement benefit obligations 27 6.1 7.0
Deferred tax liability 13 0.7 1.1 Our performance Total non-current liabilities 24.2 24.1
Current liabilities Trade and other payables 19 544.5 567.2 Current tax liabilities 6.1 1.3 Provisions for other liabilities and charges 20 15.7 41.9 Total current liabilities 566.3 610.4
Total liabilities 590.5 634.5 Total equity and liabilities 2,038.7 2,005.7 Our governance
The financial statements on pages 68 to 99 were approved by the Board of Directors on 22 February 2012 and were signed on its behalf by: Financials
Rakesh Bhasin / Chief Executive Officer
The accompanying notes are an integral part of the financial statements.
Colt Group S.A. / Annual Report 2011 69 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Consolidated statement of changes in shareholders’ equity
Retained Non- Ordinary Share Share Shares to Translation Other earnings controlling Total shares capital premium be issued reserves reserves (losses) Total interest equity Notes No. m €m €m €m €m €m €m €m €m €m
At 31 December 2009 891.5 445.8 957.1 5.8 (74.7) (164.9) 104.1 1,273.2 – 1,273.2 Profit for the year – – – – – – 71.2 71.2 – 71.2 Actuarial gain on retirement benefit obligations* 27 – – – – – – (1.5) (1.5) – (1.5) Exchange gain differences on translation of foreign operations – – – – 27.1 – – 27.1 – 27.1 Shares issued in the year 17 0.1 – – – – – – – – – Share option credit 5 – – – 1.2 – – – 1.2 – 1.2 At 31 December 2010 891.6 445.8 957.1 7.0 (47.6) (164.9) 173.8 1,371.2 – 1,371.2
Profit for the year – – – – – – 64.0 64.0 (1.7) 62.3 Actuarial gain on retirement benefit obligations* 27 – – – – – – 1.2 1.2 – 1.2 Exchange gain differences on translation of foreign operations – – – – 12.6 – – 12.6 – 12.6 Shares issued in the year 17 – – 0.1 – – – – 0.1 – 0.1 Share option credit 5 – – – 1.4 – – (0.9) 0.5 – 0.5 Non-controlling interest arising on acquisition 18 – – – – – – – – 0.3 0.3 At 31 December 2011 891.6 445.8 957.2 8.4 (35.0) (164.9) 238.1 1,449.6 (1.4) 1,448.2
* Net of tax.
The accompanying notes are an integral part of the financial statements.
70 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Consolidated statement of cash flows
Year ended 31 December 2011 2010 Notes €m €m Net cash generated from operating activities 21 320.7 279.7
Cash flows from investing activities Purchase of intangible assets and property, plant and equipment (282.1) (233.5) Proceeds from the disposal of intangible assets and property, plant and equipment 2.6 1.7 Acquisition of subsidiaries 12 – (63.5) Redemption (purchase) of current asset investments 15 90.0 (40.0) Net cash used in investing activities (189.5) (335.3)
Cash flows from financing activities Finance costs and similar charges paid (0.7) (2.4) Finance income received 2.8 3.5 Net cash used in financing activities 2.1 1.1
Net movement in cash and cash equivalents 133.3 (54.5) Cash and cash equivalents at beginning of year 150.4 199.9 Effect of exchange rate changes on cash and cash equivalents – 5.0 Our business Cash and cash equivalents at end of year 16 283.7 150.4 Our performance Our governance Financials
The accompanying notes are an integral part of the financial statements.
Colt Group S.A. / Annual Report 2011 71 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Notes to the consolidated financial statements
1 Basis of presentation and principal accounting policies
Colt Group S.A. (‘Colt S.A.’ or ‘the Company’) together with its subsidiaries are referred to as ‘the Group’. The Group financial statements consolidate the financial statements of the Company and its subsidiaries as at and for the year ended 31 December 2011 as approved by the Group's Board of Directors on 22 February 2012. Colt Group S.A. is a company domiciled in Luxembourg.
Basis of preparation The consolidated financial statements have been prepared under the historical cost convention modified for fair value where required (refer below for details on specific fair value policies). The accounting policies set out below have been consistently applied across Group companies to all periods presented in these consolidated financial statements.
Going concern The Directors believe that they have a reasonable basis for concluding that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the financial statements have been prepared on a going concern basis.
Basis of accounting The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) and IFRIC interpretations as endorsed by the EU and in accordance with Luxembourg laws and regulations.
The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amounts, events or transactions, the actual results ultimately may differ from those estimates.
Basis of consolidation The consolidated financial statements include those of the Company and all of its subsidiary undertakings. Subsidiary undertakings are those entities controlled directly or indirectly by the Company. Control arises when the Company has the ability to direct the financial and operating policies of an entity so as to obtain benefits from its activities. The Group recognises any non-controlling interest acquired on acquisition of a subsidiary at the proportionate share of the fair value of the acquired net assets. Subsequent to acquisition, the carrying amount of non-controlling interest is the amount of those interests at initial recognition plus the non-controlling share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interest even if this results in the non-controlling interest having a deficit balance.
Foreign currency translation The Group has a European-domiciled holding company and the Euro is the Group’s most significant trading currency; therefore, the Group’s financial statements are presented in Euros.
Transactions denominated in foreign currencies are translated at the exchange rate prevailing at the time of the transaction. Monetary assets and liabilities are translated at the period end rate and any exchange differences are taken to the consolidated income statement. Exchange differences arising from the retranslation of the opening net assets of subsidiaries which are denominated in foreign currencies, and any related loans, together with the differences between income statements translated at average rates and rates ruling at the period end are taken directly to the translation reserve.
Change in accounting policy and disclosures New and amended standards adopted by the Group The following new and amended IFRS standards and IFRIC interpretations have been adopted by the Group but have not had a significant impact on the amounts reported in the financial statements: • IAS 24 (revised) Related Party Disclosures • IAS 32 (amended) Classification of Rights Issues • IFRIC 14 (amended) Prepayments of a Minimum Funding Requirement • IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments
Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group The following standards and amendments to existing standards have been published and are mandatory for the Group’s accounting periods beginning on or after 1 January 2012 or later periods, but the Group has not early-adopted them: • IFRS 9 Financial Instruments (1 January 2015) • IFRS 10 Consolidated Financial Statements • IFRS 11 Joint Arrangements • IFRS 12 Disclosure of Interests in Other Entities • IFRS 13 Fair Value Measurement • IAS 12 (amended) Income Taxes (1 January 2012) • IAS 19 (amended) Employee Benefits • IAS 1 (amended) Presentation of Financial Statements (1 July 2012)
72 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Notes to the consolidated financial statements / continued
The adoption of IAS 12 (amended) and IAS 1 (amended) on 1 January 2012 is not expected to significantly impact the Group's financial statements. The adoption of IFRS 9 which the Group plans to adopt for the year beginning on 1 January 2015 will impact both the measurement and disclosures of Financial Instruments.
The Group does not at this stage expect the adoption of any other standards and amendments to significantly impact the Group's financial statements.
A summary of the more important Group accounting policies is set out below.
Exceptional items The Group separately identifies and discloses one-off or unusual items (termed ‘exceptional items’) as disclosed in note 7. The Board believes this provides meaningful analysis of the trading results of the Group and aids readers’ understanding of the impact of such items. Therefore, in the discussion of the Group’s results of operations, reference is made to measurements before and after exceptional items. Exceptional items may not be comparable to similarly titled measures used by other companies.
Revenue Revenue represents amounts earned for services provided to customers (net of value added tax and intercompany revenue). Contracted income invoiced in advance for fixed periods is recognised as revenue in the period of actual service provision. Data and Managed Services revenues are generally billed in advance. Advance billings for data centre revenue are recognised on a Our business straight-line basis over the initial contract term of the data centre agreement. Installation fees are deferred and recognised in the consolidated income statement over the expected length of the customer relationship period (typically three to five years) or the contractual period, if longer. Voice revenue is recognised when Voice traffic is carried over the network.
Proceeds from the sale of infrastructure qualify as revenue where the infrastructure was designated as built for resale at the outset and where the associated costs of construction have been classified as inventory for future sale. Where the infrastructure was not designated for resale and was classified as tangible non-current assets, the proceeds from these infrastructure sales are recorded net of costs as a gain or loss on the disposal of a non-current asset.
Charges to customers for services provided through the Group network where the Group is deemed to be acting as agent are reported net of service providers’ charges to the Group. Our performance
Cost of sales Cost of sales includes payments made to other carriers, depreciation of network infrastructure, equipment (including in data centres), direct network costs and construction costs associated with infrastructure sales.
Operating leases Costs in respect of operating leases are charged on a straight-line basis over the lease term. Operating lease incentives are recognised as a reduction in the rental expense over the lease term.
Segmental reporting The Group is managed around its three customer serving units: Enterprise Services, Communication Services and Data Centre Our governance Services. Colt’s three Business Units correspond to its reportable segments in line with the information reported to its chief operating decision maker, the Executive Board.
Business Unit EBITDA includes all costs directly attributable to the Units and the recharge of shared network and other service unit operating costs. The Units use a shared network which is not divisible and therefore is classified as an unallocated corporate asset.
A geographical analysis of revenue and non-current assets is disclosed where material.
Business combinations Financials The purchase method of accounting is used for the acquisition of subsidiaries, in accordance with IFRS 3 (R), ‘Business Combinations’. On acquisition of a subsidiary, fair values are attributed to the identifiable net assets acquired. The excess of the consideration transferred over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. All transaction related costs are expensed in the period they are incurred as operating expenses. If the consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit and loss.
Intangible assets Intangible assets are stated at cost less accumulated amortisation and any accumulated impairment losses.
Goodwill Goodwill arises on the purchase of subsidiary undertakings and represents the excess of the fair value of purchase consideration over the fair value of assets acquired. The goodwill was fully impaired during 2005.
Other intangible assets Intangible assets purchased separately, such as software that does not form an integral part of related hardware, are capitalised at cost. Amortisation is calculated to write off the cost of intangible fixed assets on a straight-line basis over their expected economic lives which are between three and seven years.
Colt Group S.A. / Annual Report 2011 73 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Notes to the consolidated financial statements / continued
Property, plant and equipment Property, plant and equipment is recorded at historical cost less accumulated depreciation and any accumulated impairment losses. Network infrastructure and equipment comprises assets purchased and built, at cost, together with capitalised labour which is directly attributable to the cost of construction.
Depreciation is calculated to write off the cost of property, plant and equipment on a straight-line basis over their expected economic lives as follows: Network infrastructure and equipment (excluding non-depreciable land) 5% – 20% per annum Office computers, equipment, fixtures and fittings and vehicles 10% – 33% per annum Non-depreciable land 0% per annum
Depreciation of network infrastructure and equipment commences from the date it becomes operational. Borrowing costs related to the purchase of property, plant and equipment are capitalised.
The assets’ useful lives are reviewed and adjusted if appropriate at each reporting date.
Impairment The carrying values of property, plant and equipment and intangible assets other than goodwill are reviewed for impairment only when events indicate that the carrying value may be impaired.
In an impairment test, the recoverable amount of the cash-generating unit or asset is estimated to determine the extent of any impairment loss. The recoverable amount is the higher of fair value less costs to sell and the value in use to the Group. An impairment loss is recognised to the extent that the carrying value exceeds the recoverable amount.
Deferred taxation Deferred tax is provided on all temporary differences that arise between the carrying amounts of assets and liabilities for financial reporting purposes and their tax base which result in an obligation at the statement of financial position date to pay more tax, or a right to pay less tax at a future date, at rates that are expected to apply when the obligation crystallises, based on current tax rates and laws enacted or substantially enacted at the statement of financial position date. Deferred tax arising on temporary differences from investment in subsidiaries is not recognised as the timing of their reversal is controlled by the Group. Deferred tax assets and liabilities are recognised to the extent that it is regarded as probable that they will be recovered in the foreseeable future. Factors considered when assessing the recognition of deferred tax assets by jurisdiction include a consistent history of profits as well as future forecast of profits.
Property provisions The Group provides for obligations relating to excess leased space and reinstatements in its properties. The provisions represent the net present value of the future estimated costs with changes to the value from year to year being recognised in profit and loss. The unwinding of the discount is included within the interest charge for the year.
Restructuring provisions A restructuring provision is recognised when the Group has developed a detailed formal plan for the restructuring, has a reliable estimate of the cost of the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it. The measurement of a restructuring provision includes the direct expenditures from the restructuring, which are those amounts that are necessarily entailed by the restructuring and not associated with the ongoing activities of the entity.
Financial instruments Cash and cash equivalents For the purpose of preparation of the cash flow statement, cash and cash equivalents includes cash at bank and in hand, and short-term deposits with a maturity period of three months or less. Interest income receivable on cash and cash equivalents is recognised as it is earned.
Current asset investments Current asset investments consist of bank deposits held for a term of three to six months from the date of deposit. Current asset investments are initially recognised at fair value based on estimated future cash flows or observable market price. Any resulting impairment on initial recognition is recognised in profit and loss.
Trade receivables Trade receivables are amounts due from customers for services performed in the ordinary course of business and are initially recognised at fair value and subsequently held at amortised cost. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets.
Trade payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers and are initially recognised at fair value and subsequently held at amortised cost. Trade payables are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.
74 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Notes to the consolidated financial statements / continued
Employee benefits Retirement benefit schemes Payments to defined contribution retirement benefit schemes are charged to the income statement on an accruals basis in the period in which contributions are payable to the schemes. For defined benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, based on actuarial valuations. Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised outside of the income statement and presented in the statement of comprehensive income.
The retirement benefit obligation recognised in the statement of financial position represents the present value of the defined benefit obligation, as reduced by the fair value of scheme assets. The present value of the defined benefit obligation is determined through consultation with independent actuaries, taking into account current market discount rates, current market values of investments and actual investment returns.
Share-based payments The cost of share-based employee compensation arrangements, whereby employees receive remuneration in the form of shares or share options, is recognised as an employee benefit expense in the income statement.
The total expense is apportioned over the vesting period of the benefit and is determined by reference to the fair value at the grant date of the shares or share options awarded and the number that are expected to vest. The assumptions underlying the number of awards expected to vest are subsequently adjusted to reflect conditions prevailing at the statement of financial Our business position date. At the vesting date of an award, the cumulative expense is adjusted to take account of the awards that actually vest based on the performance against non-market conditions.
Share capital Ordinary shares are classified as Equity. Incremental costs directly attributable to the issue of new Ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.
Critical accounting policies and judgements The preparation of the consolidated financial statements under IFRS requires a number of estimates and assumptions to be made. In addition, management is required to exercise its judgement in the process of applying the Group’s accounting policies. Management continually evaluates the estimates, assumptions and judgements based on available information and experience. As the use of estimates is inherent in financial reporting, actual results could differ from these estimates. The Group believes that Our performance of its significant accounting policies, the following are considered to be critical to its financial condition and results and involve a high degree of judgement and complexity.
Revenue recognition Voice services are generally billed in arrears, and Data and Managed Services (including Data Centre revenue) are generally billed in advance. Voice revenue is recognised when voice traffic is carried over the network. Data revenue is allocated over the life of the customer contract according to the pattern in which the customer derives the benefits of the service. Revenue from installation activities is deferred and recognised over the expected length of the customer relationship period (typically three to five years), or the contractual period if longer. Judgement is required in the application of these principles. Our governance Carrier revenue and payments to other operators When telephony traffic is carried by other operators, the Group incurs interconnect costs. Some interconnect costs are subject to regulation by local regulatory authorities in the countries in which the Group operates. A regulatory determination may give rise to amendments (most often in the form of reductions) to interconnect costs. The changes in regulated interconnect costs may or may not be in line with the change in market selling prices for telephony traffic. Margins may therefore be eroded where selling prices fall faster than regulated interconnect costs.
The Group reviews its interconnect costs on a regular basis and adjusts the rate at which these costs are charged in the income statement in accordance with the estimated interconnect costs for the current period. The prices at which these services are charged are often regulated and can be subject to retrospective adjustment. Estimates are used in assessing the likely impact of Financials these retrospective adjustments.
Receivables and provisions for doubtful debts The Group performs ongoing reviews of the bad debt risk within its receivables and makes provisions to reflect its views of the financial condition of its customers and their ability to pay in full for amounts owing for services provided. The expense associated with these provisions for bad debts is recorded in cost of sales. Estimates based on historical and current experience are used in determining the level of debts that are not expected to be collected.
Property, plant and equipment Property, plant and equipment is recorded at historical costs less accumulated depreciation and any accumulated impairment losses. Network infrastructure and equipment comprises assets purchased and built, at cost, together with capitalised labour, directly attributable to the cost of construction.
Colt’s network assets are long-lived, with cables and switching equipment operating for between five and twenty years. The annual depreciation charge is sensitive to the estimated service life allocated to each asset type. The Group reviews asset lives annually and changes them when it is considered necessary to reflect its current estimates of its remaining lives in light of changes in technology, and the actual condition and expected utilisation of the assets concerned.
Colt Group S.A. / Annual Report 2011 75 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Notes to the consolidated financial statements / continued
Impairment The carrying values of property, plant and equipment and intangible assets other than goodwill, within a cash-generating unit, are reviewed for impairment only when events indicate the carrying value may be impaired. Impairment indicators include both internal and external factors. Examples of internal factors include analysing performance against budgets and assessing absolute financial measures for indicators of impairment. Examples of external considerations assessed for indications of impairment include wider economic factors.
Where impairment indicators are present, the recoverable amounts of assets are measured. Asset recoverability requires assessment as to whether the carrying value of assets can be supported by the net present value of future cash flows derived from such assets using cash flow projections which have been discounted at an appropriate rate. In calculating the net present value of the future cash flows, certain assumptions are required to be made in respect of highly uncertain matters. In particular, management has regard to assumptions in respect of revenue mix and growth rates, customer churn, EBITDA margins, timing and amount of capital expenditures, long-term growth rates and the selection of appropriate discount rates.
Deferred tax assets The Group operates in a large number of different tax jurisdictions. Deferred tax assets require management judgement in determining the amounts to be recognised. In particular, significant judgement is used when assessing the extent to which deferred tax assets should be recognised with consideration given to the timing and level of future taxable income, time limits on the availability of taxable losses for carry forward together with any future tax planning strategies. If the future earnings were to vary by 10% from the forecasted taxable income, this would lead to an immaterial movement on the amount of deferred tax recognised on the balance sheet.
Provisions The Group’s provisions are established based on its best estimate at the statement of financial position date of the amounts necessary to settle existing obligations or commitments as of each statement of financial position date.
2 Segmental reporting
Operating segments The Group is managed around its three new customer facing Business Units: Colt Enterprise Services, Colt Communication Services and Colt Data Centre Services, supported by two internal functional units. Colt’s three Business Units correspond to its reportable segments in line with the information reported to its chief operating decision maker, the Board of Directors. These Business Units replaced the Major Enterprise, SME and Wholesale Business divisions, the Group’s previous reportable segments, from January 2011. Comparative financial information has been restated.
Business Unit revenue has been analysed by product between Voice, Data and Managed Services. Voice revenue comprises services including the transmission of voice, data or video through a switching centre. Data revenue includes non-managed network services, bandwidth services and voice traffic which is delivered in a digital form (IP Voice). Managed Services revenue comprises managed network services and data centre services. Voice revenue has been further split between Carrier Voice and Corporate and Reseller Voice. Carrier Voice revenue includes Voice services provided wholesale to other licensed operators, and Corporate and Reseller Voice revenue is all other Voice revenue.
Internal Managed Services revenue represents the recharge by Colt Data Centre Services to the other two customer-facing Business Units for the provision of data centre space and services. The third party revenue in relation to these services is billed by the Enterprise Services and Communication Services units resulting in the related profits being recognised across all three Business Units. Internal Managed Services revenue is eliminated on consolidation.
The Business Services Unit and Infrastructure Services Unit are internal functional units which support the three customer-facing Business Units. The Infrastructure Services Unit integrates the activities of Colt's network, managed services operations and technology operation. The Business Services Unit integrates the India and Barcelona Shared Services Centres and country support teams, ensuring the effective delivery of pan-European business support.
The Group measures the performance of its operating segments through a measure of segment profit or loss which is referred to as EBITDA in Colt’s management reporting system. EBITDA is profit before net finance costs, tax, depreciation, amortisation, foreign exchange and exceptional items.
Business Unit EBITDA includes all costs directly attributable to the Business Units and the recharge of shared network and other Service Unit operating costs. The basis used to recharge these costs may be further refined in the future.
The Business Units use a shared network including integrated data centre infrastructure which underpins the services provided by all three Business Units. It is therefore classified as an unallocated corporate asset along with the related depreciation. Part of the Group's non-current asset additions balance is disclosed by segment, as reported to the chief operating decision maker. The remaining balance is classified as corporate. Other unallocated corporate assets and liabilities include cash, current asset investments, debt, provisions and current and deferred tax assets.
Due to the reclassification of certain customers between Business Units in 2011 as a result of changes to customer revenue thresholds, prior year segmental comparatives have been restated.
The Group has a large customer base and no undue reliance on any one major customer; therefore, no such related revenue is required to be disclosed by IFRS 8.
The accounting policies adopted by each segment are described in note 1.
76 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Notes to the consolidated financial statements / continued
Unallocated Enterprise Communication Data Centre and Services Services Services eliminations Consolidated Year ended 31 December 2011 €m €m €m €m €m Revenue Carrier Voice – 195.4 – – 195.4 Corporate and Reseller Voice 113.9 253.7 – – 367.6 Data revenue 374.4 430.7 – – 805.1 Managed Services Revenue – third party 114.8 34.9 36.5 – 186.2 Managed Services Revenue – internal – – 113.7 (113.7) – Total segment revenue 603.1 914.7 150.2 (113.7) 1,554.3
Result EBITDA 100.8 186.4 44.8 – 332.0 Depreciation and amortisation (265.1) Operating profit 66.9 Finance income 3.0 Finance costs and similar charges (1.1) Net foreign exchange gains (losses) from financing activities 3.2
Profit before taxation 72.0 Our business Taxation expense (9.7) Profit after taxation 62.3
Segment assets 88.8 140.7 6.3 1,802.9 2,038.7
Segment liabilities 214.5 260.3 39.3 76.4 590.5
Other segment items Additions to non-current assets 70.1 61.6 47.1 84.8 263.6
Amortisation and depreciation 265.1 265.1 Our performance Our governance Financials
Colt Group S.A. / Annual Report 2011 77 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Notes to the consolidated financial statements / continued
Unallocated Enterprise Communication Data Centre and Services Services Services eliminations Consolidated Year ended 31 December 2010 (restated) €m €m €m €m €m Revenue Carrier Voice – 194.2 – – 194.2 Corporate and Reseller Voice 126.5 289.2 – – 415.7 Data revenue 376.4 424.7 – – 801.1 Managed Services Revenue – third party 113.1 34.1 25.4 – 172.6 Managed Services Revenue – internal – – 107.7 (107.7) – Total segment revenue 616.0 942.2 133.1 (107.7) 1,583.6
Result EBITDA 104.2 189.2 36.8 – 330.2 Depreciation and amortisation (249.6) Exceptional items (30.1) Operating profit 50.5 Finance income 3.6 Finance costs and similar charges (4.9) Net foreign exchange gains (losses) from financing activities (2.2) Profit before taxation 47.0 Taxation credit 24.2 Profit after taxation 71.2
Segment assets 95.4 147.1 6.4 1,756.8 2,005.7
Segment liabilities 209.5 259.4 59.5 106.1 634.5
Other segment items Additions to non-current assets 60.2 53.5 27.9 113.9 255.5
Amortisation and depreciation 249.6 249.6
Geographical information The Group has material revenue and assets in a number of countries, including Germany, France, the UK, Spain, Italy and Switzerland. There is no material revenue or assets in the Company’s country of domicile, Luxembourg. Revenue by country is disclosed based on amounts invoiced and accrued. Inter-geographical revenue transactions are carried out at an arm’s length price.
The information in the table below is based on the location of the assets which is not materially different from the location of the customer.
Total non-current assets Revenue excluding deferred tax assets 2011 2010 2011 2010* €m €m €m €m
Germany 347.3 394.1 336.8 364.8 UK 345.3 319.1 446.2 434.7 France 221.7 219.8 147.8 139.5 Spain 157.0 160.3 114.4 121.4 Italy 122.3 122.4 56.7 56.7 Switzerland 106.1 105.3 82.3 87.4 Other 254.6 262.6 208.8 176.6 1,554.3 1,583.6 1,393.0 1,381.1
* The 2010 carrying amounts were restated to ensure comparability with 31 December 2011.
78 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Notes to the consolidated financial statements / continued
3 Profit before taxation
The following items have been included in arriving at profit before taxation:
Year ended 31 December 2011 2010 €m €m
Staff costs (note 5) 330.2 329.6 Network depreciation and amortisation Intangible assets (note 10) – 0.6 Property, plant and equipment (note 11) 212.1 205.7 Other depreciation and amortisation Intangible assets (note 10) 39.1 29.1 Property, plant and equipment (note 11) 13.9 14.2 Net receivables provision charge (note 14) 7.4 3.4 Other operating lease rentals payable: Property 32.9 36.0 Plant and equipment 124.3 146.5
Net foreign exchange (gains) losses arising on financing activities (3.2) 2.2 Our business
Services provided by the Group’s auditor and network of firms:
Year ended 31 December 2011 2010 €m €m
Fees payable to the Company’s auditor for the audit of the Parent Company and consolidated financial statements 0.1 0.1
Fees payable to the Company’s auditor and its associates for other services: Our performance The audit of the Company’s subsidiaries, pursuant to legislation 1.6 1.5 Other services supplied pursuant to such legislation 0.1 0.2 Corporate finance services 0.1 0.5 1.9 2.3 Tax services 0.7 0.5 2.6 2.8
4 Key management personnel compensation Our governance
Year ended 31 December 2011 2010 €m €m
Salaries and short-term benefits 2.9 3.2 Post-employment benefits – 0.1 Termination benefits – 1.3 Share-based payments 0.5 0.6 3.4 5.2 Financials Further details on Directors’ emoluments are set out in the Audited Information in the Directors’ Remuneration Report on pages 64 to 65 which form part of these financial statements (incorporated by cross reference).
Colt Group S.A. / Annual Report 2011 79 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Notes to the consolidated financial statements / continued
5 Employee information
Average monthly number of people (including Directors) employed by the Group:
Year ended 31 December 2011 2010
Allocated by reportable segment: Enterprise Services1 2,268 2,229 Communication Services 2,431 2,418 Data Centre Services 201 178 4,900 4,825
1 Includes 30 new people transferred as part of the MarketPrizm acquisition in May 2011 (see note 12).
Year ended 31 December 2011 2010
By geography: Europe 3,604 3,644 India 1,281 1,176 Rest of World 15 5 4,900 4,825
Year ended 31 December 2011 2010 €m €m Employee costs (for the above persons): Wages and salaries 299.3 293.9 Share option charge (note 17) 1.4 1.2 Social security costs 47.3 48.6 Pension costs (note 27) 21.0 20.8 369.0 364.5 Less: employee costs capitalised (38.8) (34.9) 330.2 329.6
Capitalised employee costs are included in additions within the appropriate non-current asset category.
6 Net finance income
Year ended 31 December 2011 2010 €m €m
Interest income on short-term bank deposits 3.0 3.6 Finance income 3.0 3.6 Discount unwind on property provisions (note 20) (0.7) (1.0) Other finance costs and similar charges (0.4) (3.9) Finance costs and similar charges (1.1) (4.9) 1.9 (1.3)
7 Exceptional items
There were no exceptional items in 2011.
During 2010, Colt realised an exceptional restructuring charge of €30.1m to simplify the organisation.
80 Colt Group S.A. / Annual Report 2011 Stock Code: COLT.L
21101.04 8/02/12 Proof 4 Notes to the consolidated financial statements / continued
8 Taxation
The Group tax (charge) credit during the year was as follows:
Year ended 31 December 2011 2010 €m €m Current tax charge Overseas tax (7.7) (3.8) Total current tax charge (7.7) (3.8)
Deferred tax (charge) credit (note 13) Origination and reversal of temporary differences (2.0) 28.0 Total deferred tax (charge) credit (2.0) 28.0
Total tax (charge) credit (9.7) 24.2
The difference between the actual tax expense (income) computed using a weighted average tax rate and the tax expense computed on accounting profit can be explained as follows: Our business
Year ended 31 December 2011 2010 €m €m
Profit before tax 72.0 47.0
Tax calculated at domestic tax rates applicable to profits (losses) in the respective countries 22.0 10.9 Permanent differences (41.7) (40.6) Utilisation of previously unrecognised tax losses (1.4) (5.6) Prior period adjustments 3.1 –
Recognition of deferred tax assets and liabilities previously unrecognised (0.5) (28.0) Our performance Temporary differences for which no deferred income tax asset was recognised 28.2 39.1 9.7 (24.2)
The weighted average applicable tax rate was 26.3% (2010: 23.2%). The movement is caused by a change in the relative accounting profits and losses of the Group’s subsidiaries in the respective countries.
The tax credit relating to components of other comprehensive income is as follows:
2011 2010 Before tax Tax credit After tax Before tax Tax credit After tax €m €m €m €m €m €m Our governance
Actuarial gain on retirement benefit obligations 1.3 (0.1) 1.2 (1.8) 0.3 (1.5) Exchange gain differences on translation of foreign operations 12.1 0.5 12.6 27.1 – 27.1 Other comprehensive income 13.4 0.4 13.8 25.3 0.3 25.6
9 Earnings per share Financials Basic earnings per share is based upon the profit after tax for each year and the weighted average number of ordinary shares in issue in the year.
Year ended 31 December 2011 2010 m m
Basic weighted average number of ordinary shares (m) 891.6 891.6 Dilutive ordinary shares from share options* (m) 1.1 0.9 Diluted weighted average number of ordinary shares (m) 892.7 892.5 Profit for the year (€m) 64.0 71.2 Basic earnings per share €0.07 €0.08 Diluted earnings per share €0.07 €0.08
* Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares.
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10 Intangible assets
Software Goodwill assets Total €m €m €m Cost At 1 January 2010 30.5 358.9 389.4 Additions – 54.3 54.3 Acquisition of subsidiaries – 5.7 5.7 Disposals – (16.7) (16.7) Exchange differences – 9.0 9.0 At 31 December 2010 30.5 411.2 441.7 Additions – 37.3 37.3 Disposals – (0.7) (0.7) Exchange differences – 10.0 10.0 At 31 December 2011 30.5 457.8 488.3
Accumulated amortisation At 1 January 2010 30.5 267.3 297.8 Charge for the year – 29.7 29.7 Disposals – (16.7) (16.7) Exchange differences – 6.3 6.3 At 31 December 2010 30.5 286.6 317.1 Charge for the year – 39.1 39.1 Disposals – (0.5) (0.5) Exchange differences – 6.7 6.7 At 31 December 2011 30.5 331.9 362.4
Net book value At 1 January 2010 – 91.6 91.6 At 31 December 2010 – 124.6 124.6 At 31 December 2011 – 125.9 125.9
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11 Property, plant and equipment Computers, Network equipment, infrastructure fixtures, and fittings and equipment vehicles Total €m €m €m Cost At 1 January 2010 4,614.2 211.3 4,825.5 Additions 184.1 17.1 201.2 Acquisition of subsidiaries 58.7 – 58.7 Disposals (10.6) (2.5) (13.1) Exchange differences 91.5 5.9 97.4 At 31 December 2010 4,937.9 231.8 5,169.7 Additions 215.7 10.6 226.3 Acquisition of subsidiaries (note 12) – 0.3 0.3 Disposals (16.1) (0.7) (16.8) Exchange differences 44.3 2.4 46.7 At 31 December 2011 5,181.8 244.4 5,426.2
Accumulated depreciation Our business At 1 January 2010 3,450.3 179.8 3,630.1 Charge for the year 205.7 14.2 219.9 Disposals (8.4) (2.2) (10.6) Exchange differences 69.7 4.1 73.8 At 31 December 2010 3,717.3 195.9 3,913.2 Charge for the year 212.1 13.9 226.0 Disposals (12.5) (0.4) (12.9) Exchange differences 30.1 2.7 32.8 At 31 December 2011 3,947.0 212.1 4,159.1
Net book value Our performance At 1 January 2010 1,163.9 31.5 1,195.4 At 31 December 2010 1,220.6 35.9 1,256.5 At 31 December 2011 1,234.8 32.3 1,267.1
Included in property, plant and equipment at 31 December 2011 are payments on account and assets under construction of €87.5m (2010: €75.9m) and land and buildings at a cost of €60.1m (2010: €54.6m).
Indicator of impairment Since late July 2011 Colt Group S.A.’s market capitalisation has been below the current value of the Group’s consolidated intangible assets and property, plant and equipment; at 31 December 2011 Colt’s market capitalisation was €1.0 billion. The Board of Directors have assessed this impairment factor and as a result an impairment review was performed. Our governance
The value in use calculation supported the carrying value of the Group’s intangible assets and property, plant and equipment as at 31 December 2011.
The value in use calculation was derived from cash flow forecasts based on the Group’s most recent budget approved by the Board. The cash flow forecast is sensitive to material changes in key assumptions, including those relating to Voice, Data and Managed Services revenue growth, Data and Managed Services profit margins, customer churn and capital expenditure. The rate used to discount the forecast cash flows is estimated by reference to the Group’s weighted average cost of capital, calculated to be 9.0% pre-tax for 2011. Financials
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12 Acquisition of subsidiaries
MarketPrizm On 10 May 2011, the Group acquired 80.1% of the voting rights of the unlisted company MarketPrizm Group S.à r.l. for €nil consideration. The acquisition represents a strategic investment in a business that provides high performance market data feed handling technology.
The fair value of the net assets acquired was €1.7m, comprising current assets (€3.2m); property, plant and equipment (€0.3m); and trade and other payables (€1.8m). After deducting the non-controlling interest's share of net assets acquired (€0.3m), the excess of net assets acquired compared to the nil consideration paid resulted in a gain of €1.4m recognised in the income statement against selling, general and administrative expenses. Colt was not required to pay for these working capital balances because it will be responsible for the future funding of the MarketPrizm sub-group. This transaction has been accounted for by the acquisition method of accounting.
The fair values of the assets and liabilities acquired exceeded the €nil cash consideration; therefore, no goodwill was separately identified; €nil deferred consideration arises from the transaction. MarketPrizm Group S.à r.l. and its subsidiaries contributed €3.4m of revenue and €7.9m of net losses (including the €1.4m gain on purchase noted above and after acquisition costs of €0.6m) to the Group’s profit for the period between acquisition and the balance sheet date. If the acquisition of MarketPrizm Group S.à r.l. had been completed on 1 January 2011, Group revenue would have been approximately €5.1m higher and Group profit after tax would have been €17.1m lower.
Data centre On 6 May 2010, Colt completed the acquisition of 100% of the issued share capital of Spire Black Fan Limited and Tranz Limited, both Jersey registered companies, and their subsidiary for consideration of €57.1m. No goodwill was recognised. There have been no subsequent adjustments to the fair value of the identifiable net assets.
Managed services platform On 11 November 2010, the Group acquired 100% of the voting rights of the unlisted companies v.ip systems AG (Switzerland) and LongLine SRL (Romania) for consideration of €8.3m. The fair value of the assets and liabilities equalled the cash consideration; therefore, no goodwill was separately identified. There have been no subsequent adjustments to the fair value of the identifiable net assets, including the finite life intangible asset. Purchase consideration included consideration of €1.7m contingent on the Group not having to settle future claims brought against the acquired entities. The contingent consideration due in 2011 has been paid to the former shareholders and the remaining fair value of the consideration remains unchanged and payable.
13 Deferred tax assets
Year ended 31 December 2011 2010 €m €m
Deferred tax assets 56.0 58.0 Deferred tax liability (0.7) (1.1) Total deferred tax 55.3 56.9
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. The above analysis is the analysis of the deferred tax balances (after offset) for financial reporting purposes.
The recognised deferred tax assets are as follows:
Capital allowances Tax losses Tax losses less – without – time expiring Retirement Other timing depreciation time limits (within 10 years) benefits differences Total €m €m €m €m €m €m
At 1 January 2010 13.0 4.0 1.6 0.6 9.4 28.6 Income statement credit (note 8) 18.1 4.9 4.5 – 1.6 29.1 Tax credit relating to components of other comprehensive income (note 27) – – – 0.3 – 0.3 At 1 January 2011 31.1 8.9 6.1 0.9 11.0 58.0 Income statement credit (note 8) (0.4) 5.0 (6.1) – (0.9) (2.4) Tax credit relating to components of other comprehensive income (0.5) – – (0.1) 1.0 0.4 At 31 December 2011 30.2 13.9 – 0.8 11.1 56.0
The Group continues to recognise a deferred tax asset in its financial statements because it is probable that future taxable
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income will arise to utilise the tax asset. The subsidiaries for which an asset is recognised have also demonstrated the required consistent history of profits as well as future forecasts of profits.
The estimated deferred tax assets to be recovered in 12 months are €18.6m (2010: €19.3m) and the estimated deferred tax liabilities to materialise within 12 months are €0.4m (2010: €0.4m).
At 31 December 2011 gross tax losses carried forward amounted to €2,266.6m (2010: €2,140.2m), of which €2,045.6m (2010: €1,905.3m) are not time limited and €221.0m (2010: €234.9m) are time limited. The majority of the time limited losses will expire in 2026. All losses must be utilised in the country in which they arose. They remain subject to legislative provisions and to agreement with the various tax authorities in jurisdictions in which the Group operates.
At 31 December 2011 the Group also had other timing differences of €1,084.3m (2010: €1,146.4m), the majority of which have arisen as a result of the carrying value of fixed assets being higher for tax purposes than their value in the accounts.
The Group has recognised a deferred tax asset of €56.0m as at 31 December 2011 (2010: €58.0m). As at 31 December 2011, the Group has net tax losses and other tax attributes of €747.0m (2010: €745.8m) for which no deferred tax asset has been recognised. Of the total deferred tax recognised at 31 December 2011, €18.6m is expected to be utilised in less than one year and €37.4m in more than one year.
Deferred tax assets are not recognised where their recovery is not deemed to be probable in the foreseeable future. The major Our business components of the deferred tax asset not recognised are as follows:
At 31 December 2011 2010 €m €m
Capital allowances less depreciation 203.4 233.9 Short-term temporary differences 67.4 57.5 Potential deferred tax asset 270.8 291.4 Tax value of losses Losses – without time limits 414.0 399.7
Losses – time expiring (within 10 years) 62.2 54.7 Our performance Total potential deferred tax asset after addition of losses 747.0 745.8
Legislation enacted in several countries in which the Group operates will affect the tax rate expected to apply when the deferred tax asset or liability in that country is settled. It is not practical to estimate the impact the changes will have on the amount of deferred tax recognised.
14 Trade and other receivables
At 31 December Our governance 2011 2010 €m €m Amounts falling due within one year: Trade receivables 229.4 236.9 Provision against doubtful debts (38.3) (33.1) Trade receivables – net 191.1 203.8 Other receivables 16.0 27.6 Prepayments and accrued income 32.3 28.0 VAT recoverable 6.6 6.8
246.0 266.2 Financials
The Group has a variety of credit terms depending on the customer. The Group has provided fully for all receivables over 180 days. Trade receivables between 60 and 180 days are provided for based on the age of the debt and other customer specific matters. Colt does not renegotiate credit terms.
The fair value of trade receivables as at 31 December 2011 is not materially different to the carrying value.
Trade receivables with a gross value of €42.2m (2010: €35.9m) are individually determined to be impaired as at the end of the reporting period.
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At 31 December 2011 2010 €m €m Movement in the allowance for doubtful debts: Balance at the beginning of the year (33.1) (37.6) Receivables written off during the year as uncollectable 2.4 8.4 Amounts recovered during the year 9.4 8.4 Provided during the year (16.8) (11.8) Exchange differences (0.2) (0.5) Balance at the end of the year (38.3) (33.1)
In determining the recoverability of the trade receivables the Group considers any changes in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being distributed over many customers, in different countries and in different industries.
Aged analysis of trade receivables As of 31 December 2011, trade receivables of €46.1m (2010: €31.4m) were past due but not impaired. These relate to a number of customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:
Past due and not impaired between more than 0 and 90 days 90 days past due past due €m €m
Trade receivables at 31 December 2011 40.0 6.1 Trade receivables at 31 December 2010 27.9 3.5
Currency profile of trade and other receivables The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies: At 31 December 2011 2010* €m €m
Euro 176.3 184.1 Sterling 47.2 56.1 Swiss Franc 12.3 11.8 Other 10.2 14.2 246.0 266.2
* The 2010 carrying amounts were restated to ensure comparability with 31 December 2011.
15 Current asset investments
At 31 December 2011 2010 €m €m
Current asset investments 60.0 150.0 60.0 150.0
Current asset investments consist of bank deposits held for a term of three to six months from the date of deposit. During 2011 the effective interest rate on three to six month deposits was 1.2% (2010: 0.9%). The fair value of current asset investments as at 31 December 2011 is not materially different to the carrying value.
16 Cash and cash equivalents
At 31 December 2011 2010 €m €m
Cash at bank and in hand 40.8 26.1 Short-term bank deposits 242.9 124.3 283.7 150.4
Cash at bank and in hand and short-term bank deposits comprise funds which the Group can access without restriction within a maximum of three months. During 2011 the effective interest rate on short-term deposits was 0.8% (2010: 0.8%) and at 31 December 2011 these deposits had an average maturity of one working day (2010: one working day).
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17 Changes in shareholders’ equity
Share capital The authorised share capital at 31 December 2011 consisted of 2,500,000,000 ordinary shares with a nominal value of €0.50, of which 891,643,292 (2010: 891,594,312) had been issued and were fully paid-up. All shares have the same rights and entitlements.
Shares to be issued reserve The shares to be issued reserve of €8.4m (2010: €7.0m) represents shares to be issued under the various share option plans operated by the Group.
Other reserves Other reserves totalling €164.9m (2010: €164.9m) includes the special reserve, the reverse acquisition reserve, the merger reserve and the other distributable reserve.
Other distributable reserve In 2009 a reduction in nominal value of the Ordinary shares resulted in a reserve of €510.4m.
Special reserve On 30 June 2006 COLT S.A. became the holding company of COLT Group Limited (formerly plc) under the terms of a Scheme of Arrangement (the ‘Scheme’) approved by COLT plc shareholders. The former COLT plc shareholders were issued new shares Our business in COLT S.A. on a one-for-three basis under the terms of the Scheme. Immediately preceding the Scheme, the shareholders of COLT plc had approved a capital reduction which reduced share premium by €2.9bn and reduced retained losses by €2.8bn. The excess of share premium over retained earnings at that date of €60.9m was transferred to a ‘special reserve’ in the accounts of COLT plc which is not distributable to shareholders.
Reverse acquisition reserve Immediately following the approval of the Scheme, the former shareholders of COLT plc held the same economic interest in COLT S.A. as they held in COLT plc immediately prior to its implementation. Accordingly, the acquisition of COLT plc via the Scheme has been accounted for as a reverse acquisition under IFRS3 ‘Business Combinations’. For accounting purposes in a reverse acquisition, the acquirer (COLT plc) is the entity whose equity interests have been acquired and the issuing entity (COLT S.A.) is the acquiree. The effect of this is that the financial statements of the combined Group represent a continuation of COLT plc’s financial statements. The assets and liabilities of COLT plc have been recognised and measured in these financial Our performance statements at their pre-combination carrying amounts. The consolidated accumulated losses and other reserves of the combined Group are based on the amount of COLT plc’s pre-combination ‘total equity’.
The fair value of the consideration for the business combination, calculated in accordance with IFRS3 ‘Business Combinations’, was €nil. The fair value of the net assets and liabilities of COLT S.A. acquired by COLT plc was €nil. Therefore, no goodwill was recognised. As a result of the combination, a reverse acquisition reserve of negative €774.5m was created. This has been classified as part of ‘other reserves’ within equity.
Merger reserve Merger reserves totalling €38.3m were recognised between 1997 and 2001. Our governance
Group share plan (“Option plan”) Options were granted at an option price which was not less than the market value of the ordinary shares on the date of grant. All option awards since July 2003 have been subject to performance tests. Most of the awards lapsed as the performance tests were not achieved.
At 31 December 2011, there were 1,515,267 (2010: 2,193,213) shares outstanding at a weighted average exercise price of £1.94 (2010: £6.36).
Share grant plan Financials The Share Grant Plan provides for awards to be made over Company shares. Awards do not vest until the third anniversary of the financial year the awards are granted in. Awards are made to Executive Committee members and are aimed at attracting senior employees to the Company. Subject to meeting performance conditions which are challenging and reflect a real and meaningful improvement in performance, awards ordinarily vest on the third anniversary of the date of grant.
Details of grants made under the Share Grant Plan are set out below:
Date of Date of Number Outstanding Granted Exercised Lapsed in Outstanding grant vesting granted at 31 Dec 2010 in the year in the year the year at 31 Dec 2011
May 2009 December 2011 1,840,337 1,280,977 – – (225,609) 1,055,368 March 2010 December 2012 1,947,151 1,531,081 – – (688,462) 842,619 July 2010 December 2012 126,396 50,007 – – – 50,007 July 2011 December 2013 2,562,151 – 2,562,151 – – 2,562,151 July 2011 December 2013 4,674,462 – 4,674,462 – (170,506) 4,503,956 October 2011 December 2013 586,830 – 586,830 – – 586,830 2,862,065 7,823,443 – (1,084,577) 9,600,931
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Share option plan The Share Option Plan is divided into two parts: the ‘Approved Part’ approved by HM Revenue & Customs in the UK for the purposes of the Income and Corporation Taxes Act 1988 and the ‘Unapproved Part’ which is not so approved. Options are granted at an option price which is not less than the market value of the ordinary shares on the date of grant. Subject to meeting performance conditions which are challenging and reflect a real and meaningful improvement in performance, awards ordinarily vest on the third anniversary of the date of grant.
At 31 December 2011, nil shares remained outstanding (2010: 55,000). During 2011, 55,000 shares lapsed and no additional shares were granted or earned.
Colt savings-related share option scheme The Colt Savings-Related Share Option Scheme (the ‘SAYE Scheme’) was adopted on 28 April 2006 and operates for the benefit of all eligible employees. Under the SAYE scheme, employees may save between £5 and £250 a month with a savings institution and are granted options to acquire shares in the Company. After a three-year period, employees can use the proceeds of their savings account to exercise the options at a price established at the beginning of the three-year period.
Details of grants made under the SAYE Scheme are set out below:
Number of Outstanding Outstanding Date of Exercise Date of options at 31 Dec Granted Exercised Lapsed at 31 Dec grant price (£) vesting granted 2010 in the year in the year1 in the year 2011
December 20062 1.41 1 March 2011 92,971 32,708 – – (32,708) – December 20072 1.70 1 March 2012 10,293 6,176 – – – 6,176 December 2007 1.77 1 March 2011 482,797 130,534 – – (130,534) – December 20082 0.62 1 March 2013 147,304 140,632 – – – 140,632 December 2008 0.65 1 March 2012 1,845,922 1,522,271 – (24,841) (66,466) 1,430,964 December 20092 1.24 1 March 2014 147,304 36,573 – - 36,573 December 2009 1.21 1 March 2013 1,845,922 1,201,832 – (6,808) (368,811) 826,213 December 20102 1.21 1 March 2015 26,230 26,230 – – (11,374) 14,856 December 2010 1.21 1 March 2014 571,099 563,661 – – (128,689) 434,972 December 20112 0.93 1 March 2016 3,907 – 3,907 – – 3,907 December 2011 1.01 1 March 2015 1,462,275 – 1,462,275 – – 1,462,275 December 2011 1.16 1 March 2015 45,823 – 45,823 – – 45,823 3,660,617 1,512,005 (31,649) (738,582) 4,402,391
Weighted average exercise price of options 0.98 1.01 0.77 1.27 0.94
1 Of the options exercised in the year, 31,649 were early exercises. 2 Each option holder entered into a four year savings contract.
Share option charge As described in note 1, the cost of share-based employee compensation arrangements is recognised as an employee benefit expense in the income statement. The ‘shares to be issued reserve’ represents the cumulative share option charge less amounts transferred to share premium on exercise of options.
For most grants made, the fair value has been calculated using the Black–Scholes model. The following assumptions were used in this model for share options granted during 2010 and 2011:
Options Options granted during granted during 2011 2010
Weighted average fair value £0.24 £0.35 Weighted average exercise price £0.77 £0.65 Weighted average share price at grant date £0.99 £1.21 Weighted average volatility 31% 39% Option life 3 – 4 years 4 – 5 years Expected dividend yield – – Risk free interest rate 1.1% – 1.6% 1.6% – 1.7%
Volatility is estimated at the date of each grant with reference to the historical volatility in the Group’s share price over the previous two-year period. In order for options to vest, participants must continue to be employed by the Group and the Group must meet certain non market-based performance conditions. The likelihood of these conditions being met is taken into account when the share option charge is calculated.
During 2011, 31,649 options were exercised. The average share price during the year was £1.29. Share options with exercise prices ranging from £0.62 to £1.70 were outstanding at the end of the year, with a weighted average remaining option life of 1.8 years.
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Colt deferred bonus plan The Colt Deferred Bonus Plan (the ‘Deferred Bonus Plan’) was adopted on 28 April 2006. The Deferred Share Bonus Plan allows grants of awards over matching shares based on shares purchased by participants with monies earned under the annual bonus plan. The award of matching shares is subject to performance conditions the same or similar to those relating to the Share Grant Plan. Participants must hold the shares for three years to obtain matching shares. No awards were made during 2011 (2010: nil).
On 22 March 1999 an Employee Benefit Trust (‘EBT’) was established, and on 31 December 2011 it held 257,156 shares (2010: 43,737). These shares can be used to satisfy the Company’s obligations under the Deferred Bonus Plan. Of the 546,518 shares purchased by EBT in 2011, 333,099 shares vested on 31 December 2011. The market value of the shares held at 31 December 2011 was €0.3m (2010: nil).
In March 2000 the Group established the Colt Telecom Qualifying Employee Share Ownership Trust (the ‘QUEST’) in order to acquire shares in the then parent company of the Group to satisfy options granted under the Group’s SAYE Share Option Scheme. The directors of Colt Telecom QUEST Trustees Limited resolved in September 2011 to wind up this Trust, which held no shares at the time the decision was taken (2010: nil).
18 Non-controlling interest Our business
€m
Balance at 10 May 2011 (date of acquisition) 0.3 Share of loss for the year (1.7) Balance at 31 December 2011 (1.4)
On 10 May 2011, the Group acquired 80.1% of the voting rights of the unlisted company MarketPrizm Group S.à r.l. The acquisition represents a strategic investment in a business that provides high performance market data feed handling technology. €0.3m of non-controlling interest was recognised on acquisition. Refer to note 12 for more detail on the acquisition. Our performance Our governance Financials
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19 Trade and other payables
At 31 December 2011 2010 €m €m
Trade payables 150.3 130.0 Other payables 6.7 12.8 Taxation and social security 32.1 24.3 Accruals 200.0 223.8 Deferred revenue 155.4 176.3 544.5 567.2
The average credit period on purchases varies by supplier. The Group has financial risk management policies in place to ensure that all payables are paid on time. The value of trade payables due in less than one year is €150.3m (2010: €130.0m).
20 Provisions for other liabilities and charges
Restructuring Property Total €m €m €m
At 1 January 2010 – 39.8 39.8 Amortisation of discount (note 6) – 1.0 1.0 Charged (released) during the year 30.1 (7.8) 22.3 Utilised in the year (2.9) (2.7) (5.6) Exchange difference – 0.4 0.4 At 31 December 2010 27.2 30.7 57.9 Amortisation of discount (note 6) – 0.7 0.7 Released during the year – (4.8) (4.8) Utilised in the year (19.1) (1.1) (20.2) Exchange difference (0.6) 0.1 (0.5) At 31 December 2011 7.5 25.6 33.1
Restructuring provision: The Group provides for obligations relating to restructuring activities which have been formally planned and announced and where implementation has commenced. The provision represents the estimated remaining cash outflow relating to the total 2010 exceptional restructuring cost of €30.1m (see note 7).
Property provisions: The Group provides for obligations relating to excess leased space and reinstatements in its properties. The provisions represent the net present value of the future estimated costs, with the unwinding of the discount included within the interest charge for the year. The provisions are discounted at 4.15% (2010: 4.25%).
2011 2010 Restructuring Property Total Restructuring Property Total €m €m €m €m €m €m Maturity profile of provisions Within 1 year 7.5 8.2 15.7 27.2 14.7 41.9 Between 1 and 2 years – 4.0 4.0 – 1.7 1.7 Between 2 and 5 years – 8.4 8.4 – 6.6 6.6 Over 5 years – 5.0 5.0 – 7.7 7.7 7.5 25.6 33.1 27.2 30.7 57.9
The above table represents estimated maturities based on contractual property rental lease terms and estimated future restructuring cash outflows.
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21 Cash flow reconciliations a) Reconciliation of profit for the year to net cash generated from operations At 31 December* 2011 2010 €m €m
Profit for the year 62.3 71.2 Taxation charge (credit) 9.7 (24.2) Exchange differences arising on finance activities (3.2) 2.2 Finance costs and similar charges 1.1 4.9 Finance income (3.0) (3.6) Depreciation and amortisation 265.1 249.6 Other non-cash items 1.4 1.2 Income taxes paid (3.0) (2.9) Movement in receivables 26.5 (2.4) Movement in payables (10.9) (37.3) Movement in provisions* (6.2) 23.9 Severance payments* (19.1) (2.9)
Net cash generated from operations 320.7 279.7 Our business b) EBITDA reconciliation At 31 December 2011 2010* €m €m
Net cash generated from operations 320.7 279.7 Exceptional items (see note 7) – 30.1 Movement in receivables (26.5) 2.4 Movement in payables 10.9 37.3 Movement in provisions* 6.2 (23.9) Our performance Severance payments* 19.1 2.92.9 2.9 Income taxes paid 3.0 2.9 Other non-cash items (1.4) (1.2) EBITDA 332.0 330.2
EBITDA is profit before net finance costs, tax, depreciation, amortisation, foreign exchange, and exceptional items. c) Free cash flow reconciliation At 31 December 2011 2010 €m €m Our governance
EBITDA 332.0 330.2 Exceptional items (see note 7) – (30.1) Movement in receivables 26.5 (2.4) Movement in payables (10.9) (37.3) Movement in provisions* (6.2) 23.9 Severance payments* (19.1) (2.9) Income taxes paid (3.0) (2.9) Other non-cash items 1.4 1.2 Financials Finance costs paid (0.7) (2.4) Finance income received 2.8 3.5 Net cash used to purchase non-current assets (279.5) (231.8) Free cash inflow 43.3 49.0
Free cash flow is net cash generated from operating activities less net cash used to purchase non-current assets and net interest paid.
* The 2010 cash flow reconciliation has been restated to separately classify severance payments in relation to the 2010 exceptional restructuring charge (see note 7) from movements in provisions.
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22 Analysis of net funds
Redemption At 31 of current At 31 December asset Exchange December 2010 investments Cash flow gain 2011 €m €m €m €m €m
Cash and cash equivalents 150.4 90.0 43.3 – 283.7 Current asset investments 150.0 (90.0) – – 60.0 Total net funds 300.4 – 43.3 – 343.7
Analysed in the statement of financial position: Cash and cash equivalents 150.4 283.7 Current asset investments 150.0 60.0 Total net funds 300.4 343.7
23 Capital and other financial commitments
At 31 December 2011 2010 €m €m
Contracts placed for future plant and equipment capital expenditure not provided for in the financial statements 32.3 32.1
24 Operating lease commitments
Total future aggregate minimum lease payments under non-cancellable operating leases: At 31 December 2011 Between More than Total Within 1 year 1 and 5 years 5 years €m €m €m €m
Property leases 197.0 33.8 101.4 61.8 Other 8.4 4.5 3.4 0.5 205.4 38.3 104.8 62.3
At 31 December 2010 Between More than Total Within 1 year 1 and 5 years 5 years €m €m €m €m
Property leases 224.1 36.8 114.9 72.4 Other 11.6 4.1 4.9 2.6 235.7 40.9 119.8 75.0
The Group's operating lease contracts allow for renewal terms which are negotiated in the normal course of business but are not committed.
25 Contingent liabilities
There was previously a significant dispute between mobile operators and the German regulator regarding charges for mobile termination. As a result Colt was subject to the risk of having to pay retrospectively higher charges to mobile operators. The final court case in this matter, regarding the regulator's ability to set charges, has now been heard and decided in the regulator’s favour.
The Group is subject to tax audits and litigation in a number of jurisdictions. Where it is believed that this will result in an adverse outcome, the Group recognises the appropriate provision. Where based on expert advice we believe ultimately no liability will arise, no provision is recognised. The most significant unprovided potential exposure is in Spain, where the Group is subject to an assessment for €8.0m in relation to VAT the Spanish authorities believe should have been charged to customers resident in the Canary Islands; the Group is appealing this assessment; a guarantee has been given in relation to the potential exposure in order to appeal the assessment in the Spanish courts. Colt has received clear legal advice that we have a strong case but the claim is not expected to be resolved for a number of years. The guarantee will remain in force for this period.
From time-to-time, the Group is subject to legal or regulatory claims, proceedings, investigations or reviews, and may have claims against its suppliers. With the exception of the German regulatory matter set out above, there are no pending claims, proceedings, investigations or reviews against the Group, which if determined adversely to the Group, are expected to have a
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material adverse effect on its liquidity or operations. During 2011, Colt issued performance based guarantees as part of normal trading for certain business service contracts. It is unlikely that the guarantees will be endorsed. The following table summarises the significant guarantees.
Expiry date €m
2012 1.5 2014 3.5 Perpetual 14.4 Total 19.4
The Group does not expect these liabilities to crystallise and therefore has not booked a provision in relation to these balances.
The Group holds guarantees for which financial assets are pledged as collateral; refer to note 26 for details.
26 Financial instruments
Treasury policy The Group operates a centralised treasury function that is accountable to the Board for managing treasury activities in accordance with a framework of treasury policies and procedures approved by the Board. The prime objective of the Treasury Our business department is to optimise the return of the Group’s cash balances, subject to risk considerations, and to manage the working capital requirements of the Group. The Group’s principal financial risk exposures arise from liquidity, and volatility in foreign exchange rates and interest rates.
Liquidity risk Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by managing adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching maturity profiles of financial assets and liabilities.
The Group has financed its operations historically through a mixture of issued share capital and long-term senior unsecured loan Our performance notes. The Group was debt-free at the end of 2011.
Cash is invested either in AAA unsecured money market mutual funds or placed on term deposit with approved counterparties and approved limits to ensure access to liquid funds to match operating needs. Deposits with a maturity period of more than three months are classified as current asset investments.
The Group has a €20.0m overdraft facility available immediately, which was not drawn on as at 31 December 2011 (2010: €nil). This facility is not subject to any covenant restrictions.
Foreign exchange risk Our governance The Group’s principal revenue, costs, assets and liabilities, including intercompany debt financing were denominated in Euros during 2011. Of the remaining currencies, Sterling is the largest exposure followed by the US Dollar and Swiss Franc. The Group seeks to match foreign currency assets and liabilities where possible and hedging is considered for significant foreign currency transactions.
Average and year end Sterling to Euro exchange rates used in the preparation of the financial statements for 2010 and 2011 were as follows:
Average rate Rate as at for year 31 December Financials
2011 1.153 1.197 2010 1.166 1.162
Interest rate risk As interest is earned on short-term cash deposits and current asset investments at variable as well as fixed rates, changes in interest rates will impact the amount of interest income earned. Trade receivables and payables do not present exposure to interest rate volatility.
Counterparty credit risk Financial assets which potentially subject the Group to concentration of credit risk consist principally of trade and other receivables, cash and current asset investments. Cash includes short-term and money market deposits as well as liquidity funds investments, all deposited for up to three months. Current asset investments include bank deposits of three to six months duration. Management believes the concentration of credit risk associated with trade and other receivables is minimised due to distribution over many customers in different countries and in different industries. Risks associated with the Group’s cash and
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current asset investments are mitigated by the fact that these amounts are placed across a number of high quality financial institutions. The Group has not experienced any losses to date on its deposited cash or current asset investments.
Sensitivity analysis As a result of the procedures described above, the Group has managed foreign currency exchange and interest rate risk within a 10% range. A 10% increase in the value of the Euro relative to other currencies would lead to a corresponding decrease in the fair value of its non-Euro denominated cash and cash equivalents of approximately €6.0m (2010: €5.2m) and an increase in its equity translation reserve deficit of €26.8m (2010: €57.3m). A 10% increase in interest rates across all maturities would lead to a corresponding increase in the Company’s earnings of approximately €0.3m (2010: €0.1m) based on the interest bearing assets and liabilities held on 31 December 2011.
Currency profile of cash and cash equivalents, and current asset investments At 31 December 2011 2010 €m €m Currency: Euro 223.9 98.4 Swiss Franc 2.8 7.5 Swedish Krona 0.5 0.4 Sterling 36.7 27.6 US Dollar 16.5 14.3 Other 3.3 2.2 Total 283.7 150.4
The Group’s cash and cash equivalents as at 31 December 2011 comprise a mix of investments in unsecured money market mutual funds which earn interest at variable rates and funds deposited for fixed periods earning higher fixed rates of interest.
The Group’s current asset investments of €60.0m as at 31 December 2011 (2010: €150.0m) are all denominated in Euros.
Group borrowings The Group has nil borrowings (2010: nil).
Categories of financial instruments At 31 December 2011 2010 €m €m Financial assets Cash and cash equivalents 283.7 150.4 Current asset investments 60.0 150.0 Trade and other receivables1 213.7 238.2 557.4 538.6
Financial liabilities Other financial liabilities2 357.0 366.6 357.0 366.6
1 Excludes prepayments and accrued income. 2 Excludes provisions, current tax liabilities, other tax and social security and deferred revenue.
The maximum credit risk exposure of Group financial assets is €557.4m (2010: €538.6m).
The following tables set out the contractual maturity analysis of the Group’s financial liabilities:
As at 31 December 2011 Trade and other payables* Provisions Total €m €m €m
2012 357.0 15.7 372.7 2013 – 4.0 4.0 2014 – 1.7 1.7 2015 – 4.1 4.1 2016 – 2.6 2.6 2017 and subsequent years – 5.0 5.0 Total 357.0 33.1 390.1
* Excludes provisions, current tax liabilities, other tax and social security and deferred revenue.
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As at 31 December 2010 Trade and other payables* Provisions Total €m €m €m
2011 366.6 41.9 408.5 2012 – 1.7 1.7 2013 – 1.9 1.9 2014 – 1.2 1.2 2015 – 3.5 3.5 2016 and subsequent years – 7.7 7.7 Total 366.6 57.9 424.5
* Excludes provisions, current tax liabilities, other tax and social security and deferred revenue. At 31 December 2011 2010 €m €m Financial assets pledged as collateral Bank guarantee deposits 5.5 12.6 Other guarantee deposits 4.4 4.0 Our business 9.9 16.6
Bank guarantee deposits are restricted cash funds and credit extensions granted by banks on a country basis. Other guarantee deposits are cash funds paid in advance to suppliers to secure contracts. These deposits have no expiry terms.
Capital risk management The following table summarises the current capital of the Group:
At 31 December 2011 2010 €m €m
Cash and cash equivalents 283.7 150.4 Our performance Current asset investments 60.0 150.0 Net cash and cash equivalents and three to six month deposits 343.7 300.4 Equity attributable to the owners of the Company 1,449.6 1,371.2 Capital 1,403.0 1,402.9
The Board regularly reviews the Group’s funding and capital requirements (refer to page 37 for details). The Group’s long-term policy is to finance the Group centrally using a mixture of equity and debt, accessing both longer-term capital markets and short-term bank finance as circumstances require. However, in the short term the Group has sufficient funds to finance both its working capital and immediate non-current asset purchases. The Group’s capital structure is reviewed on a regular basis in response to business developments. The Group continues to believe that there are significant growth opportunities for the business and in this context has not declared a dividend in 2011. Our governance Financials
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27 Pension arrangements
Defined contribution schemes The Group operates a number of defined contribution pension schemes in its subsidiaries. Pension costs are charged to the income statement on an accruals basis in the period in which contributions are payable to the scheme. The pension cost for 2011 was €18.2m (2010: €18.4m). At 31 December 2011, there were no amounts outstanding in relation to defined contribution pension schemes (2010: €nil).
Employees in certain subsidiaries are members of pension schemes which are state sponsored multi-employer arrangements, whereby Colt contributes to a combined fund in which information specific to Colt is not available. In accordance with IAS 19 ‘Employee Benefits’, these schemes have been accounted for as defined contribution schemes.
Defined benefit schemes The Group operates a funded defined benefit pension scheme in Switzerland. The most recent actuarial valuation for this scheme was carried out at 31 December 2011. The present value of the defined benefit deficit and the related current service cost were measured using the projected unit credit method resulting in a net defined pension deficit of €4.9m (2010: €5.4m).
The Group also operates a scheme in France whereby employees are entitled to a lump sum payable on retirement based on final salary and length of service. No payments are made during the employee’s service life; therefore, no assets are built up in the fund and the scheme contains only liabilities for future payments. The liability is not material, but for consistency with the Swiss scheme has been accounted for as defined benefit in nature.
The most recent actuarial valuation for this scheme was carried out at 31 December 2008 and produced a defined benefit pension liability of €1.2m. Since the scheme has only an immaterial liability with no corresponding pension scheme assets, no further detailed disclosures regarding the scheme have been provided in this Note.
The pension liability is composed as follows:
At 31 December 2011 2010 €m €m
French scheme 1.2 1.6 Swiss scheme 4.9 5.4 Total liability 6.1 7.0
Swiss scheme The following actuarial assumptions were adopted:
Year ended 31 December 2011 2010 % %
Discount rate 2.25 2.50 Future pension increases 0.50 1.00 Expected rate of salary increases 2.50 2.50 Expected return on scheme’s assets 3.50 4.00
The overall expected rate of return on assets is calculated as the weighted average of the expected returns from each of the asset classes. The expected return on assets assumption is derived by considering the expected long-term rates of return on plan investments.
Measurement of the defined benefit pension obligation is particularly sensitive to changes in certain key assumptions, including the discount rate. An increase or decrease of 0.25% in the discount rate would result in a respective €0.9m decrease or a €0.9m increase in the defined benefit obligation. Mortality tables used are the ‘BVG’ 2010 tables. The assumed average life expectancy of a pensioner at retirement is 19.7 years for women (2010: 21.9 years) and 22.9 years for men (2010: 17.9 years).
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Amounts expensed in the income statement in respect of the defined benefit scheme are set out below:
Year ended 31 December 2011 2010 €m €m
Current service cost (2.8) (2.3) Interest cost (0.7) (0.8) Actual return on scheme’s assets 0.9 0.7 (2.6) (2.4)
Current service costs have been included in selling, general and administrative expenses. Interest costs and expected return on the scheme’s assets have been included in other finance costs and similar charges. The cumulative actuarial loss recognised in the statement of comprehensive income and expense is €5.2m (2010: €6.7m).
The amount included in the statement of financial position arising from the Group’s obligations in respect of defined benefit retirement schemes is as follows:
Year ended 31 December Our business 2011 2010 €m €m
Present value of defined benefit obligations (28.5) (28.2) Fair value of scheme assets 23.6 22.8 Liability recognised in balance sheet (4.9) (5.4) Deferred tax asset 1.1 1.2 Net pension obligation (3.8) (4.2)
Movements in the present value of defined benefit obligations were as follows:
Year ended 31 December Our performance 2011 2010 €m €m
At beginning of year (28.2) (22.0) Current service cost (2.8) (2.3) Interest cost (0.7) (0.8) Benefits paid out 2.6 2.4 Actuarial gains (losses) 1.7 (1.3) Foreign exchange (1.1) (4.2) At end of year (28.5) (28.2) Our governance Employee contributions to the scheme in 2011 were nil (2010: nil). Movements in the fair value of scheme assets were as follows:
Year ended 31 December 2011 2010 €m €m
At beginning of year 22.8 17.5 Expected return on plan assets 0.9 0.7 Employer contributions 3.8
2.2 Financials Benefits paid out (2.6) (2.4) Actuarial gains (0.4) (0.3) Foreign exchange 0.7 3.5 At end of year 23.6 22.8
Allocated as follows: Cash 0.3 0.2 Bonds 14.5 13.9 Equities 3.7 4.4 Property 4.0 3.2 Other 1.1 1.1 23.6 22.8
All pension assets are insured.
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The history of experience adjustments and change in assumption adjustments is as follows:
Year ended 31 December 2008 2009 2010 2011 €m €m €m €m
Present value of defined benefit obligations (21.0) (22.0) (28.2) (28.5) Fair value of the scheme’s assets 16.0 17.5 22.8 23.6 Deficit in scheme (5.0) (4.5) (5.4) (4.9)
Experience adjustments on scheme liabilities (0.5) 0.5 0.8 0.4 Change in assumption on plan assets – – (2.1) 1.3 Experience adjustments on scheme assets (1.3) 0.5 (0.3) (0.4) Total actuarial gain (loss) (1.8) 1.0 (1.6) 1.3
The estimated amount of cash contributions expected to be paid to the scheme during the year ended 31 December 2012 is €2.3m.
28 Transactions with related entities
Related parties as a result of holding shares in the Group Pursuant to a contract with the Group, certain FMR, Devonshire Investors and Fidelity Shared Services Ireland Ltd employees provide consulting and other services to the Group at agreed rates. The fees for these services for the year ended 31 December 2011 were approximately €3.5m (2010: €1.9m) for FMR employees, including Colt's two executive Directors, and €nil (2010: €0.3m) for Devonshire Investor employees. At 31 December 2011, net of tax recharges, there was an outstanding balance due to Devonshire Investors of €nil (2010: €1.0m) and an outstanding balance due to FMR of €0.6m (2010: €2.9m).
An amount of €7.0m (2010: €6.6m) was billed during 2011 to FIL and its subsidiaries for voice, data and managed services. At 31 December 2011 there were balances outstanding from FIL and its subsidiaries of €0.9m (2010: €0.1m).
During the year an amount of €0.3m (2010: €2.0m) was paid to FIL for software and support services and at 31 December 2011 €nil (2010: €nil) was due to FIL.
The Group periodically places funds with FIL in unsecured money market mutual funds. At 31 December 2011, the Group placed €16.1m with FIL (2010: €nil).
An amount of €3.1m was billed during 2011 (2010: €3.0m) to HR Access, a subsidiary of FMR, for Data services and at 31 December 2011 €0.4m was due from HR Access (2010: €0.1m).
During the year the Group billed KVH, which is a majority owned subsidiary of FMR, €3.7m (2010: €3.7m) in respect of offshoring services as part of a Business Process outsourcing contract. At 31 December 2011 €1.1m was due from KVH (2010: €0.4m) and €0.3m (2010: €0.3m) was due to KVH.
During the year an amount of €0.1m was paid to J Robert Scott Executive Search, which is a wholly owned subsidiary of FMR, for recruitment fees (2010: €0.3m).
The Group periodically enters into a number of currency transactions with FMR in response to currency needs which arose in the normal course of business. The total amount of currency purchased in this way in 2011 was €nil (2010: €7.6m).
The Company together with the Luxembourg subsidiaries have entered an agreement with FIL (Luxembourg) S.A., which is a wholly owned subsidiary of FIL, for administrative services and Colt Lux Group S.à r.l. has entered into a domiciliation agreement with FIL (Luxembourg) S.A. The total charges aggregate to €0.1m (2010: €0.1m).
During the year Colt reimbursed FMR €0.2m (2010: €0.5m) for Data Centre advisory fees.
Related parties due to common ownership in acquired MarketPrizm entities An amount of €4.0m (2010: €nil) was billed during 2011 to Nomura Group and its subsidiaries for Voice, Data and Managed Services. Purchases during 2011 amounted to €0.3m (2010: €nil). In 2011, €0.6m was due from Nomura Group and €0.1m was payable.
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29 Subsidiary undertakings
The Company is the holding company of the Group and has the following principal operating subsidiary undertakings, each of which is a private company operating in its country of incorporation. The Company holds 100% of the allotted capital of all of its operating subsidiaries through intermediate holding companies, with the exception of the new MarketPrizm subsidiaries. All operating subsidiaries’ results are included in the consolidated financial statements. The financial year end of all subsidiary undertakings is 31 December with the exception of Colt Technology Services India Private Limited which is 31 March.
Country of Share Name incorporation Principal activities holding
Colt Technology Services Group Limited United Kingdom Management, administration and treasury services 100%
Colt Technology Services (unlimited company) United Kingdom Telecommunications and Internet services provider 100%
Colt Technology Services GmbH Germany Telecommunications and Internet services provider 100%
Colt Technology Services France Telecommunications and Internet services provider 100%
Colt Telecom Services AG Switzerland Telecommunications and Internet services provider 100% Our business
Colt Technology Services S.p.A. Italy Telecommunications and Internet services provider 100%
Colt Technology Services S.A.U. Spain Telecommunications and Internet services provider 100%
Colt Technology Services B.V. The Netherlands Telecommunications and Internet services provider 100%
Colt Technology Services N.V. Belgium Telecommunications and Internet services provider 100%
Colt Technology Services GmbH Austria Telecommunications and Internet services provider 100% Our performance Colt Technology Services A.B. Sweden Telecommunications services provider 100%
Colt Internet US Corp. USA Intra-Group Internet services provider 100%
Colt Telecom US Corp. USA Intra-Group telecommunications services provider 100%
Colt Technology Services A/S Denmark Intra-Group telecommunications services provider 100%
Colt Technology Services A.S. Norway Telecommunications and Internet services provider 100% Our governance Colt Technology Services, Unipessoal Lda Portugal Telecommunications and Internet services provider 100%
Colt Technology Services Limited Ireland Telecommunications and Internet services provider 100%
Colt Technology Services OY Finland Telecommunications and Internet services provider 100%
Colt Technology Services India Private Limited India Intra-Group support services 100%
Long Line SRL Romania Telecommunications and Internet services provider 100% Financials
Spire Technology Welwyn Limited Partnership Jersey Data centre provider 100%
Colt Data Centre Services UK Limited United Kingdom Data centre provider 100%
MarketPrizm B.V. The Netherlands High performance market data feed handling 80.1%
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Group income statement (after exceptional items) Year ended 31 December 2007 2008 2009 2010 2011 €m €m €m €m €m
Revenue 1,679.6 1,675.4 1,622.5 1,583.6 1,554.3
Cost of sales Interconnect and network (1,032.9) (998.7) (964.6) (916.2) (883.9) Network depreciation (193.9) (197.0) (198.0) (206.3) (212.1) (1,226.8) (1,195.7) (1,162.6) (1,122.5) (1,096.0)
Gross profit 452.8 479.7 459.9 461.1 458.3
Operating expenses Selling, general and administrative (369.3) (355.8) (339.2) (367.3) (338.4) Other depreciation and amortisation (28.2) (30.6) (34.4) (43.3) (53.0) (397.5) (386.4) (373.6) (410.6) (391.4)
Operating profit 55.3 93.3 86.3 50.5 66.9
Other income (expense) Finance income 8.2 9.3 4.1 3.6 3.0 Finance costs and similar charges (23.6) (22.7) (9.0) (4.9) (1.1) Net foreign exchange (loss) gain arising on financing activities (0.7) (8.0) 13.3 (2.2) 3.2 (16.1) (21.4) 8.4 (3.5) 5.1
Profit on ordinary activities before taxation 39.2 71.9 94.7 47.0 72.0 Taxation – – 26.9 24.2 (9.7) Profit for the year 39.2 71.9 121.6 71.2 62.3
Basic earnings per share €0.06 €0.11 €0.14 €0.08 €0.07
Diluted earnings per share €0.06 €0.11 €0.14 €0.08 €0.07
Operating profit after exceptional items 55.3 93.3 86.3 50.5 66.9
Exceptional items: Cost of sales – (17.0) – 2.3 – Selling, general and administrative – – – 27.8 – Operating profit before exceptional items 55.3 76.3 86.3 80.6 66.9
EBITDA1 277.4 303.9 318.7 330.2 332.0
1 EBITDA is profit for the year before net finance costs, tax, depreciation, amortisation, foreign exchange, and exceptional items.
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Consolidated statement of financial position At 31 December 2007 2008 2009 2010 2011 €m €m €m €m €m
Non-current assets 1,276.1 1,260.6 1,315.6 1,439.1 1,449.0 Current assets 552.7 541.6 568.3 566.6 589.7 Total assets 1,828.8 1,802.2 1,883.9 2,005.7 2,038.7
Equity shareholders’ funds 936.7 942.3 1,273.2 1,371.2 1,448.2 Total liabilities excluding provisions 847.8 819.4 570.9 576.6 557.4 Provisions for liabilities and charges 44.3 40.5 39.8 57.9 33.1 Total liabilities, capital and reserves 1,828.8 1,802.2 1,883.9 2,005.7 2,038.7
Group cash flow Year ended 31 December 2007 2008 2009 2010 2011 €m €m €m €m €m Our business
Net cash generated from operating activities 310.0 367.6 321.6 279.7 320.7 Net cash used in investing activities (259.7) (310.1) (326.3) (335.3) (189.5) Net finance (costs) income (13.0) (11.8) (3.9) 1.1 2.1 Issue of ordinary shares net of issue costs 0.2 0.6 – – – Open Offer proceeds net of costs recognised directly in equity – – 186.6 – – Exceptional foreign exchange gain on Open Offer proceeds – – 9.7 – – Loan finance – – – – – Redemption of debt – – (262.2) – – Net movement in cash and cash equivalents 37.5 46.3 (74.5) (54.5) 133.3
Free cash inflow 37.3 45.7 101.4 49.0 43.3 Our performance Our governance Financials
Colt Group S.A. / Annual Report 2011 101 Stock Code: COLT.L
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Colt Group S.A. K2 Building Forte 1 2a Rue Albert Borschette L-1246 Luxembourg, BP 2174 L-1021 Luxembourg
R.C.S Luxembourg B 115.679
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Overview Equity Colt Group S.A. (“Colt S.A.” or “the Company”) is the parent Colt S.A. had issued share capital and share premium at company of the Colt Group S.A. Group. The Company, 31 December 2011 of €1,403.0m divided into 891,643,292 fully together with its subsidiaries, is referred to as “Colt” or “the paid shares with a nominal value of €0.50 per share. As at Group”. The Group is a leading provider of business 31 December 2011, the Company did not directly hold any of communications offering Data, Voice and Managed Services to its own shares. Enterprise Services, Communication Services and Data Centre Services customers across Europe. Colt S.A. was incorporated Internal controls and processes in Luxembourg on 13 April 2006 and is listed on the London The Group’s back office accounting processes are principally Stock Exchange. performed at a shared service centre in India.
Colt has evolved from its origins as a UK-centric business to a Likely future developments pan-European multinational business. With over 80% of Colt’s The Group continues to focus on its core strategy of revenue and 70% of its network assets being based in increasing revenue from Data and Managed Services whilst mainland Europe and a significant number of key pan- maintaining tight control over operating costs. European customers, the business is best served with a holding company domiciled in mainland Europe, and in a Board of Directors country with strong EU credentials. The following people were Directors of the Company during the year ended 31 December 2010 and up to the date of this
Financial performance and position report unless otherwise specified: Our business The Company is the holding company for the Group and as such it does not trade on its own account. The Company A Barth publishes consolidated accounts which contain the full R Bhasin consolidated results of the Group. V Damiani H Eggerstedt The Group generated total revenue of €1,554.3m (2010: M Ferrari €1,583.6m), EBITDA of €332.0m (2010: €330.2m) and a net G Gabbard profit excluding exceptional items of €62.3m (2010: €101.3m). S Giacoletto The Group had total assets at 31 December 2011 of €2,038.7m S Haslam (2010: €2,005.7m) and net assets of €1,448.2m (2010: T Hilton €1,371.2m). A Rabin (appointed 20 July 2011) R Walsh Our performance The Company had total assets at 31 December 2011 of €1,371.2m (2010: €1,371.5m) including €1,371.2m (2010: Corporate governance declaration €1,371.2m) of investments in subsidiaries. Information on the corporate governance framework adopted by the board and various corporate governance declarations The net loss of Colt S.A. for the year ended 31 December 2011 are reported separately in the corporate governance was €3.2m (2010: €538.6m). The Company’s 2010 loss was statement on page 40 of the Colt Group S.A. Annual Report mainly due to a €536.9m reduction in carrying value of shares. 2011 that are published on www.colt.net.
Shares in affiliated undertakings Since late July 2011 Colt Group S.A.’s market capitalisation has Our governance been below the carrying value of shares in affiliated undertakings; at 31 December 2011, the fair value of Colt Lux Holding S.à r.l. derived from Colt Group's market capitalisation and was €1.0 billion. The Board of Directors have assessed this impairment factor and as a result a value in use calculation was prepared.
The Board of Directors have noted the relatively high levels of volatility across the European stock markets in 2011 driven by
macro-economic factors. Given this context, the Board of Financials Directors do not believe that the deficit between the Group’s market capitalisation and the carrying value of Colt Group S.A. shares in affiliated undertakings has existed for a sufficient period to indicate that there has been a durable depreciation in value. In addition, the Directors have assessed the appropriateness of the carrying value of shares in associated undertakings by reference to the value in use calculation; this calculation fully supports the carrying value.
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Article 11 report i) Powers of the Board of Directors The following disclosures are made in compliance with Article The Board of Directors is vested with the broadest powers to 11 of the Luxembourg Law on Take Overs of 19 May 2006. manage the business of the Company and to authorise and perform all acts of disposal and administration falling within a) Share capital structure the purposes of the Company. Colt Group S.A. has issued one class of shares which are admitted to trading on the London Stock Exchange. No other In common with the Articles of Association of other securities have been issued by Colt Group S.A. The issued Luxembourg public limited companies, the Company’s Articles share capital of Colt Group S.A. as of 31 December 2011 of Association provide full power to the board to issue shares amounts to €1,403,042,605 represented by 891,643,292 on a non-pre-emptive basis, but the board has confirmed that, shares. Colt Group S.A. has a total authorised share capital of as a matter of policy it intends to comply with the pre- €1,250,000,000. All shares issued by Colt Group S.A. have emption guidelines supported by the Association of British equal rights as provided for by Luxembourg Company Law insurers and the National Association of Pension Funds to the and as set forth in the articles of association of Colt Group extent practical for a Luxembourg company. Furthermore, the S.A. Board may purchase, acquire or receive Colt Group S.A.’s own shares in the Company up to 10% of the issued share capital b) Transfer restrictions from time to time on behalf of Colt Group S.A., subject to prior As of the AGM 2011, all the Colt Group S.A. shares are freely authorisation by the General Meeting of shareholders and on transferable but shall be subject to the restrictions on such terms as the Board may decide in accordance with the shareholdings set forth in Chapter 8 of the Articles of law. Association. j) Significant agreements c) Major shareholdings The Board of Directors is not aware of any significant The details of shareholders holding more than 3% of issued agreements to which Colt Group S.A. is a party and which take share capital of Colt Group S.A. as known to Colt Group S.A. effect, alter or terminate upon a change of control of the are set forth on page 37. Company following a takeover bid, and the effects thereof.
d) Special control rights k) Agreements with directors and employees The issued and outstanding shares of Colt Group S.A. have all No agreements between Colt Group S.A. and its board equal voting rights and there are no special control rights members or employees exist that provide for compensation if attaching to shares of Colt Group S.A. the board members or employees resign or are made redundant without valid reason or if their employments ceases e) Control system in employee share scheme because of a takeover bid or other than as disclosed in the Colt Group S.A. is not aware of any issues regarding section e) Remuneration Report on page 63. of Article 11 of the Luxembourg Law on Take Overs of 19 May 2006. The annual accounts on pages 106 to 113 were approved by the Board of Directors on 22 February 2012 and signed on f) Voting rights their behalf by: Each share issued and outstanding in Colt Group S.A. represents one vote. The Articles of Association of Colt Group S.A. do not provide for any voting restrictions. In accordance with the Articles of Association a record date for the admission to a general meeting may be set. The Articles of Association further provide that certificates on the shareholdings and proxies be received by the Company a certain time before the date of the relevant meeting. In Rakesh Bhasin / Chief Executive Officer accordance with the Articles of Association the Board of Directors may determine such other conditions that must be fulfilled by shareholders for them to take part in any meeting of shareholders in person or by proxy.
g) Shareholders’ agreements with transfer restrictions Colt Group S.A. has no information about any agreements between shareholders, which may result in restrictions on the transfer of securities or voting rights.
h) Appointment of board members, amendment of Articles of Association The appointment and replacement of board members and the amendment of Articles of Association are governed by Luxembourg Law and the Articles of Association (in particular Chapters 3 and 4) that are published on www.colt.net.
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Audit report We believe that the audit evidence we have obtained is To the shareholders of Colt Group S.A. sufficient and appropriate to provide a basis for our audit opinion.
Report on the annual accounts Opinion We have audited the accompanying annual accounts of In our opinion, these annual accounts give a true and fair Colt Group S.A., which comprise the balance sheet as at view of the financial position of Colt Group S.A. as of 31 December 2011 and the profit and loss account for the 31 December 2011, and of its operations for the year then year then ended and a summary of significant accounting ended in accordance with Luxembourg legal and policies and other explanatory information. regulatory requirements relating to the preparation of the annual accounts.
Board of Directors’ responsibility for the annual Our business accounts Report on other Legal Regulatory Requirements The Board of Directors is responsible for the preparation The Directors’ report, which is the responsibility of the and fair presentation of these annual accounts in Board of Directors, is consistent with the annual accordance with Luxembourg legal and regulatory accounts. requirements relating to the preparation of the annual accounts, and for such internal control as the Board of The accompanying Corporate Governance Statement on Directors determines is necessary to enable the pages 40 to 52 which is the responsibility of the Board of preparation of annual accounts that are free from Directors, is consistent with the annual accounts and material misstatement, whether due to fraud or error. includes the information required by the law.
Responsibility of the “Réviseur d’entreprises agréé”
22 February 2012 Our performance Our responsibility is to express an opinion on these PricewaterhouseCoopers S.à r.l. annual accounts based on our audit. We conducted our Luxembourg audit in accordance with International Standards on Represented by Auditing as adopted by the “Commission de Surveillance du Secteur Financier”. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the annual accounts are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Our governance annual accounts. The procedures selected depend on the Marc Minet judgment of the “Réviseur d’entreprises agréé”, including the assessment of the risks of material misstatement of the annual accounts, whether due to fraud or error. In making those risk assessments, the “Réviseur d’entreprises agréé” considers internal control relevant to the entity’s preparation and fair presentation of the annual accounts in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of Financials the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the annual accounts.
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As at 31 December 2011 2010 Notes € € Assets B. Formation expenses 4 – 292,356
C. Fixed assets III. Financial fixed assets: 1. Shares in affiliated undertakings 5 1,371,214,106 1,371,214,106
E. Deferred charges 6 4,857 – Total assets 1,371,218,963 1,371,506,462
Liabilities A. Equity I. Subscribed capital 7 445,821,646 445,797,156 II. Share premium and similar premiums 8 957,220,959 957,193,966 IV. Other reserves 10 510,395,682 510,395,682 V. Profit or loss brought forward 10 (547,871,819) (9,257,958) VI. Profit or loss for the financial year 10 (3,165,701) (538,613,861)
D. Non-subordinated debts 6. Amounts owed to affiliated undertakings: a) Becoming due and payable within one year 11 8,600,061 5,975,202 9. Other creditors: a) Becoming due and payable within one year 11 218,135 16,275 Total liabilities 1,371,218,963 1,371,506,462
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As at 31 December 2011 2010 Notes € € A. CHARGES 3. Staff costs a) Salaries and wages 12 456,782 412,500
4. Value adjustments: a) On formation expenses and on tangible and intangible fixed assets 4 292,356 495,900 b) On current assets – 156,432
5. Other operating charges 14 2,153,578 348,085
6. Value adjustments and fair value adjustments on financial fixed assets – 536,868,143
8. Interest and other financial charges: b) Other interest and charges 262,985 268,509
10. Income Tax 16 – 64,292
Total charges 3,165,701 538,613,861 Our business
B. INCOME 12. Loss for the financial period 3,165,701 538,613,861 Total income 3,165,701 538,613,861 Our performance Our governance Financials
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1. General information
Colt Group S.A. (“The Company”) was incorporated on 13 April 2006 and is organised under the laws of Luxembourg as a “société anonyme” for an unlimited period of time. The status of the Company was changed on 27 June 2006 to become a billionaire 1929 Company in accordance with the law of 31 July 1929 concerning the fiscal regime of Holding companies. Following changes to the law in July 2006 this status expired on 1 January 2011 and the Company became fully taxable in Luxembourg. The Company has its registered office at K2 Building, Forte 1, 2a rue Albert Borschette, L-1246 Luxembourg.
The Company’s financial year starts on 1 January and ends on 31 December of each year.
The main activities of the Company are: participation in any manner in all commercial, industrial, financial and other enterprises of Luxembourg or foreign nationality through the acquisition by participation, subscription, purchase, option or by any other means of all shares, stocks, debentures, bonds or securities; the acquisition of patents and licenses which it will administer and exploit; it may lend or borrow with or without security, provided that any monies so borrowed may only be used for the purposes of the Company, or companies which are subsidiaries of or associated with or affiliated to the Company; in general it may undertake any operations directly or indirectly connected with these objects.
The Company also prepares consolidated financial statements, which are published according to the provisions of International Financial Reporting Standards (IFRSs).
2. Presentation of the comparative financial data
Where required, comparative year figures are reclassified to ensure comparability with current year figures. No restatement of the 31 December 2010 figures were necessary.
3. Summary of Significant Accounting Policies
3.1 Basis of preparation The annual accounts have been prepared in accordance with Luxembourg legal and regulatory requirements under the historical cost conventions. Accounting policies and valuation rules are, besides the ones laid down by the Law of 19 December 2002, determined and applied by the Board of Directors.
The preparation of the annual accounts requires the use of certain critical accounting estimates. It also requires the Board of Directors to exercise its judgement in the process of applying the accounting policies. Changes in assumptions may have a significant impact on the annual accounts in the period in which the assumptions changed. Management believes that the underlying assumptions are appropriate and that the annual accounts therefore present the financial position and results fairly.
The Company makes estimates and assumptions that affect the reported amounts of assets and liabilities in the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
3.2 Significant accounting policies The main valuation rules applied by the Company are the following:
3.2.1 Formation expenses Formation expenses of the Company include costs in connection with the incorporation of the Company and eventual capital increases. Formation expenses are amortised on a straight-line basis over a period of five years.
3.2.2 Financial fixed assets Shares in affiliated undertakings held as fixed assets are valued at purchase price including the expenses incidental thereto. In case of a durable depreciation in value according to the opinion of the Board of Directors, value adjustments are made in respect of fixed assets, so that they are valued at the lower figure to be attributed to them at the balance sheet date. These value adjustments are not continued if the reasons for which the value adjustments were made have ceased to apply.
Details of the Company’s direct subsidiary undertakings are set out in note 5 to the annual accounts.
3.2.3 Debtors Debtors are valued at their nominal value. They are subject to value adjustments where their recovery is compromised. These value adjustments are not continued if the reason for which the value adjustments were made have ceased to apply.
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3.2.4 Foreign currency translation The Company maintains its books and records in Euro. The balance sheet is expressed in this currency.
Transactions expressed in currencies other than Euro are translated into Euro at the exchange rate effective at the time of the transaction. Formation expenses, intangible, tangible and financial assets denominated in currencies other than the Euro are translated into Euro at the exchange rate effective at the time of the transaction. At the balance sheet date, these assets remain translated at their historical exchange rates.
Cash at bank is translated at the exchange rate effective at the balance sheet date. Exchange losses and gains are recorded in the profit and loss account of the year.
Other assets and liabilities are translated respectively at the lower or at the higher of the value converted at the historical exchange rate or the value determined on the basis of the exchange rate effective at the balance sheet date. The unrealised exchange losses are recorded in the profit and loss account and the unrealised gains are not recognised until the moment of their realisation. Where there is an economic link between an asset and a liability, these are valued in total according to the method described above and the net unrealised losses are recorded in the profit and loss account and the net unrealised exchange gains are not recognised.
3.2.5 Deferred charges
This asset item includes expenditure incurred during the financial year but relating to a subsequent financial year. Our business
4 Formation expenses
Formation expenses comprise expenses incurred for the creation of the Company.
€ Gross book value – opening and closing balance 2,524,503
Accumulated value adjustment – opening balance 2,232,147 Our performance Allocations for the year 292,356 Accumulated value adjustment – closing balance 2,524,503
Net book value – closing balance –
Net book value – opening balance 292,356
5 Financial fixed assets Our governance Affiliated Undertaking Shares Total € € Gross book value – opening and closing balance 1,908,082,249 1,908,082,249
Accumulated value adjustment – opening balance (536,868,143) (536,868,143) Allocations for the period – – Accumulated value adjustment – closing balance (536,868,143) (536,868,143) Financials Net book value – closing balance 1,371,214,106 1,371,214,106
Net book value – opening balance 1,371,214,106 1,371,214,106
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Undertakings in which the Company holds at least 20% share capital or in which it is a general partner are as follows:
Net equity at the balance sheet date Loss for the last Last balance of the company financial year Name of the undertaking Registered Office Ownership % sheet date € €
COLT Lux Holding S.à r.l. Luxembourg* 100 31 December 2011 1,370,794,842 (148,916) * K2 Building, Forte 1, 2a rue Albert Borschette, L-1246 Luxembourg All subsidiaries have a balance sheet date of 31 December.
Indicator of impairment Since late July 2011 Colt Group S.A.’s market capitalisation has been below the carrying value of shares in affiliated undertakings; at 31 December 2011, the fair value of Colt Lux Holding S.à r.l. derived from Colt Group's market capitalisation and was €1.0 billion. The Board of Directors have assessed this impairment factor and as a result a value in use calculation was prepared.
The Board of Directors have noted the relatively high levels of volatility across the European stock markets in 2011 driven by macro-economic factors. Given this context, the Board of Directors do not believe that the deficit between the Group’s market capitalisation and the carrying value of Colt Group S.A. shares in affiliated undertakings has existed for a sufficient period to indicate that there has been a durable depreciation in value. In addition, the Directors have assessed the appropriateness of the carrying value of shares in associated undertakings by reference to the value in use calculation; this calculation fully supports the carrying value.
6. Deferred charges
Deferred charges are mainly composed of subscription fees paid in 2011, but relating to the 2012 period.
7 Subscribed capital
The Company’s subscribed capital amounts to €445,821,646 and is divided into 891,643,292 ordinary shares fully paid up with a nominal value of €0.50 each. The authorised share capital at 31 December 2011 amounts to €1,250,000,000. All shares have the same rights and entitlements.
The movements on “Subscribed capital" item during the year are as follows:
Subscribed Capital Number of € Ordinary shares
Subscribed capital opening balance 445,797,156 891,594,312
Subscriptions for the year 24,490 48,980
Subscribed capital closing balance 445,821,646 891,643,292
During the year the Company issued 48,980 number of shares (2010: 100,080 shares) with an associated value of €24,490 (2010: €50,037) arising from the exercise of share options in the Company, refer to note 17 for details.
8 Share premium and similar premiums
The movements on the “Share premium and similar premiums” item during the year are as follows:
Share premium €
Share premium and similar premiums – opening balance 957,193,966 Movements for the period 26,993 Share premium – closing balance 957,220,959
The movements for the year on the share premium item corresponds to the decisions taken by the Board of Directors (held on 17 February, 20 July and 8 December 2011) to issue Share Capital in the Company resulting from the exercising of previously issued share options.
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9 Legal reserve
The company is required to allocate a minimum of 5% of its annual net income to a legal reserve until this reserve equals 10% of the subscribed share capital. This reserve may not be distributed. No amounts have been transferred to a legal reserve during the current or prior periods as the Company has not yet made a profit.
10 Movement for the year on the reserves and profit and loss items
Colt S.A. announced and completed an Open Offer issue of 210,963,549 ordinary shares during Q1 2009. Total proceeds from this Sterling denominated share issue converted at the spot rate were €189.4m before expenses. As part of the Open Offer process, the shareholders approved a reduction in the nominal value of the ordinary shares from €1.25 per share to €0.50 per share. Accordingly, the amount of the Group’s issued share capital in relation to the 680,527,576 existing shares at that time was reduced by €510.4m and transferred to distributable reserves. The Open Offer shares were also issued at a nominal value of €0.50 per share. There were no movements in this reserve during the period ending 31 December 2011.
The movements for the year are as follows
Other Loss brought Loss for the Our business Legal reserve Reserves forward financial year € € € € As at 31 December 2010 – 510,395,682 (9,257,958) (538,613,861) Movements for the period: Allocation of the previous period’s losses – – (538,613,861) 538,613,861 Loss for the period – – – (3,165,701) As at 31 December 2011 – 510,395,682 (547,871,819) (3,165,701)
11 Non-subordinated debts Our performance Amounts due and payable for the accounts shown under “non-subordinated" are as follows:
Total Total Within one year 31 December 2011 31 December 2010 € € €
Amounts owed to undertakings with which the Company is linked by virtue of participating interests: 8,600,061 8,600,061 5,975,202 Other creditors: 218,135 218,135 16,275
Total 8,818,196 8,818,196 5,991,477 Our governance
All amounts owed by affiliated undertakings are non-interest bearing and due and payable within one year.
12 Emoluments granted to the members of the Supervisory Bodies
The emoluments granted to the members of the management and supervisory bodies in that capacity and the obligations arising or entered into in respect of retirement pensions for the former members of those bodies for the financial year are broken down as follows: Financials
2011 2010 € €
Emoluments Supervisory bodies 456,782 412,500 Total 456,782 412,500
13 Related financial party transactions
There have been no related party transactions during the period.
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14 Other operating charges
Other operating charges includes professional fees, travel costs and other miscellaneous items.
15. Auditors' Fees The total fees accrued by the Company and paid to the auditor are presented as follows: 2011 2010 € €
Audit fees 57,000 57,500 Audit-related fees – 1,090 Tax related fees 267 2,159 Other fees 995 1,150 Total 58,262 61,899
16. Income tax
Following changes to the law governing billionaire 1929 holding companies amended on 22 December 2006, with effect from 1 January 2011 the Company is subject to tax in Luxembourg in accordance with Luxembourg Income Tax Law. The amount payable in respect of this tax was €nil (2010: €64,292).
17. Off balance sheet commitments
The financial commitments of the Company are shares to be issued under the various share option plans operated by the Company.
Share option plans Group Share Plan (“option plan”) Options were granted at an option price which was not less than the market value of the ordinary shares on the date of grant. All option awards since July 2003 have been subject to performance tests. Most of the awards lapsed as the performance tests were not achieved.
At 31 December 2011, there were 1,515,267 (2010: 2,193,213) shares outstanding at a weighted average exercise price of £1.94 (2010: £6.36).
Share Grant Plan The Share Grant Plan provides for awards to be made over company shares. Awards do not vest until the third anniversary of the date of grant. Awards are made to Executive Committee members and are aimed at attracting senior employees to the Company. Subject to meeting performance conditions which are challenging and reflect a real and meaningful improvement in performance, awards ordinarily vest on the third anniversary of the date of grant.
Details of grants made under the Share Grant Plan are set out below:
Date of Number Outstanding at Granted Exercised Lapsed in Outstanding grant Date of vesting granted 31 Dec 2010 in the year in the year the year at 31 Dec 2011
May 2009 December 2011 1,840,337 1,280,977 – – (225,609) 1,055,368 July 2009 December 2011 74,152 – – – – – March 2010 December 2012 1,947,151 1,531,081 – – (688,462) 842,619 July 2010 December 2012 126,396 50,007 – – – 50,007 July 2011 December 2013 2,562,151 – 2,562,151 – – 2,562,151 July 2011 December 2013 4,674,462 – 4,674,462 – (170,506) 4,503,956 October 2011 December 2013 586,830 – 586,830 – – 586,830 2,862,065 7,823,443 – (1,084,577) 9,600,931
Share Option Plan The Share Option Plan is divided into two parts; the ‘Approved Part’ approved by HM Revenue & Customs in the UK for the purposes of the Income and Corporation Taxes Act 1988 and the ‘Unapproved Part’ which is not so approved. Options are granted at an option price which is not less than the market value of the ordinary shares on the date of grant. Subject to meeting performance conditions which are challenging and reflect a real and meaningful improvement in performance, awards ordinarily vest on the third anniversary of the date of grant. At 31 December 2011, nil shares remained outstanding (2010: 55,000). During 2011, 55,000 shares lapsed and no additional
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shares were granted or earned.
Colt Savings-related Share Option Scheme The Colt Savings-Related Share Option Scheme (the ‘SAYE Scheme’) was adopted on 28 April 2006 and operates for the benefit of all eligible employees. Under the SAYE scheme, employees may save between £5 and £250 a month with a savings institution and are granted options to acquire shares in the Company. After a three-year period, employees can use the proceeds of their savings account to exercise the options at a price established at the beginning of the three-year period.
Details of grants made under the SAYE Scheme are set out below:
Number of Date of Exercise Date of options Outstanding at Granted in Exercised in Lapsed in Outstanding grant price (£) vesting granted 31 Dec 2010 the year the year1 the year at 31 Dec 2011
December 20062 1.4 March 2011 92,971 32,708 – – (32,708) – December 20072 1.7 March 2012 10,293 6,176 – – – 6,176 December 2007 1.8 March 2011 482,797 130,534 – – (130,534) 0 December 20082 0.6 March 2013 147,304 140,632 – – – 140,632 December 2008 0.7 March 2012 1,845,922 1,522,271 – (24,841) (66,466) 1,430,964 December 20092 1.2 March 2014 147,304 36,573 – – 36,573 Our business December 2009 1.2 March 2013 1,845,922 1,201,832 – (6,808) (368,811) 826,213 December 20102 1.2 March 2015 26,230 26,230 – – (11,374) 14,856 December 2010 1.2 March 2014 571,099 563,661 – – (128,689) 434,972 December 20112 0.9 March 2016 3,907 – 3,907 – – 3,907 December 2011 1.0 March 2015 1,462,275 – 1,462,275 – – 1,462,275 December 2011 1.2 March 2015 45,823 – 45,823 – – 45,823 3,660,617 1,512,005 (31,649) (738,582) 4,402,391
Weighted average exercise price of options 0.98 1.01 0.77 1.27 0.94
1 Of the options exercised in the year, 31,649 were early exercises. 2 Each option holder entered into a four year savings contract. Our performance
Colt Deferred Bonus Plan The Colt Deferred Bonus Plan (the ‘Deferred Bonus Plan’) was adopted on 28 April 2006. The Deferred Share Bonus Plan allows grants of awards over matching shares based on shares purchased by participants with monies earned under the annual bonus plan. The award of matching shares is subject to performance conditions the same or similar to those relating to the Share Grant Plan. Participants must hold the shares for three years to obtain matching shares. No awards were made during 2011 (2010: nil).
On 22 March 1999 an Employee Benefit Trust (‘EBT’) was established, and on 31 December 2011 it held 271,156 shares (2010: 43,737). These shares can be used to satisfy the Company’s obligations under the Deferred Bonus Plan. On the 546,518 shares purchased by the EBT in 2011, 333,099 shares vested on 31 December 2011. Our governance In March 2000 the Group established the Colt Telecom Qualifying Employee Share Ownership Trust (the ‘QUEST’) in order to acquire shares in the then parent company of the Group to satisfy options granted under the Group’s SAYE Share Option Scheme. The directors of Colt Telecom QUEST Trustees Limited resolved in September 2011 to wind up this Trust, which held no shares at the time the decision was taken (2010: nil).
18 Subsequent events
No subsequent events were reported post balance sheet date at the date of approving the Company's annual accounts. Financials
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21101.04 8/02/12 Proof 4 Colt’s principal European sales offices
Austria www.colt.net/at Ireland www.colt.net/ie Spain www.colt.net/es Colt Technology Services GmbH Colt Technology Services Limited Colt Technology Services, S.A.U. Kärntner Ring 10-12 15-16 Docklands Innovation Park C/ Telémaco 5 A-1010 Vienna East Wall Road 28027 Madrid Tel: +43 1 20 500 0 Dublin 3 Tel: +34 91 789 9000 Tel: +353 1436 5900 Belgium www.colt.net/be Sweden www.colt.net/se Colt Technology Services NV Italy www.colt.net/it Colt Technology Services AB Culliganlaan, 2H Colt Technology Services S.p.A. Box 3458 1831 Diegem Viale E. Jenner 56 Luntmakargatan 18 Tel: +32 2 790 16 16 20159 Milan SE – 103 69 Stockholm Tel: +39 02 30 333 1 Tel: +46 8 781 80 00 Denmark www.colt.net/dk Colt Technology Services A/S Netherlands www.colt.net/nl Switzerland www.colt.net/ch Borgmester Christiansens Gade 55 Colt Technology Services B.V. Colt Technology Services GmbH 2450 Copenhagen SV Van der Madeweg 12-14a Mürtschenstraße 27 Tel: +45 70 21 23 30 Postbus 94014 CH – 8048 Zürich 1090 GA Amsterdam Tel: +41 58 560 16 00 France www.colt.net/fr Tel: +31 20 888 2020 Colt Technology Services United Kingdom www.colt.net 23-27 rue Pierre Valette Portugal www.colt.net/pt Colt Technology Services 92247 Malakoff Cedex Colt Technology Services Unipessoal Lda Beaufort House Tel: +33 1 70 99 55 00 Estrada da Outurela 118 15 St Botolph Street Edificio B London EC3A 7QN Germany www.colt.net/de 2790-114 Carnaxide Tel: +44 20 7390 3900 Colt Technology Services GmbH Tel: +351 21 120 00 00 Central Business Services Herriotstraße 4 60528 Frankfurt Tel: +49 69 56606 0
Investor information
Electronic communications Solicitors The Company encourages the use of electronic investor Slaughter and May communication. Hard copies of the Annual Report and other One Bunhill Row investor documents will only be circulated to the investors London EC1Y 8YY who request to receive a paper version. If other investors fail to communicate an email address, they will receive a paper Registrars notification as to the date of publication of such reports on Computershare Investor Services (Jersey) Limited our website. Investors wishing to revert to hard copies of Queensway House, investor documents or who would like to communicate their Hilgrove Street, email address for the first time should contact our Registrars, St Helier, Computershare Investor Services (Jersey) Limited. Jersey, JE1 1ES Tel: + 44 (0) 870 707 4040 Electronic proxy voting is also available to shareholders for Fax: +44 (0) 870 873 5851 the Company’s AGM and for any other shareholders’ meetings, regardless of whether their shares are held in CREST or AGM and EGM certificated form. The 2011 Annual General Meeting followed by the Extraordinary General Meeting of Colt Group S.A. will be Investor enquiries held at 11:00 am (Luxembourg time) on 26 April 2012 at Colt’s website is at www.colt.net. For enquiries related to share K2 Building, Forte 1, 2a rue Albert Borschette, registration, please liaise with our Registrars, Computershare L-1246 Luxembourg, Grand-Duchy of Luxembourg Investor Services (Jersey) Limited. Institutional investors and financial analysts can contact Colt Investor Relations. Colt Investor Relations Investor Relations, Colt Group, Beaufort House, Listing 15 St. Botolph Street, London EC3A 7QN Ordinary shares of Colt Group S.A. are listed on the London Tel: +44 (0) 20 7863 5314 Stock Exchange. [email protected]
Registered Office and Number Colt Group S.A., Société anonyme K2 Building, Forte 1, 2a rue Albert Borschette L-1246 Luxembourg, BP 2174, L-1021 Luxembourg Grand-Duchy of Luxembourg R.C.S Luxembourg B 115.679
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21101.04 8/02/12 Proof 4 The information delivery platform for European business 2011 Annual Report / Colt Group S.A. 2011
© 2012 Colt Technology Services Group Limited. All rights reserved. Colt and the Colt logo are registered trade marks.
21101.04 8/02/12 Proof 4