27 February 2014: Colt Group S.A. (London Stock Exchange: COLT) today issues its audited results for the 12 months ended 31 December 2013.
- Group revenue declined 1.2% in the face of adverse currency movements and regulatory price declines on our Voice business. On a constant currency basis total revenue growth was flat compared to 2012
- EBITDA before exceptional items declined 4.0% to €320.1m as the reduction in SG&A costs from our 2012 skills transformation programme was more than offset by lower gross profits resulting from a combination of changes in product mix in Voice and Data services, increased investments in strategic growth areas and one-off cost credits received in 2012
- Net funds declined from €280.1m to €195.6m with free cash outflow of €82.8m driven by strategic capex investments, lower EBITDA and increased working capital. Strategic capex investments included the purchase of a strategic network site in London (€41.7m)
- Continued to invest in the information delivery platform strengthening our reputation with customers and the market. This included growth in our strategic products, winning more larger deals, including our largest ever managed networking deal signed in Q4.
- Launched Modular MSP (multi-service platform), an industry-first platform that enables the delivery of IP services using virtual customer premise equipment capability and delivers significant capex efficiency
- Progress made in developing the foundations for our IT Services business launching enterprise class cloud services in eight data centres across six European countries and in Asia under the Colt Optimum brand. Provided small and medium size entities with a range of on-demand computing and networking services through our ThinkGrid platform under the Colt Ceano brand
- Continued to build our reputation with our customers and, as a result, improved our Net Promoter Score from 14% in 2012 to 22% in 2013
1 VoIP revenue was reclassified from Data revenue to Voice revenue at the beginning of 2013. The 2012 numbers have been restated for comparability
2 EBITDA reflects profit for the year before net finance costs and related foreign exchange, tax, depreciation, amortisation and exceptional items
3 The 2012 comparative has been restated as the Group adopted IAS 19 (revised)
4 Free cash flow is net cash generated from operating activities less net cash used to purchase non-current assets and net interest received
5 Net funds reflects cash and cash equivalents plus deposits classified as current asset investments less debt
Rakesh Bhasin, Chief Executive Officer, commented:
“In 2013 Colt has made progress in our strategic priorities in an otherwise challenging year. While Group revenue growth was flat in constant currency, this reflected a balance of growth in our strategic products with the continued decline of some of our legacy products. We continue to invest in the assets that make up our information delivery platform – our people, network, data centre and IT Services platforms, strengthening our reputation with our customers and in the market. The market is signalling a return to modest growth in Europe. We also aim to improve our execution through a greater focus on our assets and products.”
Over the last several years Colt has evolved from a complex organisational model with multiple structures, systems and processes to a simple customer focused organisation. The organisation has moved away from a country focused model, by rationalising and centralising resources, while at the same time retaining a local presence to optimise our service to customers. Colt has invested in streamlining systems and processes and creating best-in-class shared service centres in India and Barcelona which support three market serving business units: Colt Enterprise Services (CES) which directly serves the enterprise market; Colt Communications Services (CCS) which indirectly serves the SME to enterprise market via channel partners, and provides wholesale services to other operators; and Data Centre Services (DCS) which provides business customers with retail and wholesale data centre space. Colt has made significant progress under this operating model despite a tough economic climate. The business continued to innovate, building world-class data centres, future proofing the network and continuing to develop product portfolio and technology platforms. However, our traditional reporting structure has not kept pace with the evolution of our business making it difficult for investors to understand our strategy and to benchmark our performance with the market.
Accordingly, in 2014 we will increase our focus on our assets and associated product related lines of business. We will move to reporting products by Network, Voice, Data Centre and IT Services from the current reporting (maintained in these results) by Data, Voice and Managed Services. The main change is the division of Managed Services into Data Centre and IT Services elements. Furthermore, Data Centre Services now brings together both retail colocation and the wholesale data centre products and services, reported separately historically, to reflect the performance of our entire 20 data centre estate. We will also report more detail by lines of business, progressively adding performance metrics to the current revenue disclosure during the year to provide more transparency on our performance against competitors.
This increased focus on our products is aimed at driving optimal utilisation of Colt’s assets and allowing the business to benchmark performance against relevant competitors. Ultimately Colt aims to perform better than its competitors in all four business areas, driving improved revenue generation and a better return on investment for the long term.
Our next generation network, 20 carrier-neutral data centres, expertise in integrated computing and network services and unified systems and processes, working seamlessly together, combine to make Colt the leading information delivery platform. In 2013 we continued to invest in further developing the information delivery platform. We delivered growth in our strategic products; managed networking continued its 2012 growth trajectory (14.7%) and IT services grew 18.4% including non-recurring revenue1. We signed 15 deals of over €1m annual contract value (2012: 12). This included a number of large managed networking deals, demonstrating our ability to deliver complex solutions to our customers, including our largest ever managed networking deal signed in Q4.
Colt’s network is one of our key assets and unmatched by our competitors. We continued to make network investments to respond to customer demand and future proof our network through innovation. We launched Modular MSP (multi-service platform), an industry-first platform that enables the delivery of IP services using virtual customer premise equipment capability and delivers significant capex efficiency. This is a market-leading step for Colt and our customers, based on flexible Software Defined Networking (SDN) instead of the traditional switched environment. We also extended our network to Cork, Ireland’s second largest city and expanded our data centre footprint with the creation of an additional 2,000 square metres of capacity and 3.1 MW of additional power capacity, in the Netherlands and Barcelona.
1 All growth metrics are expressed in constant currency terms in the Business overview.
We made progress in developing the foundations for our IT Services business; though our revenue has been slower to materialise than anticipated. We further enhanced our cloud capabilities – we launched enterprise class cloud services in eight data centres across six European countries, and in Asia in collaboration with KVH, under the Colt Optimum brand. Through the Colt Ceano brand, our reseller product, we provide small and mid-size entities with a range of on-demand computing and network services delivered through the ThinkGrid platform. These simplified product portfolios position us well for the future.
We are continuing to build our reputation with our customers. Our customers have told us that our service delivery improved in 2013; our annual customer survey showed a Net Promoter Score of 22%, compared with 14% in 2012.
We also continued to gain market recognition, listed by Gartner in the 2013 Magic Quadrant for European Managed Hosting1 as the highest on the “Ability to Execute” axis in the Leaders Quadrant. Market recognition has also been demonstrated through a number of industry awards, most recently Capacity Europe recognised us as “Best European Wholesale Carrier 2013”.
Overview of 2013
Group revenue declined 1.2% due to adverse currency movements and regulatory price declines on our Voice business. On a constant currency basis, total revenue growth was flat compared to 2012.
We continued to invest in our business strategy and as a result EBITDA2 before exceptional items declined to €320.1m (€333.6m in 2012). EBITDA performance was negatively impacted by a reduction in gross profit which was partially offset by the targeted savings from our restructuring program which occurred mainly in selling, general and administrative expenses. Currency movements did not have a significant impact on EBITDA.
Operating profit before exceptional items decreased from €57.1m to €39.4m mainly due to the reduction in EBITDA and an increase in depreciation as the results of the strategic investments into expanding our network, data centre capacity and building our IT services capability.
Net cash generated from operating activities (before capex) increased by €9.7m to €266.5m although we continued to invest to develop the business as well as incurring the cash costs of our 2012 restructuring programme. As a result of our investment and restructuring programmes, cash balances declined to €195.6m (2012: €280.1m). During the year major investments were made to expand our data centre capacity (€22.7m), acquire the freehold interest in one of our key infrastructure sites in London (€41.7m) and in development of our business product portfolio (€35.0m).
Total revenue for 2013 was €1,575.8m (2012: €1,594.6m), a decrease of 1.2% over 2013 with growth in Managed Services offset by adverse currency movements and an acceleration in regulated price declines in our Voice business. On a constant currency basis total revenue growth was flat compared to 2012.
Data revenue3 decreased by 0.7% to €806.4m (2012: €811.7m) due primarily to the impact of foreign currency movements. On a constant currency basis data revenue grew by €5.5m (0.7%) as growth in managed networking was mostly offset by declines in legacy low bandwidth circuits. Managed networking revenues grew by 14.7% (constant currency basis) over 2012 as the company was successful in winning several large pan-European contracts against large incumbent competitors. This growth was for the most part, offset by continued declines in legacy products, from price pressures and churn of smaller customers. The balance of Data revenues including IP Access and Ethernet circuits were mainly flat with 2012 as volume increases were offset by price declines.
1 Source: Gartner Magic Quadrant for European Managed Hosting, Tiny Haynes, et al., G00250051, 19 June 2013. Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select those vendors with the highest ratings. Gartner research publications consist of the opinions of Gartner research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose. All statements in this report attributable to Gartner represent Colt’s interpretation of data, research opinion or viewpoints published as part of a syndicated subscription service by Gartner, Inc., and have not been reviewed by Gartner. Each Gartner publication speaks as of its original publication date (and not as of the date of Colt 2013 Annual Report). The opinions expressed in Gartner publications are not representations of fact, and are subject to change without notice.
2 EBITDA reflects profit for the year before net finance costs and related foreign exchange, tax, depreciation, amortisation and exceptional items
3 VoIP revenue was reclassified from Data revenue to Voice revenue at the beginning of 2013. The 2012 numbers have been restated for comparability.
Managed Services revenue, including Data Centre Services revenue, grew 8.0% to €218.0m (2012: €201.9m). On a constant currency basis, Managed Services, including Data Centre revenues, grew by 9.4% with managed IT services growth of 18.4% fuelled by increases in related equipment sales and professional services. Data Centre revenues (including retail colocation) on a constant currency basis grew by 3.0% mainly due to increased data centre capacity related to the opening of our Netherlands data centre. Legacy retail colocation declined slightly due to churn of some large accounts.
Total Voice revenue3 decreased by 5.1% to €551.4m (2012: €581.0m) for the year. On a constant currency basis total Voice revenue decreased 4.0% as the growth in Carrier revenue (3.6%), driven by increased international traffic, only partially offset a decline in Corporate & Reseller Voice (9.4%), driven by regulatory price declines.
Gross Profit (before exceptional items)
Gross profit before exceptional items declined by 10.6% to €400.2m (2012: €447.5m) in 2013. As a percentage of revenue, gross profit before exceptional items decreased to 25.4% (2012: 28.1%) due to changes to product mix, non-recurring benefits related to bad debt and voice cost of sales realised in 2012 and higher depreciation costs. Data margin for 2013 reflects the increased use of third party networks which carry lower margins (principally related to larger managed network contracts) and voice margin reflect a shift towards lower margin Carrier Voice products. Higher network depreciation is a result of strategic investment spend.
During 2012 Colt benefited from a bad debt credit of €2.7m, as issues arising in 2011 related to the consolidation of the credit and collection function in Barcelona and ageing of receivables were resolved. During 2013 we returned to a more normalised bad debt expense (€5.6m). Additionally 2012 included an €8.1m voice cost of sales cost credit due to improvements in our internal processes which allowed us to reduce the period over which we need to retain accruals to cover late charges from other carriers.
Operating expenses (before exceptional items)
Operating expenses1 of €360.8m (2012: €390.4m) fell by 7.6% (€29.6m) driven by €13.2m net savings in selling, general and administrative expenses from our accelerated transformation programme that commenced in Q4 2012 and €11.6m of foreign currency benefits due to a weakening Sterling currency impact of costs in the United Kingdom.
EBITDA (before exceptional items)
EBITDA1 decreased by 4.0% to €320.1m (2012: €333.6m) with the fall in gross margin partially offset by the reduction in selling, general and administrative expenses. Underlying these elements was the impact of increased investment in strategic growth areas. It was anticipated that these increased investments would be more than offset by higher revenue volumes that did not materialise. EBITDA margin as a percentage of sales declined from 20.9% to 20.3% driven by the decline in gross profits. EBITDA was not materially affected by currency movements.
1 Reported amount excluding the exceptional item in 2012.
Operating profit (before exceptional items)
Operating profit excluding exceptional items decreased by €17.7m (31.0%) to €39.4m (2012: €57.1m) due to the decline in EBITDA and an increase in depreciation expense of €4.2m as a result of our increased investment in capital expenditure.
In 2012, Colt accelerated the transformation of the business by executing a programme to drive our skills transformation to support the growth in managed network and IT revenue streams while aligning costs related to our legacy business. The Group realised a charge of €32.0m in 2012 in relation to this programme for redundancy costs. During 2013, the majority of the plan was executed in line with meeting expectations for projected annualised savings. A total of 469 positions were exited from the Company in 2013. The balance of the provision at 31 December 2013 amounts to €10.2m relating to planned exits in 2014, primarily in customer service affected areas, which are being executed on time frames to limit customer service impact. These actions are expected to occur over the first half of 2014.
Other income declined slightly in 2013 from €4.4m in 2012 to €3.0m, due primarily to declines in foreign exchange gains. Declines in interest income from €1.5m to €0.4m were largely offset by declines in finance costs from €1.9m to €0.7m.
The Group recognised a taxation charge for the year of €4.4m (2012: €3.7m). The increase in overall taxation is due in part to a small increase in current tax and changes in the deferred tax asset recognised. The current tax charge amounted to €6.9m (2012: €6.6m).
The current tax charge did not reduce in line with the reduction in profit compared to 2012, as most of the current tax the Group pays does not vary as profit varies. This is mainly because tax is payable in jurisdictions which are structurally profitable and profits generated in other jurisdictions are sheltered by tax losses brought forward, which does not give rise to a current tax cost.
Profit after tax
Profit after tax (before exceptional items) decreased by 34.3% mainly as a result of the decreased operating profit. Including the 2012 exceptional restructuring charge of €32.0m, profit after tax increased by 47.3% to €38.0m (2012: €25.8m).
Free cash flow
Net cash from operations before exceptional items and restructuring payments increased by €9.7m from 2012. The impact of lower EBITDA (by €13.5m) was more than offset by improved working capital performance (€25.7m). The higher payables outflow in 2012 was due to the timing of payments on trade payables at 31 December 2011 as well as reductions in deferred installation revenue and voice accruals in 2012. The negative impact from movement in receivables relates to higher billings in Q4 2013 not yet due, increases in prepayments related to investment in node infrastructure and the timing of VAT settlement.
Restructuring payments increased to €21.3m (2012: €8.0m) as we accelerated our skills transformation program in 2013.
Capital expenditure increased by €20.4m to €326.9m (2012: €306.5m). Excluding the €41.7m purchase of a strategic property which houses key network infrastructure, capital expenditure declined by €21.3m. The purchase of the strategic property will replace operating lease expense in the future for both network node facilities located on the site as well as for the Company’s UK operations office. Existing leases for the UK main office are due to expire in 2014 and 2015 at which time the UK operations will be relocated to an office building also located at the site.
Capital expenditure supporting normal recurring operations:
Capital expenditure relating to customer order revenue is primarily expenditure on new equipment both on customer premises and elsewhere in the network to support the acquisition of new customer contracts. These contracts are typically medium to long term in nature. Capital expenditure in relation to customer orders decreased by 3.0% (€4.0m) in 2013 to €128.2m (2012: €132.2m). Spend on our existing network and data centre infrastructure increased by €9.2m to €50.7m (2012: €41.5m) as we continue to upgrade our network for technological changes particularly with investments in our platform which help deliver Ethernet services to our customers. This expenditure also includes capacity spend in anticipation of future customer demand. Spend on data centres represents maintenance capex on older facilities.
Longer term investment expenditure:
Capital expenditure relating to our data centre capacity in 2013 decreased by 50.4% (€23.1m) to €22.7m (2012: €45.8m) as our 2012 spend included significant investment in our data centre in the Netherlands, where operations commenced in January 2013. Spend on network expansion decreased by €7.0m to €5.5m (2012: €12.5m) as the 2012 spend included investment into new low latency routes to Ireland and various network enhancements across Europe that were completed during the year. Revenue-driving Product and Services Development spend increased by €5.6m to €35.0m (2012: €29.4m) and includes expenditure on the development of our Managed Services platform which will strengthen our solutions business.
Internal IT represents spend on our internal systems which declined by €1.8m from 2012 to €37.9m (2012: €39.7m). Spend on IT systems in the year included a major enhancement to our order processing and customer relationship management (CRM) systems which will allow us to continue to automate our internal order processes as well as allow our customers to order online in a simplified manner. Spending in the year also included an upgrade to our carrier settlement systems for voice traffic.
Statement of financial position
Non-current assets increased by €38.9m to €1,556.0m (2012: €1,517.1m). Capital expenditure net of depreciation expense accounted for an increase of approximately €52m. The impact of foreign currency movements and other immaterial items offset the net capex increase by approximately €13m.
The movement in net working capital balances, comprised of receivables, payables and provisions are discussed in the cash flow section of this review.
Net cash and deposits of €195.6m (2012: €280.1m) decreased by €84.5m, reflecting the free cash outflow for the year.
Shareholders’ funds increased by €27.9m to €1,511.1m (2012: €1,483.2m) mainly due to the profit for the year.
Colt is comprised of three business units, leveraging shared assets to better serve our customers, all supported by an ITIL-based service delivery organisation which integrates IT, Technology and Operations:
Colt Enterprise Services (CES)
CES serves 2,300 medium to large sized corporates within the financial, media, retail, logistics and transportation and professional services sectors through our information delivery platform. This platform combines assets, people and tools to deliver integrated, seamless services to meet our customer’s needs across IT, networks, and communications. CES is developing an innovative portfolio of services branded as Optimum, which builds on this platform and allows different consumption and service models for our customers, leveraging our innovative automation and orchestration technology.
During 2013 we continued to invest to improve our service to customers. In 2013, we simplified our portfolio with the launch of Colt Optimum – solutions which overcome complexity through smart and targeted combinations of IT, network and storage services. Optimum makes it easier for customers to understand, buy and consume our products and services. Our approach has helped lead the way in European IT and Network Services and we have been named as a leader in Gartner’s Magic Quadrant for Managed Hosting1 in Europe (June 2013). In addition, we rolled out a cloud platform in nine sites, eight of which reside in six European countries (making it one of the largest cloud footprints in Europe) and another in Asia, in partnership with KVH, a Tokyo based IT services company.
Total revenue declined by 2.5% (€15.1m) to €584.9m (2012: €600.0m) driven largely by the adverse effect of foreign currency movements (€7.9m), regulatory price declines (€7.1m) and churn (price declines and customer ceases). Data revenues declined €14.1m, of which €5.4m was due to currency movements and the balance being principally related to customer churn, particularly in smaller accounts. Within Data, managed networking services grew by 9.6% with several large pan European deals closed in the year. This gain was offset by volume and price reductions in our legacy low bandwidth (SDH) products as customers migrated to newer Ethernet based products. Managed Services revenue increased by €10.0m to €137.0m (2012: €127.0m) with €1.2m of negative impact from foreign currency movements, although a large part of this increase was due to lower margin equipment sales.
EBITDA declined to €82.0m (2012: €96.0m) as the reduction in costs delivered through the 2012 restructuring programme were insufficient to offset the reduction in gross profit from changes in product mix, and non-recurring benefits related to bad debt and voice cost of sales realised in 2012.
1 Source: Gartner Magic Quadrant for European Managed Hosting, Tiny Haynes, et al., G00250051, 19 June 2013. Please refer to note 1 on page 3 for the full source and disclaimer.
Colt Communication Services (CCS)
CCS provisions services through indirect sales channels to small and medium sized businesses as well as large national and international service providers, carriers and system integrators. Our services are offered through branded and unbranded products, offering our customers an alternative to building their own infrastructure.
Building on our acquisition of ThinkGrid in August 2012 we launched Colt Ceano across Europe in Spring 2013. Unique in the industry, Colt Ceano offers a broad range of automated cloud-based services for the channel. It is a range of simplified on-demand services targeting SME businesses which lets customers choose from a set of business-grade communications and IT services quickly and easily through a single management platform. During the year we added 124 new resellers to our partner community and certified more than 400 new channel partners for Colt Ceano services.
Building on our vCloud Infrastructure as a Service (IaaS) offering, we have also introduced an object cloud storage service powered by EMC. This has been included in our Colt Ceano management platform and also offered through partner portals such as ArrowSphere.
We have continued to evolve the service wrap of our data services portfolio making a number of enhancements with particular emphasis on our Ethernet platform. Our Ethernet services have been further developed to meet the demands of our operator customers with the introduction of rich ‘e-bonding’ capabilities that automate and simplify the way that customers work with Colt.
In November Colt was recognised in the Capacity Global Carrier Awards as the Best Pan-European Wholesale Provider. We were recognised for our outstanding dedication and services delivered for channel partners and operator customers during the past year.
Total revenue declined 0.7% (€6.7m) to €951.0m (2012: €957.7m) driven by a combination of factors similar to those that affected overall Group revenue. The growth in Data, Managed Services and Carrier Voice were insufficient to offset the adverse effect of foreign currency movements (€11.1m), and regulatory price declines in our voice businesses (€31.2m).
Data revenue grew by 2.0% to €457.6m (2012: €448.8m) even after taking into account €5.3m of adverse currency movements. Revenue from our legacy low bandwidth (SDH) products continued to decline, although this was offset by strong growth in our Ethernet portfolio of products. Managed services grew 8.2% to €41.1m driven by cloud services although growth from our ThinkGrid managed services platform did not progress at the pace we had hoped. Whilst bookings for Data and Managed Services were flat year on year we made progress in the reduction of our customer churn levels through a more responsive and targeted customer offering.
Carrier Voice revenue increased by 2.2% to €250.4m (2012: €245.0m) driven by volume increases from international traffic and voice over IP which offset the impact of regulatory price declines. Corporate and Reseller Voice revenue declined 10.6% to €201.9m (2012: €225.9m) as a consequence of regulatory price declines.
EBITDA declined 3.7% to €187.6m (2012: €194.8m) as the reduction in costs delivered through the 2012 restructuring programme were insufficient to offset the reduction in gross profit from changes in the product mix, and non-recurring benefits related to bad debt and voice cost of sales realised in 2012.
Data Centre Services (DCS)
Colt Data Centre Services are market leaders in the design, delivery and management of energy and cost efficient data centres across Europe. We own and operate 20 carrier-neutral data centres in ten countries in Europe, and have been delivering high quality space to thousands of business customers for over 15 years.
During the course of 2013 operational ownership for colocation was transferred to DCS, now leveraging the CES and CCS sales channels for direct and indirect routes to market respectively. Our renewed focus on the retail colocation opportunity in 2013 is already gaining traction. Expansion plans have been approved in both London and Hamburg sites for 2014, following on from the launch of new colocation space in our Netherlands 3 facility in October 2013. Our data centres won multiple awards in the year including the Data Centre 2013 award for energy efficiency and environmental stability.
Third party revenue generated from our wholesale DCS business unit increased by 8.1% to €39.9m (2012: €36.9m). Recurring revenue accounted for the majority of the increase growing from €32.4m in 2012 to €34.6m in 2013, driven by the opening of our new Netherlands 3 Data Centre in January 2013. The impact from foreign currency movements negatively affected the growth in recurring revenue by €1.1m. Revenue from sales of our modular product to customers grew from €4.5m in 2012 to €5.3m in 2013. Internal revenue represents the provision of technical space to both CES and CCS in the running of both network infrastructure as well as colocation space which is resold to their customers. Internal revenue1 grew from €117.5m to €122.2m in the year primarily due to added retail colocation capacity taken by CES and CCS. Intercompany revenues are eliminated in the consolidated results.
Throughout 2013 we saw a continuing decline in the number of wholesale opportunities coming onto the market which has constrained our growth. In response, we have refocused our activities and are working closely with CES and CCS to grow the retail colocation business. As the retail and wholesale colocation markets combine it is natural to move to reporting on a consolidated basis for data centre service revenues. On a consolidated basis, revenue from data centre services across all three lines of business grew by 1.0% to €115.9m (2012: €114.8m) as increases from the wholesale business were offset by a 2.5% decline in retail colocation mainly sold by CES and CCS. The negative impact on data centre services from foreign currency movements amounted to €2.3m in 2013.
EBITDA increased in 2013 by 18.0% to €50.5m (2012: €42.8m) driven by both revenue increases and the successful implementation of cost efficiency programmes which have helped to optimise ongoing expenditure on power, maintenance and security across the estate.
1 Internal Managed Services Revenue represents the recharge by Data Centre Services to the other two customer facing Business Units for the provision of data centre space and services. Internal Managed Services Revenue is eliminated on consolidation.
As Colt enters 2014 the macro-economy is showing the earliest signs of recovery, although the Eurozone remains behind the rest of the world. Our strategy will remain the same, however in 2014 we aim to improve our execution through a greater focus on our assets and products. Colt’s unique assets, strong management team and market leading products remain unmatched by the competition. We will continue to drive growth in strategic products while managing the impact of declines in our legacy products.
FORWARD LOOKING STATEMENTS
This report contains ‘forward looking statements’ including statements concerning plans, future events or performance and underlying assumptions and other statements which are other than statements of historical fact. Colt Group S.A., ‘the Group’, wishes to caution readers that any such forward looking statements are not guarantees of future performance and certain important factors could in the future affect the Group’s actual results and could cause the Group’s actual results for future periods to differ materially from those expressed in any forward looking statement made by or on behalf of the Group. These include, among others, the following: (i) any adverse change in regulations and technology within the IT services and communications industries, (ii) the Group’s ability to manage its growth, (iii) the nature of the competition that the Group will encounter and wider economic conditions including economic downturns, (iv) unforeseen operational or technical problems and (v) the Group’s ability to raise capital. The Group undertakes no obligation to release publicly the results of any revision to these forward looking statements that may be made to reflect errors or circumstances that occur after the date hereof.
Colt Group S.A. K2 Building, Forte 1, 2a rue Albert Borschette, L-1246 Luxembourg, R.C.S. B115679
Investor conference call details:
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Colt Group S.A.Notes
1. Basis of preparation 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 2013. Colt Group S.A. is a company domiciled in Luxembourg.
The financial information for the year ended 31 December 2013 and 2012 and as at 31 December 2013 and 2012 has been extracted from the Group’s 2013 audited consolidated financial statements. The consolidated financial statements 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 auditors have made a report on the Group’s consolidated financial statements for the year ended 31 December 2013 under Luxembourg company law of 10 August 1915 which is unqualified. The consolidated financial statements for the year ended 31 December 2013 will be filed with the Luxembourg ‘Registre du Commerce et des Sociétés’.
The Group’s operations are not generally subject to significant seasonal or cyclical variations.
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.
2. Segmental information
The Group is managed around its three customer facing Business Units: Enterprise Services, Communication Services and 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.
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 and voice traffic which is delivered in a digital form (IP Voice). Data revenue includes network services and bandwidth services. Managed Services revenue comprises managed IT 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 licenced 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 spread across all three Business Units. Internal Managed Services revenue is eliminated on consolidation.
The two internal function units comprise the Infrastructure Services Unit and the Business Services Unit. The Infrastructure Services Unit integrates the activities of Colt’s network, managed services operations and technology operation. The Business Services Unit integrates the India, Barcelona and Romania Shared Service 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 and related foreign exchange, tax, depreciation, amortisation 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 bases used to recharge these costs may be further refined in the future.
Assets, liabilities and depreciation are not reported by segment to the chief operating decision maker and therefore are not disclosed in this note. Non-current asset additions are disclosed by segment in line with the information reported to the chief operating decision maker. Additions not reported by segment are classified as corporate.
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 of the Group’s consolidated financial statements.
For the twelve months ended 31 December 2013 and 2012, revenue and EBITDA by reportable segment were as follows:
There were no exceptional items in 2013.
During the last quarter of 2012, Colt announced an acceleration of its transformation strategy, changing the balance of Colt’s skills in the Group’s business to support the development of a solutions business, along with consolidation of resources and leveraging shared services centres in Barcelona, India and Romania. The Company incurred an exceptional charge of €32million in 2012 associated with the costs of implementing these plans. During 2013, cash payments of €21.3m were made in relation to these plans.
In June 2013, the Group acquired the remaining 19.9% interest of MarketPrizm Group S.á r.l. for a purchase consideration of €1. As a result the €4.9m of non-controlling interest as at June 2013 was reclassified to equity.
In August 2012, the Group acquired 100% of the voting rights of the unlisted company of Colt ThinkGrid Holdings Limited (formerly Fidelity Telecom Limited), the holding company of ThinkGrid for a total consideration of €15.6m (which includes cash consideration of €9.2m and €6.4m of contingent consideration). During 2013, the Group paid €0.8m to the previous shareholders in relation to the contingent consideration and recognised a €3.9m gain in the income statement due to changes in the expected payments to be made under this arrangement. There have been no subsequent adjustments to the fair value of the identifiable net assets.