Becoming a more focused business

The market continued to be challenging in 2014. We did not start the year well, having to reset market expectations of our EBITDA performance in April. I am pleased that changes we made in the first half ensured that we met our targets in the second half of the year.

To serve our customers better, focus our resources on our assets and to drive future profitability, we moved to a new organisational structure in May, which we call "lines of business" encompassing the major product categories of Network Services, Voice Services, Data Centre Services and IT Services, the four elements of our Information Delivery Platform. The reorganisation was about giving each line of business control of the assets they use, their profitability and returns on investments. The improved clarity and transparency of disclosure helps both us and our investors benchmark our performance both internally and externally.

Financially, one of the key challenges we identified was the negative contribution from our IT Services business due to our early stage investment in cloud services; we have put specific actions in place to address this. Overall revenue declined largely as a consequence of our strategic withdrawal from low margin carrier voice trading business to focus on higher margin enterprise voice. We also continued to take costs out of the business to drive improved profitability and cash generation.

One of the most significant events of 2014 was our acquisition of KVH in December, an infrastructure-based service provider of networks and data centres across Asia, serving around 2,000 enterprise and wholesale customers. It is a similar but smaller business to Colt, operating in Asian cities, which brings global capability and opportunities to the organisation. It is a growing business in a growing market, with technologies aligned with Colt and a management team well known to us, lowering the integration risk.

Our customers remain our highest priority. We worked hard to find ways to build advocacy, by improving how we interact with our customers every day. We implemented a new Technical Service Desk model during the year, and a more agile and customer-oriented sales structure on 1 January 2015. This aligns sales with the way our customers buy and the four lines of business. We also enlarged our sales organisation with the recruitment of an additional 69 sales people with a view to drive organic revenue development.

Customer support

Financial performance in the year

Colt operates in a dynamic and competitive environment and ongoing changes in technologies are transforming the industry. Colt Group financial performance in 2014 reflects the ongoing transformation of our business, the different stages of maturity in our lines of business and the dynamics of our industry. Group revenue was €1,495.5m (2013: €1,575.8m), driven lower by our strategic withdrawal from low margin carrier voice trading contracts, an issue that will continue to drag on year-on-year revenue until the last quarter of 2015. Legacy SDH (low speed network connections), also continued to decline in line with expectations, but now only constitutes 7.8% (2013: 10.2%) of Network Services revenue.

EBITDA declined by 7.2% in 2014 to €297.1m, due mainly to price and margin pressures associated with the evolving mix, particularly the run-off of legacy SDH and increased proportion of off-net business. €2.9m of costs associated with the KVH acquisition are also reflected in this year's EBITDA. The reduction in our capex in 2014 to €245.5m is mainly due to the €41.7m we spent on a strategic property in 2013 and is also a reflection of greater focus and discipline in our investments.

These headline trends mask the improvements being made in our business. We are already starting to see the benefits of the improved focus and accountability under our new model. We have grown revenue in our strategic product areas. Managed networking grew 11.4%, VoIP by 26.7%, colocation services grew by 6.4%, and cloud infrastructure grew 22.6%. Each line of business discusses its relevant market trends in more detail in Network Services, Voice Services, Data Centre Services and IT Services.

Progress in 2014 against our strategy

During the year we refined how we communicate our long-term strategy which focuses Colt on three priorities: a focus on key markets; delivering an exceptional customer experience; and optimising the use of our assets. It makes our ambitions clear and shows how you can expect us to build value.

  1. Focus on key markets

    We focus on serving businesses in information intensive city locations which drive the highest growth and returns for Colt. As mentioned earlier, we acquired KVH. This enables us to offer our customers seamless solutions on a global basis and provides a solid platform for growth in Asian cities. Our network now spans three continents and 47 MANs. Our customers include 18 of the top 25 bank and diversified financial groups and 19 of the top 25 companies in both global media and telecoms industries (Forbes 2000 list, 2014). In addition, Colt works with over 50 exchange venues and 13 European central banks.

    Increasingly, our capital markets customers recognise that we have the expertise and capabilities to deal with their rapidly changing environments. In the year we created a dedicated team, Colt Capital Markets, which builds on the full acquisition of MarketPrizm in 2013. This, alongside the acquisition of KVH, allows us to increase focus in the sector and invest further in services that help these customers grow. Colt Capital Markets has recurring annual revenues of c.€115m and around 400 customers. In the year, the team grew year-on-year bookings by 10% and won 14 deals worth over €1.0m total contract value, primarily in the network space. In 2015, we will look to refine our propositions further and launch a global financial extranet.

    Another area of increased focus is mobile backhaul. During the year we signed two landmark deals with major European operators demonstrating our capability in fibre backhaul. This is a significant growth opportunity with mobile operators increasingly requiring dense fixed network infrastructure to support the latest generation mobile data network services.

  2. Focus on exceptional customer experience

    Throughout the year we remained committed to improving the services, products and experiences we provide to our customers. We transitioned to a Technical Service Desk model in the year, which gives our customers more direct access to technical resources.

    As with any large transformation, we experienced some challenges. Despite this, our net promoter score improved to 23%. The framework is now in place and we have seen first-time resolution of customers' faults improve from 20% to 58%. We see this trend continuing. We believe this is the right approach for our business and for our customers, but we still have a lot of work to do to continue to make it easier for them to do business with us.

  3. Focus on our assets

    We focus on getting the most from our physical network and data centre assets, our shared operating platform assets and our expert workforce. This will help counter current margin compression from product mix changes and regulatory pressures and drive improved profitability and returns on investment.

    The KVH acquisition brings a major expansion to our physical infrastructure, and an opportunity to greater leverage our shared service capability globally.

    Our strategic withdrawal from low margin carrier voice trading contracts was a direct response to driving improved profitability and returns from the traditional voice network and switching capacity. Our focus on enterprise voice is already delivering results.

    Demand in data centres has shifted away from large wholesale deals towards flexible, secure colocation solutions. In response, we have focused more on expansion of existing facilities than new sites. Colocation remains a focus area for us and we will continue to invest where necessary.

    In IT Services we have begun rationalising the number of technology platforms and focused on three key propositions to leverage our foundation cloud platform suite.

    Regarding our people, we strengthened the leadership team with the creation of a new EVP role to lead strategy and business development. We also brought on board Hugo Eales as our new Chief Financial Officer on 1 November 2014. I also want to thank our Colt employees around the world for their continued commitment, hard work and dedication to serving our customers.

Rakesh Bhasin

Rakesh Bhasin

Chief Executive Officer

During the year we refined how we communicate our long-term strategy which focuses Colt on three priorities: a focus on key markets; delivering an exceptional customer experience; and optimising the use of our assets. It makes our ambitions clear and shows how you can expect us to build value.

18

Our customers include
18 of the top 25 bank
and diversified
financial groups

19

Our customers include
19 of the top 25 companies
in both global media and
telecoms industries

Net Promoter Score (%)

Net Promoter Score (%)

Industry recognition

We continued to reinforce our position as a market leader in ethernet services, demonstrated through a number of industry awards won. We also continue to gain market recognition, as evidenced through Colt's position as a "Leader" in Gartner's 2014 Magic Quadrant for Cloud-Enabled Managed Hosting, Europe1.

Part of the community

Colt is committed to helping build better communities by providing opportunities for our employees to be involved in the community and in issues that matter to them. During the year we nearly doubled the number of volunteering days our people gave to local communities and raised more funds than ever before for those less fortunate than us. These initiatives are not just the right thing to do; they are part of who we are.

The year ahead

Our performance in 2014 did not deliver what we set out to achieve, but we begin 2015 with reasonable momentum and a focused organisation. Our priorities for the year ahead will be on the continued focus and simplification of the business, delivering the turnaround in our IT Services business and generating positive operating cash flows.

On behalf of Colt and its Board of Directors, I want to take this opportunity to thank you for your continued support and trust in Colt's management team and employees. We welcome your feedback via coltinvestorrelations@colt.net

Rakesh Bhasin

Rakesh Bhasin

Chief Executive Officer

25 February 2015

Network Switches
  1. Gartner, Magic Quadrant for Cloud-Enabled Managed Hosting, Europe, Tiny Haynes, Gianluca Tramacere, Lydia Leong, Gregor Petri, Douglas Toombs, Bob Gill; July 2014. Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner's research organisation 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.

Our performance in 2014 did not deliver what we set out to achieve, but we begin 2015 with reasonable momentum and a focused organisation.Our priorities for the year ahead will be on the continued focus and simplification of the business, delivering the turnaround in our IT Services business and generating positive operating cash flows.

13

Colt works with 13
European central banks

50

Colt works with
50 financial exchanges