Interoute Communications Holding S.A.
Consolidated financial statements as at 31 December 2010
R.C.S. Luxembourg B 109.434
2-8 Avenue Charles De Gaulle
L-1653 Luxembourg
Interoute Communications Holdings S.A.
Contents
Page
Directors and advisers
Glossary of terms
Chairman’s statement
Chief Executive Officer’s statement
Management report
Independent auditors’ report
Consolidated balance sheet
Consolidated profit and loss account
Notes to the consolidated financial statements
1
2-3
4
5–8
9 – 12
13
14 – 15
16
17 – 36
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Interoute Communications Holdings S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)
Directors and advisers
Directors
J Kinsella
R McNeal
G Pretre
D Padmanabhan
G Williams
Y Zeineldin
Registered office
2-8 Avenue Charles De Gaulle
L-1653 Luxembourg
Grand-Duchy of Luxembourg
Auditors
PricewaterhouseCoopers
Société à responsabilité limitée
Réviseur d'entreprises
400 Route d’Esch
B.P. 1443
L-1014 Luxembourg
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Interoute Communications Holdings S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)
Glossary of Terms
Cloud and Cloud Services
A style of providing communications services in which
physical resources – such as servers and network – are
made available in a “virtual” or abstracted way, so that
services and capacity dynamically scale without the user
having to add hardware or software. Users need not have
knowledge of, expertise in, or control over the technology
infrastructure in the “cloud" that supports them.
Core Network Services
Interoute’s duct and fibre product set for Service Providers,
often used as the building blocks for private networks and
clouds.
Enterprise Customer
An enterprise that buys products or services from Interoute
and whose prime business is not engaged in the direct
selling or reselling of communications services.
Service Provider Customer
A company whose primary purpose is the selling of
communications services and that buys products and
services from Interoute that will form all or part of its
offering to its customers.
EBITDA
Earnings before interest, taxation, depreciation and
amortisation.
“Interoute”, “the Group” or
“the Interoute Group”
Interoute Communications Holdings S.A. together with its
subsidiary undertakings.
Infrastructure as a Service (IaaS)
An infrastructure provisioning model in which an
organization/customer outsources the equipment used to
support operations, including networking components,
hardware, and servers. The IaaS provider owns the
equipment and is responsible for housing, running and
maintaining it on behalf of the organization/customer.
Next Generation Network (“NGN”)
The most important evolution in modern
telecommunications architecture, resulting in a single
infrastructure to transport voice and data (including video)
over the same core IP network, using the same packet
technology as the Internet. This architecture replaces the
multiple systems that traditional telecommunications
companies use, and thus an NGN provider generally offers
services at substantial cost savings and deploys them more
rapidly.
Unified ICT
Interoute’s holistic approach to providing outsourced
Information Communications Technology (“ICT”) services to
Enterprise customers, with a single network architecture,
combining voice, data and application hosting platforms.
These three strategic and fully integrated platforms –
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Interoute Communications Holdings S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)
Unified Connectivity, Unified Communications and Unified
Computer – deliver an ICT solution with optimal scalability,
security and efficiency. (See Unified Transport and Core
Network Services for Service Provider customers.)
Unified Transport
Interoute’s product set that offers Infrastructure as a
Service (IaaS) to Service Providers as well as bandwidth and
outsourced, private Optical Provider Networks (OPN).
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Interoute Communications Holdings S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)
Chairman’s Statement
Over the last eight years, Interoute has dedicated itself to building the platform that powers the European
Cloud. And the Company has accomplished this while generating strong growth, free cashflow and bottomline profitability this year.
Interoute has never forgotten its core cost-control commandment. Despite the strong growth in 2010, the
costs to run the Company barely increased. And Gross Margins remain very high, at more than 70%. That
exceptional Operational Gearing is due largely to the fact that Interoute is centrally managed, but locally
operated.
This operational philosophy is core to Interoute: the development and deployment of our communications
technology is centralized, largely from our operational centre in Prague; but our products are sold and
supported locally, throughout the European footprint, in 29 countries including the United States and in 15
major languages of the European Union.
The same efficiencies with which Interoute serves the Service Provider market have given the Company an
advantage with Enterprise customers. Infrastructure as a Service reduces costs for customers and offers
them more functionality than traditional telecoms companies can provide. That Interoute advantage in
Europe is increasingly recognized around the world, as a growing number of international Service Providers
and global corporations choose Interoute.
Interoute’s future-proofed fibre and duct network, with extensive Data Centre capacity, has always
provided an exceptional platform for growth, both in the Service Provider and Enterprise markets. And the
Company’s strong annual growth has been almost entirely organic over the last three years. In 2011,
Interoute will make the most of that infrastructure as an acquisitions platform, as well. Backed by the
commitment of our Board, we now intend to use the Company’s free cash-flow to bolster our top-line
growth through targeted acquisitions.
As the European Cloud grows, so too does Interoute. For both, the sky is the limit.
James Kinsella
Chairman, Interoute
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Interoute Communications Holdings S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)
Chief Executive Officer’s Review
Interoute emerged from the global recession with strong growth in revenues, EBITDA, and free cash flow,
as well as bottom-line profitability in 2010. Our results are directly tied to our success in providing
solutions across Europe, “from the ground to the cloud.”
Turnover reached €295m in 2010, a 10% rise over 2009, while EBITDA grew by 47% to €59m. Despite that
growth, combined Network and Operational Costs rose less than 2%. Interoute ended 2010 a profitable
business, generating cash that we will use to spur more growth by investing in Cloud-centred services to
better serve both our Enterprise and Service Provider markets. Interoute is excited and well placed to
exploit the new fast developing “as a Service market (aaS)”.
In the Enterprise market, the suite of Unified ICT products Interoute introduced in 2009 proved to be a
powerful driver of growth in 2010. Unified Connectivity, Unified Communication and Unified Computing
comprise this Unified ICT offering, development of which has helped us move steadily up industry rankings
of solutions providers. Gartner Group, for example, now places Interoute amid the Visionaries and Leaders
of Pan-European Network Providers.1
Interoute increasingly succeeds in winning business against larger competitors because of our efficiencies
and product innovation. Today we serve more than 15% of the Global Fortune 500, almost 10 percent of
the FTSE 100, and more than 25% of the companies on France’s CAC 40 and Germany’s DAX.
Companies as diverse as Deutsche Post, UEFA (Union of European Football Associations) and the European
Space Agency all chose Interoute in 2010 to help provide a networked communications solution.
In the Service Provider market, Interoute launched a product called Unified Transport that drove a
substantial portion of our service provider revenues in 2010. Our Core Network Services product offering,
which provides the building blocks for Europe’s private networks and clouds, remains an important
revenue source. This duct and fibre resource, the Continent’s largest, has helped build our reputation as
Europe’s premier regional operator, for customers within and beyond Europe.2
For example, Telefonica, one of Europe’s largest Service Providers, chose Interoute to expand and extend
its network across the Continent. And Seacom, the ambitious subsea infrastructure project with the aim of
providing East Africa with the same broadband access that Europe enjoys, chose to land on Interoute to
take advantage of our deep reservoirs of capacity.
With Interoute’s dense European fibre footprint, our 9 subsea terminal stations that ring the southern
Mediterranean and our extensive interconnections with other operators, we support customers in more
than 75 countries.
Because Interoute’s focus is Europe, we are dedicated to serving the expanding business footprint of the
Continent. Following the opening of our Istanbul office last year, including the deployment of fibre to
connect Turkey directly to our network, Interoute established a Moscow office in 2010.
What is Interoute?
The Group’s assets represent a total historic cost in excess of €2.7 billion, invested to create a platform to
power Europe’s Service Provider-driven Cloud and connect the world to Europe. Today, the Interoute
1
2010 Pan-European Network Providers Magic Quadrant. Gartner.
2
Best Regional Operator, World Communications Award.
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Interoute Communications Holdings S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)
Group owns the largest pan-European lit-fibre, covering the majority of the European Union, from London
to Istanbul, from Stockholm to Sicily. The network is linked to North America's major telecoms hub through
our transatlantic capacity, and we serve as a bridge between the Middle East, Africa and the West.
The network covers 60,000 kilometres of lit fibre connecting 29 countries and 100 cities with Metropolitan
Area Networks (MANs) in Europe’s largest 21 business centres and 9 subsea landing stations that ring the
European Continent. Interoute also includes 8 data centres embedded in the infrastructure, designed for
the delivery of Enterprise Infrastructure as a Service (IaaS) and virtualised services. The network operates
32 purpose-built, on-net co-location centres; a further 150 data centres operated by third parties are also
on-net.
Spanning the breadth of Europe, Interoute is accessible globally.
With our dense European fibre footprint, subsea cable stations, data centres and co-location facilities, we
support customers in more than 75 countries. Interoute helps make the European Cloud a reality.
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Interoute Communications Holdings S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)
What we sell: From the ground to the Cloud
For Enterprise Customers
For Service Providers
UNIFIED
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Interoute Communications Holdings S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)
Interoute benefits from an effective organisational management with strategic activities and technical
development managed centrally, while market specific activities such as sales, marketing, local field and
local finance are operated locally. Most importantly, customers are serviced across the footprint as
customers of the Group, which means they take advantage of the power of the network and its advanced
solutions no matter where they may sit on that network – or even if they primarily “sit” in the Internet
Cloud. And Interoute serves these Customers in any of 15 European languages, underscoring that the
Company is the network for the European Union.
Business goal and strategy
Interoute’s goal is to make the Cloud work for Europe.
Our strategy to reach that goal is to transform Interoute’s physical network, Europe’s largest, into Europe´s
largest Cloud Platform. In essence, the Continent’s leading Unified ICT provider. We envisage a world
where our Unified Computing Portfolio is dominated by Infrastructure as a Service (IaaS). Pay as you grow
becomes the norm. Computing, Applications and Data would be globally accessible, even if virtualised
across dispersed hosting resources. And all of these services come together for the customer through the
Interoute Hub, the portal that provides a window to the customer’s IT infrastructure. As a result, the
Interoute network itself becomes a service.
There are four pillars supporting our goal and strategy:
 SERVICE PROVIDER LEADERSHIP: Interoute leverages its physical asset to serve the world’s major
Service Providers when they have network needs in Europe. Our physical advantage positions
Interoute as a bridge between East and West, North and South, with telecommunications links to
North America, the Middle East and the length of Africa (see map above).
 UNIFIED ICT FOR THE ENTERPRISE: Interoute leverages its ownership of Europe’s most advanced
network as well as Hosting capabilities to deliver IT infrastructure as a service, enabling networkcentric ICT solutions in the cloud. This puts people in business faster, and helps them grow those
businesses more cost-effectively.
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Interoute Communications Holdings S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)
 CENTRALLY MANAGED, LOCALLY OPERATED: We centrally manage our pan-European network and
facilities, but we locally operate in 29 countries throughout Europe and in the USA. More than 40
different nationalities work in our Network Operations Centre in Prague, coordinating with our 25
regional network maintenance offices in Europe. Interoute supports 15 languages, usually by native
speakers. Thus, Interoute speaks the languages of Europe, and we use that asset to provide support to
Customers and to negotiate with suppliers.
 COST LEADERSHIP: Interoute has used its traditional focus on cost control and efficiency as a
competitive advantage. This pillar serves us well in the competitive communications market.
Looking forward
The Group is now focused on accelerating cash generation and using that liquidity to grow its market share
through acquisitions targeted at specific geographies and capabilities. At the top of our list of priorities:
acquisition of video conferencing solutions for our Enterprise customers. Interoute is ideally placed to drive
a pan-European solution for video conferencing as part of our Unified ICT product set.
At the same time, the Group will continue to load the network organically, with minimal additional
overhead cost, something the Interoute management team has done effectively since 2003 (see
“Interoute’s Operational Gearing” above).
As a leader in deployment of network-centric ICT across the European footprint, Interoute is focused on
the future that looks increasingly Cloud-like. For the Group, this means investment in and development of
capabilities from Infrastructure as a Service (IaaS) to Communications as a Service (CaaS).
Our ultimate aim is to make “Interoute as a Service” Europe’s preferred choice for advanced
communications solutions.
Gareth Williams
Chief Executive Officer, Interoute
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