Chief Executive's review

Rakesh Bhasin / Chief Executive Officer

"2012 was a year of momentum and growth for Colt. Our focus remained on executing our strategy and our results show that we performed well, despite continued challenging market conditions. We achieved revenue growth, for the first time in seven years, through truly integrated compute and networking services and solutions, coupled with best in class customer experience delivered by our exceptional people who are the heart of our business."

The foundations are in place

I have now completed six years at Colt as CEO, and I am proud of the progress we have made. During this time, we have put the foundations in place. We are well positioned to take advantage of the market opportunity to deliver profitable growth in the years to come. Our operating model has evolved from a country structure to be much more aligned with the needs of our customers. We built three customer facing business units, supported by two service units, including best-in-class Shared Services Centres to create an end-to-end service experience. We also made significant investments to enhance our managed services capabilities, network and IT infrastructure assets. Colt now operates 20 data centres and a 22-country, 43,000km next generation network. During the year we acquired ThinkGrid to complement and enhance our cloud based services offering for our sales channels. The combination of our network, IT and data centre assets, with our expanding service and solutions capability remain key for our delivery of a best in class customer experience, where we control the assets and therefore the end-to-end user experience.

Progress against our strategy in 2012

2012 was another challenging year in the market, and this has been most evident among our smaller customers. However, this age of austerity also yields opportunities for Colt, with enterprise customers showing increasing interest in IT outsourcing models and utilising shared resources. We are seeing signs that our strategy is working and in December we took the decision to accelerate the implementation of our transformation plan to support growth in managed network and IT revenue segments while further aligning costs in our legacy business. This is driving Colt to become a more efficient business, and one that is better positioned to execute on its plans.

Our reputation among our customers continues to strengthen and we are getting more recognition in the marketplace, not just as a telecoms company, but as the information delivery platform. We made significant progress in enhancing our cloud capabilities and integrated network and IT solutions. In line with our strategy, we are winning more solutions contracts. These contracts take some time to reach their full revenue potential, but in 2012 we doubled the number of solutions contracts won compared with 2011, providing increased visibility for future growth.

Our following in the investment market has also improved. In May, we hosted a capital markets day where we provided more clarity on our future investments and shared our plans to shift the focus of the Group towards becoming a solutions-led business.

As I mentioned earlier, we made a strategic acquisition in the form of ThinkGrid. We are already leveraging the international community of resellers, portfolio of services and management platform that ThinkGrid provides, which is helping position Colt as a market leader in Europe for cloud-based services.

We continued to invest in our network and to expand our footprint to extend our reach even further. We enhanced our Ethernet platform, improving scalability for our customers. We extended our reach to around 1,000 new buildings in 10 new cities and opened a new data centre in the Netherlands to meet our customers' increasing demands. The speed in which we delivered this site, from greenfield to a working data centre in just eight months, is testament of our ability to deliver, reflecting the innovation of our modular approach. While our focus remains on serving our European customers we are increasingly working with more global customers, particularly across Asia and our customers' demand is driving our expansion plans.

We also continued to develop our portfolio of products, services and solutions to respond to customer needs. A great example of this is Colt's ftec data centre, a complete data centre that can be delivered within just four months from contract sign date. This is an evolution of our modular data centre solution which allows our customers to flexibly manage power and cooling in addition to capacity, according to the evolving needs of their business over the lifetime of the data centre. This can lead to significant savings in the total cost of ownership for the customer. We are seeing an increase in repeat business from existing customers – testament to the trust they have in Colt's market-leading solutions.

Delivering in 2012

In 2012, Colt grew revenue for the first time in seven years. Data and Managed Services grew 3.5%, with improved growth rates in both Data and non-DCS Managed Services towards the end of the year. Voice revenue grew by 1.0%, driven largely by increased international traffic enabled by investments in our Voice trading platform.

Our product mix continued to shift in line with the market evolution. Legacy telecom services, such as traditional voice and basic data connections, continued to decline, whilst newer transactional products, such as Ethernet and our managed network and IT solutions, experienced growth. Data and Managed Services accounted for 64.3% of total Group revenue in 2012, demonstrating the Group's decreasing reliance on traditional voice services. This evolution is in line with Colt's strategic intentions; to become easier to do business with for more transactional products, and to fundamentally become a more services and solutions-led organisation.

We sustained our EBITDA margin above 20% despite a period of investment in the transformation and growth of the business.

We ended the year with net funds of €280.1m, down from €343.7m in 2011, due largely to incremental investments in the business and working capital movements.

Outlook

As Colt enters 2013 the macroeconomic uncertainties remain, but this yields as much opportunity as risk. We are not changing our strategy or our focus and we are accelerating our transformation. We will continue to evolve and manage the business in a way that ensures we are well prepared to address unpredictability in the market, while increasing our investment in our future growth by further developing our leading information delivery platform. We are now intensifying our focus on growth and in one year's time, Colt will be an even stronger business. To help me with that, we have a team of dedicated people around the world, supported by a strong management team, who together work tirelessly to deliver an exceptional customer experience every time. I believe we are well positioned for continued progress in 2013.

Rakesh Bhasin / Chief Executive Officer