Form 6-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

Report on Form 6-K dated June 4, 2019

(Commission File No. 001-35053)

 

 

INTERXION HOLDING N.V.

(Translation of Registrant’s Name into English)

 

 

Scorpius 30, 2132 LR Hoofddorp, The Netherlands, +31 20 880 7600

(Address of Principal Executive Office)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☒                  Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

 

 

 


INFORMATION CONTAINED IN THIS FORM 6-K REPORT

This report contains Interxion Holding N.V.’s (i) press release “Interxion Files 2018 Dutch Statutory Annual Report” and (ii) 2018 Dutch Statutory Annual Report.

This Report on Form 6-K is incorporated by reference into (i) the Registration Statement on Form S-8 of the Registrant originally filed with the Securities and Exchange Commission on June 23, 2011 (File No. 333-175099), (ii) the Registration Statement on Form S-8 of the Registrant originally filed with the Securities and Exchange Commission on June 2, 2014 (File No. 333-196447) and (iii) the Registration Statement on Form S-8 of the Registrant originally filed with the Securities and Exchange Commission on May 31, 2017 (File No. 333-218364).

 

Exhibit

    
99.1    The press release “Interxion Files 2018 Dutch Statutory Annual Report”, dated June 4, 2019.
99.2    2018 Dutch Statutory Annual Report.


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  INTERXION HOLDING N.V.
By:  

/s/ David C. Ruberg

Name:   David C. Ruberg
Title:   Chief Executive Officer

Date: June 4, 2019

EX-99.1

Exhibit 99.1

 

LOGO

Press release 4 June 2019

Interxion Files 2018 Dutch Statutory Annual Report

AMSTERDAM 4 June 2019. INTERXION HOLDING N.V. (NYSE: INXN), a leading European provider of carrier and cloud neutral colocation data centre services, today announced that it has filed its 2018 Dutch Statutory Annual Report with the Securities and Exchange Commission. The 2018 Dutch Statutory Annual Report can be found under the “Annual Reports” link on the company’s website at investors.interxion.com as well as on the SEC website at www.sec.gov. In addition, shareholders may request a hard copy of the 2018 Dutch Statutory Annual Report, which includes the company’s complete audited financial statements, free of charge by contacting Interxion Investor Relations at Scorpius 30, 2132 LR Hoofddorp, the Netherlands, Attention: Investor Relations or by email at IR@interxion.com.

About Interxion

Interxion (NYSE: INXN) is a leading provider of carrier and cloud-neutral colocation data centre services in Europe, serving a wide range of customers through 52 data centres in 11 European countries. Interxion’s uniformly designed, energy efficient data centres offer customers extensive security and uptime for their mission-critical applications. With over 700 connectivity providers, 21 European Internet exchanges, and most leading cloud and digital media platforms across its footprint, Interxion has created connectivity, cloud, content and finance hubs that foster growing customer communities of interest. For more information, please visit www.interxion.com.

Contact:

Jim Huseby

Investor Relations

Interxion

Tel: +1-813-644-9399

IR@interxion.com

EX-99.2

Exhibit 99.2

 

LOGO


LOGO

 

02    /    www.interxion.com


LOGO

Forward-Looking Statements

 

This annual report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to all statements other than statements of historical fact regarding our business, financial condition, results of operations and certain of our plans, objectives, assumptions, projections, expectations or beliefs with respect to these items and statements regarding other future events or prospects. These statements include, without limitation, those concerning: our strategy and our ability to achieve it; expectations regarding sales, profitability and growth; plans for the construction of new data centers; our ability to integrate new acquisitions; our possible or assumed future results of operations; research and development, capital expenditure and investment plans; adequacy of capital; and financing plans. The words “aim”, “may”, “will”, “expect”, “anticipate”, “believe”, “future”, “continue”, “help”, “estimate”, “plan”, “schedule”, “intend”, “should”, “shall” or the negative or other variations thereof, as well as other statements regarding matters that are not historical fact, are or may constitute forward-looking statements.

In addition, this annual report includes forward-looking statements relating to our potential exposure to various types of market risks, such as foreign exchange rate risk, interest rate risks and other risks related to financial assets and liabilities. We have based these forward-looking statements on our management’s current view of future events and financial performance. These views reflect the best judgment of our management but involve a number of risks and uncertainties which could cause actual results to differ materially from those predicted in our forward-looking statements and from past results, performance or achievements. Although we believe that the estimates reflected in the forward-looking statements are reasonable, those estimates may prove to be incorrect. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from these expressed or implied by these forward-looking statements.

These factors include, among other things:

 

  operating expenses cannot be easily reduced in the short term;

 

  inability to utilize the capacity of newly planned or acquired data centers and data center expansions;

 

  significant competition;

 

  cost and supply of electrical power;

 

  overcapacity in the data center industry; and

 

  performance under service level agreements.

These and other risks described under “Risk Factors” (page 27), are not exhaustive. Other sections of this annual report describe additional factors that could adversely affect our business, financial condition or results of operations including delays in remediating the material weakness in internal control over financial reporting and/or making disclosure controls and procedures effective. In addition, new risk factors may emerge from time to time, and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, you should not place undue reliance on forward-looking statements as a prediction of actual results.

All forward-looking statements included in this annual report are based on information available to us at the date of this annual report. We undertake no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by applicable law. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this annual report.

 

 

www.interxion.com    /    03


LOGO

IN THIS REPORT

 

Operational review
07   Our 2018 performance at a glance

08

  Information on the Company

10

  Innovation and technical excellence

10

  Our commitment to sustainability

10

  Organisational structure

12

  Our people
Financial review
15   Income statement highlights

17

  Balance sheet highlights

18

  Cash flow highlights
Report of the Board of Directors
21   Structure

21

  Board of Directors

24

  Directors’ Insurance and Indemnification

24

  Executive Committee

24

  General Meetings of Shareholders and voting rights

25

  Compensation

26

  Shares beneficially owned

26

  Risk management

27

  Risk factors

29

  Controls and procedures

30

  Dutch Corporate Governance Code
31   Outlook for 2019
Report of the Non-executive Directors
33    Evaluation

33

   Independence Non-executive Directors

33

   Internal control function

33

   Board committees
Consolidated financial statements
35    Consolidated income statements

35

   Consolidated statements of comprehensive income

37

   Consolidated statements of changes in shareholders’ equity

38

   Consolidated statements of cash flows

39

   Notes to the 2018 Consolidated financial statements
Company financial statements
101    InterXion Holding N.V. Company financial statements

102

   Notes to the 2017 Company financial statements
Other information
110    Independent auditor’s report

120

   Appendix
Find out more
123    Our locations

123

   Contact us

124

   Definitions
 

 

LOGO

 

04    /    www.interxion.com


LOGO

 

www.interxion.com    /    05


LOGO

 

06    /    www.interxion.com


  OPERATIONAL REVIEW  

 

Our 2018 performance at a glance

Interxion delivered strong financial and strategic progress in 2018. Revenue and Adjusted EBITDA1 each saw a strong uplift over 2017 accompanied by solid bookings growth across market segments. Our extensive expansion plans continued to be driven by customer demand, especially from our existing major cloud and digital media platform customers.

 

Across all our data centers we seek to create vibrant communities of interest where our customers, including core connectivity providers cloud and digital media platforms, and enterprise customers can gain value from being colocated with one another. Alongside these efforts to foster communities, we seek to invest, expand capacity and deliver the highest-quality infrastructure suitable for high-density computing and advanced applications. This strategic and disciplined approach to investment has yielded strong growth rates and returns across the markets where we operate, and we expect these trends to continue.

Technology continues to fundamentally change the way we live and work. Our data centers will remain central to the digitization trends as locations where data is processed, gathered and transmitted around the world. High density of connectivity is a key attribute in this context and our highly connected data center campuses continue to attract customer deployments from a range of segments and across the spectrum of capacity requirements.

Customer focus has always been at the heart of everything we do. By understanding our customers’ requirements and how these are evolving, not only have we been able to differentiate our company and sustain its growth, but we have also been able to gain important customer insights, anticipate future directions and make the appropriate investments to expand our footprint.

In response to healthy customer demand, we opened two new data centers and expanded capacity in 9 of our 11 countries during the year, with the remaining 2 countries scheduled to open new capacity in the first half of 2019. We also announced additions to our equipped space capacity of over 28% through to the end of 2020. Of this new capacity, over 70% is scheduled to open between mid-2019 and the end of the year.

As 2019 gets underway, I would like to thank all our employees for their ongoing contributions and customer focus. Their dedication and commitment are fundamental to Interxion’s continuing success.

David Ruberg, Chief Executive Officer

May 27, 2019

LOGO
LOGO  

Interxion delivered strong financial and operational results for 2018. We remain in expansion mode in response to healthy customer demand across our data center footprint.”

 

David Ruberg

Chief Executive Officer

 

 

LOGO

  
 

 

 

1. Adjusted EBITDA is a non-IFRS measure. Refer to “Definitions” for a detailed explanation of this measure. Note 5 of the Consolidated Financial Statements shows a reconciliation from net income and operating income to Adjusted EBITDA.

 

www.interxion.com  /  07


  OPERATIONAL REVIEW     

 

Selected Financial Data

 

        2018        2017        2016        2015        2014  

Recurring revenue

       533.1          462.5          400.0          365.2          319.2  

Non-recurring revenue

       28.7          26.8          21.8          21.4          21.4  

Revenue

       561.8          489.3          421.8          386.6          340.6  

Adjusted EBITDA

       257.8          221.0          190.9          171.3          146.4  

Adjusted EBITDA margin

       45.9%          45.2%          45.3%          44.3%          43.0%  

Capital expenditures (including intangibles)

       451.2          256.0          250.9          192.6          216.3  

Cash generated from operations

       251.0          209.0          183.4          169.4          135.4  

Revenue-generating space

       115.0          99.8          87.2          79.1          71.0  

Equipped space

       144.8          122.5          110.8          101.2          93.5  

Utilisation rate

       79%          81%          79%          78%          76%  

Financial figures are expressed as millions of euros; space figures in ‘000 sqm.

 

Information on the Company

We are a leading provider of carrier and cloud-neutral colocation data center services in Europe. We support over 2,000 customers through 51 data centers (as of December 31, 2018) in 11 countries, enabling them to create value by housing, protecting and connecting their most valuable content and applications. We enable our customers to connect to a broad range of telecommunications carriers, cloud platforms, internet service providers and other customers. Our data centers act as content, cloud and connectivity hubs that facilitate the processing, storage, sharing and distribution of data between our customers, creating an environment that we refer to as a community of interest.

Our core offering of carrier and cloud neutral colocation services includes space, power, cooling, connectivity and a physically secure environment in which to house our customers’ computing, network, storage and IT infrastructure. We enable our customers to reduce operational and capital costs while improving application performance and flexibility. We supplement our core colocation offering with a number of additional services, including network monitoring, remote monitoring of customer equipment, systems management, engineering support services, cross connect and cloud connect, data backup and storage.

Our headquarters are located in Hoofddorp, The Netherlands, and we operate in major metropolitan areas, including Amsterdam, Frankfurt, Paris and London, Europe’s main data center markets. Our data centers are located in close proximity to the intersection of telecommunications fiber routes, and we house more than 700 individual carriers and internet service providers, 21 European Internet exchanges and all the leading global cloud platforms. Our data centers allow our customers to lower their telecommunications costs and reduce latency, thereby improving the response time of their applications. This high level of connectivity fosters the development of communities of interest.

Our strategy

Target new customers in high growth industry segments to further develop our communities of interest

We categorize our customers into industry segments, and we will continue to target new and existing customers in high growth industry segments, including Connectivity Providers, Platform Providers and Enterprises. Winning new customers in these target industries enables us to expand existing and build new high value communities of interest within our data centers. We expect the high value and reduced cost benefits of our communities of interest to continue to attract new customers and generate expansion from existing customers, which will lead to decreased customer acquisition costs for us. For example, customers in the digital media segment benefit from the close proximity to content delivery network providers, Internet exchanges and cloud platforms in order to create and deliver content to consumers reliably and quickly.

Increase share of spend from existing customers

We focus on increasing revenue from our existing customers in our target-market segments. New revenue from our existing customers comprises a substantial portion of our new business, comprising the majority of our new bookings. Our sales and marketing teams focus on proactively working with customers to identify expansion opportunities in new or existing markets.

Maintain connectivity leadership

We seek to increase the number of carriers in each of our data centers by expanding the presence of our existing carriers into additional data centers and targeting new carriers. We will also continue to develop our relationships with Internet exchanges and work to increase the number of internet service providers in these exchanges. In countries where there is no significant Internet exchange, we will work with internet service providers and other parties to create an appropriate exchange.

 

 

08    /    www.interxion.com


    OPERATIONAL REVIEW  

 

 

Adjusted EBITDA

 

LOGO

Cash generated from operations

 

LOGO

 

 

Capital expenditure

 

LOGO

Utilisation rate

 

LOGO

 

Our sales and business development teams will continue to work with our existing carriers and internet service providers, and target new carriers and internet service providers, to maximize their presence in our data centers, and to achieve the highest level of connectivity in each of them, with the right connectivity providers to support the requirements of each of our communities of interest.

Continue to deliver best-in-class customer service

We will continue to provide a high level of customer service in order to maximize customer satisfaction and minimize churn. Our European Customer Service Center, which operates 24 hours a day, 365 days a year, provides continuous monitoring and troubleshooting and reduces customers’ internal support costs by giving them one-call access to full, multilingual technical support. In addition, we will continue to develop our customer tools, which include an online customer portal to provide our customers with real-time access to information. We will continue to invest in our local service delivery and assurance teams, which provide flexibility and responsiveness to customer needs.

Disciplined expansion and prudent financial management

We plan to invest in our data center capacity while maintaining our disciplined investment approach and prudent financial policy. We will continue to determine the size of our expansions based on selling patterns, pipeline and trends in existing demand as well as working with our customers to identify future capacity requirements. We plan to build larger data centers and secure land banks in anticipation of future demand, as providing line of sight to our long-term expansion plans is increasingly important to our largest customers. In order to reduce risk and improve our return on capital to meet our target internal rates of return,

we manage the timing and scale of our capital expenditure obligations by phasing our expansions. Finally, we will continue to manage our capital deployment and financial management decisions based on adhering to our target internal rate of return on new expansions and target leverage ratios.

Our services

We offer carrier and cloud neutral colocation data center and connectivity services to our customers.

Colocation

We provide clients with the space and power to deploy IT infrastructure in world-class data centers. Through a number of redundant subsystems, including power, fiber and cooling, we are able to provide our customers with highly reliable services. Our scalable colocation services enable our customers to upgrade space and power, connectivity and services as their requirements expand and evolve. Our data centers employ a wide range of physical security features, including biometric scanners, man traps, smoke detection, fire suppression systems, and secure access. Our colocation facilities include the following services:

Space

Each of our data centers houses our customers’ IT infrastructure in a highly connected facility, designed and fitted to ensure a high level of network reliability. We provide the space and power for our clients to deploy their own IT infrastructures. Depending on their space and security needs, customers can choose individual cabinets, a secure cage or an individual private room.

 

 

www.interxion.com    /    09


  OPERATIONAL REVIEW     

 

 

Power

Each of our data centers offers our customers high power availability. Generators, in combination with uninterrupted power supply (UPS) systems, ensure maximum availability. We provide a full range of output voltages and currents and offer our customers a choice of guaranteed levels of availability between 99.9% and 99.999%.

Connectivity

We provide connectivity services that enable our customers to connect their IT infrastructure to exchange traffic and access cloud platforms. These services, which offer connectivity with more than 700 individual carriers and internet service providers and all the leading cloud providers, enable our customers to reduce costs while improving the reliability and performance associated with the exchange of Internet and cloud data traffic. Our connectivity options offer customers a key strategic advantage by providing direct, high-speed connections to peers, partners, customers, cloud platforms and some of the most important sources of IP data, content and distribution in the world.

Cross connects

We install and manage physical connections running from our customers’ equipment to the equipment of our telecommunications carriers, internet service providers and Internet exchange customers, as well as to other customers. Cross connects are physically secured in dedicated Meet-Me rooms. Our staff test and install cables and patches and maintain cable trays and patch panels according to industry best practice.

Additional services

In addition to providing colocation services, we provide a number of additional services, including systems monitoring, systems management and engineering support services. Some managed services are only performed on an ad hoc basis, as and when requested by the customer, while others are more recurring in nature. These services are provided either directly by us, or in conjunction with third parties.

Innovation and technical excellence

For well over a decade we have been at the forefront of data center design and management and we continue to focus on innovation and improvements in energy efficiency and cooling efficiency. Our design leadership includes evaluating the latest energy efficiency techniques, options for green power, reduction is water consumption, and testing and implementing new design practices.

Our dedicated Datacenter Technology and Engineering Group (DTEG), has pioneered many of today’s key data center design approaches, such as modular design and build, design for power usage effectiveness (PUE), cold aisle containment, seawater and ground water cooling and other design innovations.

Our data centers are operated and maintained in a consistent manner and all our data centers are based on a consistent design. The consistency in design, operation and maintenance contributes to high levels of technical excellence, reliability and performance.

Our commitment to sustainability

Today, all our energy is from renewable sources. We deliver efficient, cost-effective services by minimising waste and energy use, without compromising reliability and performance. Our modular data center design – which enables us to build large systems from smaller subsystems – optimises our use of space, power and cooling, and helps us to continue to improve PUE.

As part of our sustainability commitment, we contribute to recognized industry bodies. For example, we hold the position of Chair at the Governmental Engagement Committee and we have a seat at the Advisory Council of The Green Grid (the leading energy efficiency and sustainability association for the data center industry) and contribute to the EC Joint Research Centre on sustainability.

Organizational structure

European Telecom Exchange B.V. was incorporated on April 6, 1998. After being renamed InterXion Holding B.V. on June 12, 1998, it was converted into InterXion Holding N.V. on January 11, 2000. From inception until the acquisition of Interxion Science Park (formerly known as Vancis B.V., “Interxion Science Park”) in 2017, we grew our colocation business organically. Since 2001, we developed our geographic footprint in 13 cities where we have established data center campuses. The only changes to our geographic footprint have been the addition of Marseille in 2014 and the closing of Hilversum at the end of 2014. Following the industry downturn that began in 2001 as a result of a sharp decline in demand for Internet-based businesses, we restructured within our geographic base to refocus on a broader and more stable customer base. We have since focused on shifting our customer base from primarily emerging Internet companies and carriers to a wide variety of established businesses that seek to house their IT infrastructure.

Our subsidiaries perform various tasks, such as servicing our clients, operating our data centers, customers support, and providing management, sales and marketing support to the Group. The following table sets forth the name, country of incorporation and (direct and indirect) ownership interest of our subsidiaries as of December 31, 2018:

 

 

10    /    www.interxion.com


  OPERATIONAL REVIEW  

 

 

Entity    Country of incorporation    Ownership    Activity
            %     
                     
     
InterXion HeadQuarters B.V.    The Netherlands    100%    Management
                   
     
Interxion Europe Ltd    United Kingdom    100%    Management
                   
     
InterXion Operational B.V.    The Netherlands    100%    Management/Holding
                   
     
InterXion Participation 1 B.V.    The Netherlands    100%    Holding
                   
     
InterXion Nederland B.V.    The Netherlands    100%    Provision of co-location services
                   
     
InterXion Datacenters B.V.    The Netherlands    100%    Data center sales & marketing
                   
     
InterXion Science Park B.V.    The Netherlands    100%    Provision of colocation services
                   
     
InterXion Real Estate Holding B.V.    The Netherlands    100%    Real estate management/Holding
                   
     
InterXion Real Estate I B.V.    The Netherlands    100%    Real estate
                   
     
InterXion Real Estate IV B.V.    The Netherlands    100%    Real estate
                   
     
InterXion Real Estate V B.V.    The Netherlands    100%    Real estate
                   
     
InterXion Real Estate X B.V.    The Netherlands    100%    Real estate
                   
     
InterXion Real Estate XII B.V.    The Netherlands    100%    Real estate
                   
     
InterXion Real Estate XIII B.V.    The Netherlands    100%    Real estate
                   
     
InterXion Real Estate XIV B.V.    The Netherlands    100%    Real estate
                   
     
InterXion Real Estate XVI B.V.    The Netherlands    100%    Real estate
                   
     
InterXion Österreich GmbH    Austria    100%    Provision of colocation services
                   
     
InterXion Real Estate VII GmbH    Austria    100%    Real estate
                   
     
InterXion Belgium N.V.    Belgium    100%    Provision of colocation services
                   
     
InterXion Real Estate IX N.V.    Belgium    100%    Real estate
                   
     
InterXion Danmark ApS    Denmark    100%    Provision of colocation services
                   
     
InterXion Real Estate VI ApS    Denmark    100%    Real estate
                   
     
InterXion Real Estate XVII ApS    Denmark    100%    Real estate
                   
     
Interxion France SAS    France    100%    Provision of colocation services
                   
     
Interxion Real Estate II SARL    France    100%    Real estate
                   
     
Interxion Real Estate III SARL    France    100%    Real estate
                   
     
Interxion Real Estate XI SARL    France    100%    Real estate
                   
     
InterXion Deutschland GmbH    Germany    100%    Provision of colocation services
                   
     
InterXion Ireland DAC    Ireland    100%    Provision of colocation services
                   
     
Interxion España SA    Spain    100%    Provision of colocation services
                   
     
Interxion Real Estate XV SL    Spain    100%    Real estate
                   
     
InterXion Sverige AB    Sweden    100%    Provision of colocation services
                   
     
InterXion (Schweiz) AG    Switzerland    100%    Provision of colocation services
                   
     
InterXion Real Estate VIII AG    Switzerland    100%    Real estate
                   
     
InterXion Carrier Hotel Ltd.    United Kingdom    100%    Provision of colocation services
                   

 

www.interxion.com    /    11


  OPERATIONAL REVIEW     

 

Our people

Our Executive Committee

Our people, led by a management team (“Executive Committee”) with considerable experience in the technology sector, are a major element in what differentiates us. The team focuses on customers and on driving Interxion towards the heart of the digital economy, adding value and making it easier for our customers to do business.

 

DAVID RUBERG       
  

David Ruberg, Chief Executive Officer, Vice-Chairman and Executive Director

 

LOGO    Mr. Ruberg joined us as President and Chief Executive Officer in November 2007 and became Vice-Chairman of the Board of Directors when it became a one-tier board in 2011. Mr. Ruberg served as Chairman of the Supervisory Board from 2002 to 2007 and on the Management Board from 2007 until its conversion into a one-tier board. He was affiliated with Baker Capital, a private equity firm, from January 2002 to October 2007. From April 1993 to October 2001 he was Chairman, President and CEO of Intermedia Communications, a NASDAQ-listed broadband communications services provider, as well as Chairman of its majority-owned subsidiary, Digex, Inc., a NASDAQ-listed managed web hosting company. He began his career as a scientist at AT&T Bell Labs, where he contributed to the development of operating systems and computer languages. He holds a bachelor’s degree from Middlebury College and a master’s degree in Computer and Communication Sciences from the University of Michigan.
      
       
JOHN   
DOHERTY   

John Doherty, Chief Financial Officer

 

LOGO    Mr. Doherty joined Interxion as Chief Financial Officer in November, 2018 and is responsible for providing leadership to corporate strategy and development activities and overall financial operations. He joined from Verizon, where he worked for over the past 30 years, and held various senior management roles including from 2012 - 2018 as Senior Vice President, Corporate Development and President & Chief Investment Officer for Verizon Ventures. He was also Chief Financial Officer for Verizon’s Shared Services, Enterprise and International Organizations. He has previously worked in Bangkok for TelecomAsia and in the U.K. for NYNEX Cablecomms. Mr. Doherty holds a degree in economics from Stonybrook University and has attended the MBA program at Baruch College as well as Wharton’s Executive Education program.
      
       
GIULIANO DI   
VITANTONIO   

Giuliano Di Vitantonio, Chief Marketing and Strategy Officer

 

LOGO   

Mr. Di Vitantonio joined Interxion in January 2015 and is responsible for our market and product strategies, including product management, product. marketing, segment strategy and business development. He joined from Cisco Systems, where he held the position of Vice President Marketing, Data Center and Cloud.

 

Mr. Di Vitantonio has more than 20 years’ experience in the IT industry, including 17 years at Hewlett-Packard, where he held a broad range of positions in R&D, strategy, consulting, business development and marketing. His areas of expertise include IT management software, enterprise applications, data center infrastructure and business intelligence solutions. He holds a master’s degree in EE/Telecommunications from the University of Bologna and an MBA from the London Business School.

      

 

12    /    www.interxion.com


  OPERATIONAL REVIEW  

 

 

JAN-PIETER   
ANTEN   

Jan-Pieter Anten, Senior Vice President Human Resources

 

LOGO    Mr. Anten joined us as Vice President Human Resources in October 2011. Before joining us, he worked for Hay Group, a global management consulting firm, as Director International Strategic Clients Europe, where he led major accounts within the European market. Before that, he held the position of Vice President Human Resources at Synthon, an international organization with worldwide affiliates. He previously worked for Hay Group as a Senior Consultant. Mr. Anten holds a degree from the University of Utrecht.
      
       
JAAP CAMMAN   
  
LOGO   

Jaap Camman, Senior Vice President, Legal

 

Mr. Camman is responsible for all legal and corporate affairs across the Group. He joined us in November 1999 as Manager Legal and has been a member of our Executive Committee since July 2002.

 

Before joining us, he worked for the Dutch Government from February 1994 to October 1999. His latest position was Deputy Head of the Insurance Division within The Netherlands Ministry of Finance. Mr. Camman holds a Law Degree from the University of Utrecht.

      
       

ADRIAAN

OOSTHOEK

  

 

Adriaan Oosthoek, Senior Vice President Operations & ICT

 

Mr. Oosthoek has held senior management positions in the IT and Telecom industry for a number of years. He initially joined Interxion in 2014 as Managing Director for our UK business and joined the Executive Committee in 2015. Before joining Interxion, he was the Executive Vice President at Colt, responsible for its global Data Center footprint. Before joining Colt, he spent 11 years at Telecity Group plc, the last seven years as the Managing Director of the UK and Ireland operation for Telecity Group plc where he significantly grew the business. Preceding his tenure in the UK, he ran the Dutch operation of data center operator, Redbus Interhouse, and was a founder and Managing Director of the Dutch subsidiary of Teles AG, a Berlin-headquartered provider of telecoms and data com products.

 

He studied Information Sciences at the University of Applied Sciences in The Hague and holds marketing certificates NIMA A and NIMA B from The Netherlands Institute of Marketing. In addition to his formal roles, Mr. Oosthoek is also Chairman of the Board of Governors of the Data Center Alliance, a European industry association for the data center industry.

LOGO
      

 

www.interxion.com    /    13


LOGO

 

14    /    www.interxion.com


    FINANCIAL REVIEW  

 

 

Financial review                    
LOGO   LOGO   

In 2018, Interxion continued its consistent record of profitable revenue growth. We continue to focus on increasing our footprint in a disciplined manner and secured the required funding to enable future expansion, while delivering attractive long-term cash returns for our shareowners.”

 

John Doherty

Chief Financial Officer

  
       

Interxion delivered another year of strong financial performance. Total revenue increased by 15% to 561.8 million while recurring revenue was also up 15% to 533.1 million, year-on-year. Non-recurring revenue, which increased by 7% to 28.7 million, was driven by the ongoing volume of customer installations. Adjusted EBITDA increased by 17%, to 257.8 million, with a resulting Adjusted EBITDA margin of 45.9%, compared with 45.2% in 2017.

During 2018 we refinanced our balance sheet with the issue of 1,200 million 4.75% senior notes due in 2025 and the redemption of our 625.0 million Senior Secured Notes and 250.0 million drawn under our revolving credit facilities. This refinancing together with our undrawn 200 million Revolving Credit Facility, which was increased to 300 million in the first quarter of 2019, provides us with the funding required to meet the ongoing investment in our data center portfolio through 2019.

Net income for the year was 31.1 million (2017: 39.1 million), a 20% decrease compared with 2017, while Adjusted net income1 for the year was consistent with the prior year at 40.2 million (2017: 40.2 million).

We continue to generate significant cash from our operations: 251.0 million in 2018, representing a 20% increase over 2017. At the same time, we are allocating capital to meet the strong customer demand that we see across our markets and continue to deliver attractive and sustainable long-term returns for our shareowners. During 2018, we invested 451.2 million in capital expenditure. Of this capital expenditure, 420.0 million, or 93%, was invested in discretionary expansion and upgrade projects. Approximately 70% of overall capital expenditure was deployed in the Big4 segment2.

Over the last 3 years Interxion has invested approximately 960 million in capex and increased equipped capacity by approximately 44,000 square meters, an increase of 43%. During this time our utilization rates have remained close to 80%. These metrics demonstrate the discipline that we exercise when we deploy capital.

John Doherty, Chief Financial Officer

May 27, 2019

 

Income statement highlights

 

( millions)   2018       2017     2016   
Total revenue     561.8         489.3       421.8    
Recurring revenue percentage     95%         95%       94%    
Cost of sales     (219.5)         (190.5)       (162.6)    
Gross profit     342.3         298.8       259.2    
Gross profit margin     61%         61%       61%    
Other income     0.1         0.1       0.3    
Sales and marketing costs     (36.5)         (33.5)       (29.9)    
General and administrative costs     (194.6)         (167.1)       (138.5)    
Operating profit     111.2         98.3       91.1    
Adjusted EBITDA     257.8         221.0       190.9    
Adjusted EBITDA margin     45%         45%       44%    
Net income     31.1         39.1       38.3    
Diluted earnings per share (€)     0.43         0.55       0.54    

(1) Adjusted net income is a non-IFRS measure. Refer to “Definitions” for a detailed explanation of this measure.

(2) The Big4 segment includes France, Germany, the Netherlands and the UK

Revenue

Our business model benefits from a high proportion of recurring revenue. Our total revenue for the year of 561.8 million, 533.1 million or 95% was recurring. This percentage was in line with 2017, when 462.5 million out of 489.3 million total revenue, was recurring. In our Big4 segment, 352.7 million or 95%, of 370.3 million of total revenue was recurring compared with 302.3 million or 95% of the 318.6 million of total revenue in 2017. Recurring revenue in the Big4 segment grew 17%, with strong performances from our operations in Germany and France. In our Rest of Europe (“ROE”) segment3, 180.4 million or 94% of 191.4 million of total revenue was recurring, compared with 160.2 million or 94% of the 170.7 million of total revenue in 2017. Recurring revenue in the Rest of Europe segment grew 13%, in particular driven by Austria, Belgium and Ireland.

Non-recurring revenue increased by 7% to 28.7 million compared to 26.8 million in 2017. The increase in the level of non-recurring revenue was driven by the on-going high volume of customer installations during the year, particularly in Germany, Denmark, Sweden and Spain.

(3) The ROE segment includes Austria, Belgium, Denmark, Ireland, Spain, Sweden and Switzerland.

 

 

www.interxion.com    /    15


  FINANCIAL REVIEW     

 

 

Consistent growth across our segments

Total revenue (x 1.0 million); segment percentage of total revenue

 

LOGO

Cost of sales

Cost of sales increased by 15% in 2018 to 219.5 million (2017: 190.5 million). During the year we continued to make investments in new data centers, operations staff and in upgrading operational processes and systems, consistent with scaling our infrastructure to support future growth.

Gross profit

Gross profit for the year was 342.3 million, up 15% year-over-year with a gross profit margin of 60.9%, representing a reduction from 61.1% in 2017, this modest reduction is primarily due to the expansion drag associated with bringing on new capacity.

Sales and marketing costs

Sales and marketing costs increased by 9%, to 36.5 million (2017: 33.5 million), representing approximately 7% of total revenue, consistent with 2017. The increase in sales and marketing costs was primarily due to increased compensation and related costs as a result of increases in employee headcount and marketing expenses associated with our continued investment in our go to market strategy. Our sales and marketing teams continue to focus on identifying and converting opportunities both for existing customers and for prospects in our target segments, to expand our customers’ deployments within our data center portfolio and enhance our connected Communities of Interest.

Our approach based on connected Communities of Interest leads to attractive and sustainable investment returns, because it attracts and retains high value customers. Our customers derive long term benefits from being in our data centers, which results in higher levels of customer satisfaction and lower churn rates.

General and administrative costs

General and administrative costs increased by 16% in 2018, to 194.6 million (2017: 167.2 million) and amounted to 35% of total revenue (2017: 34%). General and administrative costs consist of depreciation and amortization, share-based payments, M&A transaction costs and other general and administrative costs.

Depreciation and amortization increased to 129.0 million for the year ended December 31, 2018, from 108.3 million for the year ended December 31, 2017, an increase of 19% which is consistent with our ongoing investment in new data

centers and data center expansions. The increase in other general and administrative costs was due to growth in our headcount and increases in professional advisory services and in software licenses.

Adjusted EBITDA

Adjusted EBITDA increased by 17% during the year to 257.8 million (2017: 221.0 million). Adjusted EBITDA margin increased by 70 basis points to 45.9% (2017: 45.2%).

Adjusted EBITDA in the Big4 segment increased by 17% to 203.8 million (2016: 174.8 million), representing a 55.0% margin (2017: 54.9%). Adjusted EBITDA in the Rest of Europe totaled 113.7 million (2017: 99.7 million), representing a 59.4% margin (2017: 58.4%).

Employees

We employ the majority of our personnel in operations and support roles to operate our data centers 24 hours a day, 365 days a year. As of December 31, 2018, we employed 768 full-time equivalent employees (the average for the year was 720 compared with 638 in 2017), of which 474 were employed in operations and support, 153 in sales and marketing and 141 in general and administrative roles.

Operating profit

Operating profit increased by 13%, to 111.2 million in 2018 (2017: 98.3 million), reflecting the ongoing profitable growth of the business in 2018.

Net finance expense

Net finance expense increased to 61.8 million for the year ended December 31, 2018 from 44.4 million for the year ended December 31, 2017, an increase of 39%. Net finance expense was 11% of revenue for the year ended December 31, 2018 and 9% of revenue for the year ended December 31, 2017. The increase in net finance expense for the year ended December 31, 2018 was primarily due to the increase in the level of borrowings following the refinancing of our capital structure together with associated one-time financing charges during 2018. In the year ended December 31, 2018, we capitalized 4.9 million of borrowing costs in connection with the construction of new data center space, compared to 3.1 million in the year ended December 31, 2017.

Income tax expense

Income tax expense was 18.3 million for the year ended December 31, 2018, compared with 14.8 million for the year ended December 31, 2017. The effective income tax rate of 37% in the year ended December 31, 2018, compared with 28% for the year ended December 31, 2017. This increase reflects the effect of decreased statutory tax rates in several of the jurisdictions in which we operate, resulting in a revaluation of deferred tax assets, increased non-deductible costs and limitations on interest deductibility in certain European jurisdictions.

 

 

16    /    www.interxion.com


    FINANCIAL REVIEW  

 

 

Net income

Net income increased to 31.1 million from 39.1 million in 2017. Net income, adjusted for M&A transaction costs, capitalized interest, re-assessment of indirect taxes, charges related to termination of financing arrangements and certain other items, was consistent with the prior year at 40.2 million, (2017: 40.2 million).

Diluted Earnings per share

Diluted earnings per share (Diluted EPS) at 0.43 per share in 2018 was unchanged from the prior year (2017: 0.43 per share) on a diluted share count of 72.1 million shares.

Net income reconciliation

 

( millions)    2018          2017          2016  
Net profit - as reported      31.1        39.1        38.3  
Add back                           
+ Charges related to termination of financing arrangements (a)      11.2                
+ Re-assessment of indirect taxes (b)      2.5                
+ M&A transaction costs      3.2        4.6        2.4  
       16.9        4.6        2.4  
Reverse                           
- Interest capitalised      (4.9)        (3.1)        (3.4)  
- Profit on sale of financial asset                    (0.3)  
- Adjustments to site restoration                    (0.2)  

- Adjustment of financial lease

  obligation

                   (1.4)  
- Deferred tax asset adjustment                    (0.8)  
       (4.9)        (3.1)        (6.1)  
Tax effect of above add backs & reversals      (2.9)        (0.4)        0.4  
Adjusted net income      40.2        40.2        35.0  
                               
Reported Basic EPS: ()      0.43        0.55        0.54  
Reported Diluted EPS: ()      0.43        0.55        0.54  
Adjusted Basic EPS: ()      0.56        0.57        0.50  
Adjusted Diluted EPS: ()      0.56        0.56        0.49  

 

(a):

These charges relate to the repayment of our 6.00% Senior Secured Notes due 2020 and the termination of our revolving credit facility agreements in 2018.

(b):

This re-assessment relates to years prior to 2018 and is therefore not representative of our current ongoing business.

Balance sheet highlights

 

( millions)   2018     2017(i)     2016(i)  
PP&E and intangible assets     1,824.3           1,442.0           1,184.7  
Cash and cash equivalents     186.1       38.5       115.9  
Other current and non-current assets     252.2       221.6       182.1  
Total assets     2,262.6       1,702.1       1,482.7  
Borrowings     1,290.1       832.8       735.5  
Other current and non-current liabilities     339.1       279.6       205.7  
Total liabilities     1,629.2       1,112.4       941.2  
Shareholders’ equity     633.4       589.7       541.5  
Total liabilities and shareholders’ equity     2,262.6       1,702.1       1,482.7  

 

(i):

Comparative figures for the years ended December 31, 2017 and 2016 were restated. For further information on the errors, see Notes 2 and 28 of these 2018 consolidated financial statements.

Balance sheet

The Company maintained a solid balance sheet at the end of the 2018 financial year, with growing assets, (including increased cash balances) and increasing shareholders’ equity compared to the prior year.

During 2018, we invested 451.2 million in capital expenditure of which 420.0 million was for discretionary expansion and upgrade projects. Two new data centers were opened, accompanied by expansions in a total of seven countries, increasing equipped space by 22,300 square meters to 144,800 square meters.

Net of depreciation, this resulted in a 378.6 million increase in property, plant and equipment. As at December 31, 2018, the total book value of the Company’s property, plant and equipment was 1,721.1 million.

Intangible assets increased on a net basis by 3.7 million to end the year at 103.2 million.

The Company’s deferred tax assets represent tax loss carry-forwards and temporary differences between the carrying amounts of assets for financial reporting purposes and the amounts for taxation purposes. At December 31, 2018, the balance of these deferred tax assets was 21.8 million (December 31, 2017: 24.5 million). This decrease includes the impact of the decrease of several European statutory tax rates, resulting in a revaluation and a reduction of deferred tax balances.

Cash and cash equivalents increased to 186.1 million (December 31, 2017: 38.5 million), reflecting the net impact of the cash flows relating to the balance sheet refinancing and increased cash generated from operations , partly offset by increased capital expenditure.

Other current and non-current assets increased to 252.2 million (December 31, 2017: 221.6 million).

 

 

www.interxion.com    /    17


  FINANCIAL REVIEW     

 

 

This amount comprises:

 

  trade and other current assets of 205.6 million (December 31, 2017: 179.8 million). Our fees are normally invoiced quarterly in advance, with the exception of metered power usage which is invoiced monthly in arrears and cross connects which are invoiced quarterly in arrears;

 

  deferred tax assets, which decreased as described above;

 

  other investments of 7.9 million (December 31, 2017: 3.7 million), representing a convertible loan provided by InterXion Participation I B.V. to Icolo, a company that is building and operating a data center business in Kenya through its wholly owned Kenyan subsidiary; and,

 

  other non-current assets, which increased to 16.8 million (December 31, 2017: 13.7 million). These assets include prepaid expenses, collateralized cash related to bank guarantees, and customer deposits.

Borrowings at December 31, 2018 increased by 457.3 million to 1,290.1 million (December 31, 2017: 832.8 million), which was primarily the result of the balance sheet refinancing during 2018. This was partly offset by regular mortgage repayments. As part of the refinancing we entered into a new 200 million Revolving Credit Facility which was undrawn as at December 31, 2018. We increased the facility by 100 million to 300 million after the year-end.

Total trade payables and other liabilities increased to 288.1 million (2017: 236.1 million). Of this, 280.9 million (2017: 229.9 million), comprised current liabilities. Other liabilities include deferred revenue, customer deposits, tax and social security liabilities, and accrued expenses.

We have remained in full compliance with all covenants under the Indenture for our Senior Notes and our Revolving Credit Facility. In addition, we do not anticipate, in the next twelve months, any breach or failure that would negatively impact our ability to borrow funds under the Revolving Facility Agreement.

Our net debt leverage ratio at year-end 2018 was 4.4x last twelve months Adjusted EBITDA compared with a covenant requirement under our Revolving Credit Facility of less than 5.0x, which is tested only upon utilization of 35% or more of the Revolving Credit Facility. Of the Company’s total debt of 1,290.1 million, 98% matures in 2021 or beyond. Our 1,200 million 4.75% Senior Notes mature in June 2025.

Shareholders’ equity increased by 43.8 million in 2018 to 633.4 million, as a result of total comprehensive income for 2018 of 29.8 million and an increase of 14.0 million relating to new shares issued in respect of share-based payments and share options exercised.

 

1.

Cash generated from operations is a non-IFRS measure. Refer to “Definitions” for a detailed explanation of this measure.

Cash flow highlights

 

( millions)   2018     2017     2016  
Cash generated from operations     251.0       209.0               183.4  
Net cash flows from operating activities     164.9       155.2       139.4  
Capital expenditures, including intangible assets     (451.2)       (256.0)       (250.9
Net cash flows used in investing activities     (466.5)           (335.6)       (251.4
Net cash flows from financing activities     449.5       104.6       174.0  
Net movement in cash and cash equivalents     147.6       (77.4)       62.2  
Cash and cash equivalents end of period     186.1       38.5       115.9  

Cash flow

Cash generated from operations in 2018 was 251.0 million, an increase of 20% compared with 2017 (2017: 209.0 million), primarily due to the ongoing profitable growth of the business.

Cash interest paid in 2018 was 69.0 million (2017: 41.9 million). In accordance with IFRS, the Company is required to capitalize interest costs during the data center construction phases. Accordingly, during 2018, 4.9 million of borrowing costs were capitalized (2017: 3.1 million).

The cash interest paid, reported in “purchase of property, plant and equipment”, was 6.2 million (2017: 3.9 million).

Strong cash generation

Cash generated from operations (m)

 

LOGO

Net cash flow from operating activities increased by 6% to 164.9 million (2017: 155.2 million). This increase is reflecting the ongoing growth of our business partly offset by increased cash outflow from interest payments of 69.0 million (2017: 41.9 million).

Net cash flow from investing activities increased by 39% to 466.5 million (2017: 335.6 million). Capital expenditure for 2018, including the purchase of property, plant and equipment, and the purchase of intangible assets, totaled 451.2 million. Of this capital expenditure 318.6 million (71%) was deployed in the Big4 segment and 113.8 million (25%) in the Rest of Europe segment compared to 174.8 million (68%) and 69.8 million (28%) in 2017. Of the total capital expenditure, 420.0 million was invested in expansion and upgrade projects to facilitate future growth.

 

 

18    /    www.interxion.com


    FINANCIAL REVIEW  

 

 

These investments were financed through the cash generated from operations and through the refinancing which was completed in 2018 and which was the principal reason for the Net cash flow from financing activities of 449.5 million (2017: 104.6 million).

This refinancing included the issuance of 1,200 million Senior Notes and the redemption of 625.0 million Senior Secured Notes and 250 million drawn under our revolving credit facilities. Cash flows relating to transaction costs associated with the issuance of Senior Notes and the Revolving Facility amounted to 9.7 million.

In addition, we entered into a 6.0 million financing agreement, consisting of a loan that is secured by a mortgage on certain data center property in The Netherlands owned by Interxion Real Estate V B.V. and a pledge on rights under the intergroup lease agreement between Interxion Real Estate V B.V., as lessor, and Interxion Nederland B.V., as lessee.

Scheduled repayments for our mortgages amounted to 8.3 million in 2018. The Company also received 1.7 million from the exercise of stock options. The Company does not currently hedge its foreign exchange exposure and exchange rates had a negative impact of 0.2 million on cash balances during the year.

Cash and cash equivalents increased by 147.6 million in 2018 from 38.5 million at the beginning of the year to 186.1 million at the year-end.

Capital expenditure

Capital expenditure, including intangibles (m)

 

LOGO

Events subsequent to the balance sheet date

Increased capacity under Revolving Credit Facility

During the first quarter of 2019, the Group increased the capacity under the Revolving Credit Facility by 100.0 million for total commitment of 300.0 million.

Purchase of shares in Icolo Ltd.

During 2019, the Group entered into an agreement to purchase 40% of the share capital of Icolo Ltd., and certain convertible loans which were previously granted to Icolo Ltd. by the sellers. The transaction price for both the shares and the convertible loans amounts to USD 5.7 million. After completion of this transaction, the Group will apply IAS 28 – Investments in Associates and Joint Ventures and account for the shares as an investment in an associate.

 

 

www.interxion.com    /    19


LOGO

 

20    /    www.interxion.com


    REPORT OF THE BOARD OF DIRECTORS  

 

Structure

InterXion Holding N.V. (the “Company”) is a public limited liability company incorporated under the laws of The Netherlands and is the direct or indirect parent company of all companies that form the Interxion group of companies (the “Group”). Our corporate seat is in Amsterdam, The Netherlands. Our principal office is located at Scorpius 30, 2132 LR, Hoofddorp, The Netherlands. The Company was incorporated on April 6, 1998 as European Telecom Exchange B.V. and was renamed InterXion Holding B.V. on June 12, 1998. The Company is registered with the Dutch Chamber of Commerce under number 33301892. On January 11, 2000 the Company was converted into a Naamloze Vennootschap. Since January 28, 2011, the Company’s shares have been listed on the New York Stock Exchange (“NYSE”).

The Company has one class of shares, of which 71,707,841 had been issued and paid-up as of December 31, 2018. Of these shares, 20,375,252 were issued in 2011 as part of the Company’s initial public offering.

Board of Directors

Board powers and function

The Company has a one-tier management structure with one Board of Directors, which currently consist of one Executive Director and five Non-executive Directors. The Board is responsible for the overall conduct of our business and has the powers, authorities and duties vested in it by and pursuant to the relevant laws of The Netherlands and our Articles of Association. In all its dealings, the Board shall be guided by the interests of our Group as a whole, including our shareholders and other stakeholders. The Board has the final responsibility for the management, direction and performance of the Company and the Group. Our Executive Director is responsible for the day-to-day management of the Company. Our Non-executive Directors supervise the Executive Director and our general affairs and provide general advice to the Executive Director.

Our Chief Executive Officer (“CEO”), the Executive Director, is the general manager of our business, subject to the control of the Board, and is entrusted with all the Board’s powers, authorities and discretions (including the power to sub-delegate) delegated by the full Board from time to time by a resolution of the Board. Matters expressly delegated to our CEO are validly resolved on by our CEO and no further resolutions, approvals or other involvement of the Board is required. The Board may also delegate authorities to its committees. On any such delegation, the Board supervises the execution of its responsibilities by our CEO and/or our Board committees. The Board remains ultimately responsible for the fulfilment of its duties. Moreover, its members remain accountable for the actions and decision of the Board and have ultimate responsibility for the Company’s management and external reporting. The Board’s members are accountable to the shareholders of the Company at its Annual General Meeting.

Board meetings and decisions

All resolutions of the Board are adopted by a simple majority of votes cast in a meeting at which at least the majority of the Directors are present or represented. A member of the Board may authorize another member of the Board to represent him/her at the Board meeting and vote on his/her behalf.

 

Each Director is entitled to one vote (provided that, for the avoidance of doubt, a member representing one or more absent members of the Board by written power of attorney will be entitled to cast the vote of each such absent member). If there is a tie, the Chairman has the casting vote.

The Board meets as often as it deems necessary or appropriate, or on the request of any of its members. During 2018, the Board met twelve times. With the exception of one meeting in which one Director was absent, all Directors attended all Board meetings. The Board has adopted rules, which contain additional requirements for our decision-making process, the convening of meetings and, through separate resolution by the Board, details on the assignment of duties and a division of responsibilities between Executive Directors and Non-executive Directors. The Board has appointed one of the Directors as Chairman and one of the Directors as Vice- Chairman of the Board. The Board appoints, and is assisted by, a Corporate Secretary, who may be a member of the Board or of the Executive Committee.

Composition of the Board

The Board consists of a minimum of one Executive Director and a minimum of three Non-executive Directors, provided that it comprises of a maximum of seven members. The number of Executive Directors and Non-executive Directors is determined by our Annual General Meeting, with the proviso that the majority of the Board must comprise Non-executive Directors. Only natural persons can be Non-executive Directors. The Executive Directors and Non-executive Directors are appointed by our General Meeting, provided that the Board is classified, with respect to the term for which each member of the Board will severally be appointed and serve as a member of the Board, into three classes that are as nearly equal in number as is reasonably possible.

Our Directors are appointed for a period of three years. The Class I Directors serve for a term that expires at the Annual General Meeting to be held in 2020; the Class II Directors serve for a term that expires at the Annual General Meeting to be held in 2021; and the Class III Directors are serving for a term that

 

 

www.interxion.com    /    21


  REPORT OF THE BOARD OF DIRECTORS     

 

 

expires at the Annual General Meeting to be held in 2019. At each Annual General Meeting, Directors appointed to succeed those Directors whose terms expire are appointed to serve for a term of office to expire at the third Annual General Meeting following their appointment. Notwithstanding the foregoing, the Directors appointed to each class continue to serve their term in office until their successors are duly appointed and qualified or until their earlier resignation, death or removal. If a vacancy occurs, any Director appointed to fill that vacancy serves its term in office for the remainder of the full term of the class of Directors in which the vacancy occurred.

The Board has nomination rights with respect to the appointment of a Director. Any nomination by the Board may consist of one or more candidates for any vacant seat. If a nomination consists of two or more candidates, it is binding: the appointment to the vacant seat concerned will be from the persons placed on the binding list of candidates and will be effected through election. Notwithstanding the foregoing, our General Meeting may, at all times, by a resolution passed with a two-thirds majority of the votes cast that represent more than half of our issued and outstanding capital, resolve that such list of candidates will not be binding.

The majority of our Directors are independent as required by the NYSE Manual. Our Non-executive Directors are all independent.

Directors may be suspended or dismissed at any time by our General Meeting. A resolution to suspend or dismiss a Director must be adopted by at least a two-thirds majority of the votes cast, provided that the majority represents more than half of our issued and outstanding share capital. In addition, Executive Directors may be suspended by the Board.

Pursuant to Section 2:166 of the Dutch Civil Code, which came into force on 13 April 2017, boards of large Dutch public companies, such as the Company, are deemed to have a balanced composition if they consist of at least 30% female and 30% male members. “Large” companies must take this into account:

 

  on appointment and, where applicable, recommendation for nomination or nomination for appointment of Directors; and

 

  when drawing up the profile for the size and composition of the Board.

A company is considered “large” if, on two consecutive balance sheet dates, at least two of the following three criteria are met:

 

  the value of the company’s assets according to its balance sheet, based on the acquisition and manufacturing price, exceeds 20,000,000;

 

  the net turnover exceeds 40,000,000; and

 

  the average number of employees is at least 250.

The Company is committed to making an effort to increase the number of women on its Board of Directors, which it will primarily do by focusing on female candidates for Director positions. The main focus of the Company will continue to be on ensuring that those persons best qualified for a position on the Board of Directors are nominated, irrespective of their gender.

 

 

Directors

 

Name

   Age      Gender    Nationality    Position    Term

Expiration

 

         

Jean F.H.P. Mandeville

 

   59    Male    Belgian    Chairman and Non-executive Director    2019
         

 David C. Ruberg

 

   73    Male    American   

President, Chief Executive Officer

Vice-Chairman and Executive Director

   2019
         

 Frank Esser

 

   60    Male    German    Non-executive Director    2020
         

 Mark Heraghty

 

   55    Male    Irish    Non-executive Director    2020
         

 David Lister

 

   60    Male    British    Non-executive Director    2021
         

 

 Rob Ruijter

 

  

 

67

  

 

Male

  

 

Dutch

  

 

Non-executive Director

  

 

2021

 

22    /    www.interxion.com


    REPORT OF THE BOARD OF DIRECTORS   

 

 

Jean F.H.P. Mandeville

Chairman and Non-executive Director

Mr. Mandeville was appointed to our Board of Directors in January 2011. Since June 8, 2015, Mr. Mandeville has served as the Chairman of the Board. From October 2008 to December 2010, he served as Chief Financial Officer and Board member of MACH S.à.r.l. He served as an Executive Vice President and Chief Financial Officer of Global Crossing Holdings Ltd/ Global Crossing Ltd. from February 2005 to September 2008. Mr. Mandeville joined Global Crossing in February 2005, where he was responsible for all its financial operations. He served as Chief Financial Officer of Singapore Technologies Telemedia Pte. Ltd./ST Telemedia from July 2002 to January 2005. In 1992, he joined British Telecom and served in various capacities covering all sectors of the telecommunications market (including wireline, wireless and multi-media) in Europe, Asia and the Americas. From 1992 to June 2002, Mr. Mandeville served in various capacities at British Telecom PLC, including President of Asia Pacific from July 2000 to June 2002, Director of International Development Asia Pacific from June 1999 to July 2000 and General Manager, Special Projects from January 1998 to July 1999. He was a Senior Consultant with Coopers & Lybrand, Belgium from 1989 to 1992. Mr. Mandeville graduated from the University Saint-Ignatius Antwerp with a Masters degree in Applied Economics in 1982 and a Special degree in Sea Law in 1985.

David Ruberg, President

President, Chief Executive Officer, Vice-Chairman and

Executive Director

Mr. Ruberg joined us as President and Chief Executive Officer in November 2007 and became Vice-Chairman of the Board of Directors when it became a one-tier board in 2011. He served as Chairman of the Supervisory Board from 2002 to 2007 and on the Management Board from 2007 until its conversion into a one-tier board. He was affiliated with Baker Capital, a private equity firm from January 2002 to October 2007. From April 1993 to October 2001 he was Chairman, President and CEO of Intermedia Communications, a NASDAQ-listed broadband communications services provider, as well as Chairman of its majority-owned subsidiary, Digex, Inc., a NASDAQ-listed managed web hosting company. He began his career as a scientist at AT&T Bell Labs, where he contributed to the development of operating systems and computer languages. He holds a Bachelor’s Degree from Middlebury College and a Masters in Computer and Communication Sciences from the University of Michigan.

Frank Esser

Non-executive Director

Mr. Esser was appointed to our Board of Directors in June 2014. Since 2000, he has held various positions with the French telecom operator SFR, where, from 2002 to 2012, he was President and CEO. From 2005 to 2012, he was a member of the Board of Vivendi Management. Before that he was a Senior Vice President of Mannesmann International Operations until 2000. Mr. Esser serves on the board of Swisscom AG. Mr. Esser is a Business Administration graduate from Cologne University and he holds a Doctorate in Business Administration from Cologne University.

Mark Heraghty

Non-executive Director

Mr. Heraghty was appointed to our Board of Directors in June 2014. He is a Director of Ravenscourt Consulting Services Ltd which he established in December 2018. In February 2019 Mr. Heraghty was appointed as a Non-Executive Director of Jurassic Fibre Holdings Ltd. and before that he served as Chairman of John Henry Group Ltd from December 2016 until October 2018. His most recent executive role was as Managing Director of Virgin Media Business. From 2006 to 2009, he was President EMEA for Reliance Globalcom with regional responsibility for the former FLAG Telecom and Vanco businesses which Reliance acquired. From 2000 to 2003, he was the CEO Europe for Cable & Wireless. Mr. Heraghty graduated from Trinity College Dublin with a degree in Mechanical Engineering (1985) and holds an MBA from Warwick University (1992).

David Lister

Non-executive director

Mr. Lister serves on our Board of Directors, to which he was appointed in June 2018. He has numerous years of experience working for a number of large multi-national businesses in the area of Operations and Technology Management. In particular, leading and developing large-scale Global IT organizations and designing and delivering complex business and technology change. Many of Mr. Lister’s roles focused on delivering the integration of business processes and organizational structures underpinned by technology standardization and followed the acquisition or merger of businesses. More recently, he has been focused on delivering cloud based digital solutions to create new products and services and creating defensive capabilities to protect businesses from the threat of Cyber Terrorism and Information Security breaches. Mr. Lister also currently sits on the Board of FDM Group plc., Weatherby’s, HSBC Bank plc and Nuffield Health. Mr. Lister studied Architecture at the University of Edinburgh.

Rob Ruijter

Non-executive director

Mr. Ruijter was appointed to our Board of Directors in November 2014. He was the Chief Financial Officer of KLM Royal Dutch Airlines from 2001 until its merger with Air France in 2004, and Chief Financial Officer of VNU N.V. (a publicly listed marketing and publishing company now the Nielsen company), between 2004 and 2007. In 2009 and 2010 he served as the CFO of ASM International N.V. (a publicly listed manufacturer of electronic components), and in 2013 as the interim CEO of Vion Food Group N.V.

Mr. Ruijter currently serves on the Supervisory Board and as Chairman of the Audit Committee of Wavin N.V. (a piping manufacturer). He is a Non-executive Director of Inmarsat Plc and the Chairman of its Audit Committee. He also serves as a member of the Supervisory Board of NN Group N.V. and as a member of the Remuneration Committee and the Audit Committee. Mr. Ruijter is a Certified Public Accountant in the United States and in The Netherlands and is a member of the Association of Corporate Treasurers (“ACT”) in the UK.

 

 

www.interxion.com    /    23


  REPORT OF THE BOARD OF DIRECTORS      

 

 

Directors’ insurance and indemnification

In order to attract and retain qualified and talented persons to serve as members of the Board or of our Executive Committee, we currently provide such persons with protection through a directors’ and officers’ insurance policy and expect to continue to do so. Under this policy, any of our past, present or future Directors and members of our Executive Committee will be insured against any claim made against any one of them for any wrongful act in their respective capacities.

Under our Articles of Association, we are required to indemnify each current and former member of the Board who was or is involved in that capacity as a party to any actions or proceedings, against all conceivable financial loss or harm suffered in connection with those actions or proceedings, unless it is ultimately determined by a court having jurisdiction that the damage was caused by intent (opzet), wilful recklessness (bewuste roekeloosheid) or serious culpability (ernstige verwijtbaarheid) on the part of such member.

Insofar as indemnification of liabilities arising under the Securities Act may be permitted to members of the Board, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Executive Committee

The Executive Director is supported by an Executive Committee to manage the operations of the Company. The Executive Committee is actively involved in all important issues related to strategy, business, integration, sustainability, innovation, culture, leadership and communication. Members of the Executive Committee are, where relevant, present in the meetings of the Board and exercise their duties in accordance with the instructions from the Board. When deemed necessary, Non-executive Directors can discuss any issues with each of the members of the Executive Committee

General Meetings of Shareholders and voting rights

Our Annual General Meeting must be held within six months of the end of the previous financial year. It must be held in The Netherlands in Amsterdam, Haarlemmermeer (Schiphol Airport) or Hoofddorp. Our financial year coincides with the calendar year. The notice convening the Annual General Meeting, together with the agenda for the meeting, shall be sent to the addresses of the shareholders shown in the register of shareholders. An extraordinary General Meeting may be convened whenever the Board or CEO deem it necessary.

In addition, shareholders and/or persons having the rights conferred by the laws of The Netherlands on holders of depositary receipts issued with a company’s cooperation for shares in its capital representing in the aggregate at least one-tenth of the Company’s issued capital, may request the Board to convene a General Meeting, specifically stating the business to be discussed. If the Board has not given proper notice of a General Meeting within the four weeks following receipt of the request, the applicants shall be authorised to convene a meeting themselves. Each of the shares confers the right to cast one vote. Each shareholder entitled to participate in a General Meeting, either in person or through a written proxy, is entitled to attend and address the meeting and, to the extent that the voting rights accrue to him or her, to exercise his or her voting rights in accordance with our Articles. The voting rights attached to any shares, or shares for which depositary receipts have been issued, are suspended as long as they are held in treasury.

At the Annual General Meeting the following items are discussed and/or approved as a minimum:

 

  the adoption of the annual accounts;

 

  the appointment of the auditor to audit the annual accounts;

 

  discharge of the Directors from certain liabilities;

 

  the appointment of Directors; and

 

  the allocation of profits.

The Board of Directors requires the approval of the General Meeting for resolutions of the Board that entail a significant change in the identity or character of the Company or the business connected with it, which significant changes in any case include:

 

  the transfer of (nearly) the entire business of the Company to a third party;

 

  the entering into or termination of a long-term co-operation of the Company or one of its subsidiaries with another legal entity or company or as fully liable partner in a limited or general partnership, if this co-operation or termination is of major significance for the Company; and

 

  the acquisition or disposal by the Company or by one of its subsidiaries of participating interests in the capital of a company representing at least one-third of the sum of the assets of the Company as shown on its balance sheet according to the last adopted annual accounts of the Company.

Shareholders holding at least 3% of our issued share capital may submit agenda proposals for the General Meeting, provided we receive such proposals no later than 60 days before the date of the General Meeting.

 

 

24    /    www.interxion.com


    REPORT OF THE BOARD OF DIRECTORS   

 

 

Pursuant to the provisions in our Articles of Association, the General Meeting may only on a proposal of the Board resolve to amend the Company’s Articles of Association, change the Company’s corporate form, enter into a Dutch statutory (de) merger or dissolve and liquidate the Company. In addition, these decisions require a resolution passed with a two-thirds majority of the votes cast representing at least one-half of the Company’s issued share capital.

Anti-takeover measures

The Company has no anti-takeover measures in place. Although we do not envisage adopting any specific anti-takeover measures, the Board of Directors, pursuant to the Articles of Association as adopted at the General Meeting on January 26, 2011 and as amended at the General Meeting on January 20, 2012, was designated for a period of five years, which terminated on January 28, 2016, as the corporate body of the Company authorized to issue shares and grant rights to subscribe for shares up to the amount of our authorized share capital with the power to limit or exclude the rights of pre-emption thereto. On June 29, 2018, the General Meeting designated the Board of Directors for a period of 18 months, which will terminate on December 28, 2019, as the corporate body of the Company authorized to issue shares or grant rights to subscribe for shares, up to 10% of the issued share capital of the Company as it stands at the date of the resolution, without pre-emptive rights accruing to our shareholders.

Issue of shares

The General Meeting is authorized to decide on the issue of new shares or to designate another body of the Company to issue shares for a fixed period of a maximum of five years. On such designation, the number of shares that may be issued must be specified. The designation may be extended for a period not exceeding five years. A resolution of the General Meeting to issue shares or to designate another body of the Company as the competent body to issue shares can only be adopted at the proposal of the Board. Shareholders have a right of pre-emption in case of the issuance of shares, unless shares are issued against payment in kind or shares are issued to employees pursuant to a plan applicable to such employees.

On June 29, 2018, the General Meeting designated the Board of Directors for a period of 18 months, which terminated on December 28, 2019, as the corporate body of the Company authorized to, (i) issue shares or grant rights to subscribe for up to 2,441,601 shares without pre-emption rights accruing to the shareholders for the purpose of the Company’s employee incentive schemes, and in addition to (ii) issue shares or grant rights to subscribe for shares, up to 10% of the issued share capital of the Company as it stands at the date of the resolution, for general corporate purposes without pre-emption rights accruing to the shareholders.

Acquisition by the Company of shares in its issued capital

The Company may acquire shares in its issued capital only if all the following requirements are met:

 

1.

the distributable equity of the Company must be at least equal to the purchase price;

 

2.

the aggregate nominal value of the shares already held by the Company and its subsidiaries and of the shares held in pledge by the Company does not exceed one-half of the Company’s issued capital; and

 

3.

at the General Meeting, the Board has been authorized thereto. Such authorization shall be valid for not more than 18 months and the General Meeting must specify in the authorization the number of shares which may be acquired, the manner in which they may be acquired and the limits within which the price must be set. This authorization is not required insofar as shares in the Company’s issued share capital are acquired in order to transfer them to employees of the Company or of its subsidiaries as referred to in section 2:24b of the Dutch Civil Code pursuant to a plan applicable to such employees.

Compensation

Process

In compliance with Dutch law, the General Meeting has adopted a directors’ compensation policy for the Board of Directors. The compensation of our Non-executive Directors shall be determined at the General Meeting based on proposal of the Board. The Executive Director’s compensation shall be determined by the Board, which determination shall be on the basis of recommendations made by the Board’s Compensation Committee. This, in turn, is based on consultation with our independent compensation advisor Mercer and market data within the Company’s peer group (as defined below) and performance against predetermined targets.

Policy goal

The goal of the Company’s compensation policy is to provide remuneration to its Directors in a form that will attract, retain and motivate qualified industry professionals in an international, fast growing and highly competitive labor market, and to align the compensation of the Directors with the short- and long-term elements of the tasks of the Directors as well as with interests of the stakeholders of the Company. The compensation of our Directors will be reviewed regularly.

 

 

www.interxion.com    /    25


  REPORT OF THE BOARD OF DIRECTORS     

 

 

Compensation

Non-executive Director Compensation

The annual compensation to our Non-executive Directors for the year ended December 31, 2018 was 40,000. In addition, the Chairman of the Board received 50,000 gross per annum. Each Non-executive Director who was member of the Company’s Audit Committee received an additional 20,000 gross per annum, and the Chairman of the Company’s Audit Committee received a further 10,000 gross per annum. Each Non-executive Director who was a member of the Company’s Compensation Committee received an additional 5,000 gross per annum, and the Chairman of the Company’s Compensation Committee received a further 5,000 gross per annum. No other cash incentives were paid to our Non-executive Directors. An overview of the annual compensation of our Non-executive Directors is disclosed in note 26.

In 2016, each of our Non-executive Directors was awarded 1,234 restricted shares equivalent to a value of 40,000. The number of restricted shares was set on the basis of the Company’s share price at the closing of the New York Stock Exchange on the day of the 2016 Annual General Meeting. For each Non-executive Director who served for the entire period from the day of the 2016 General Meeting to the day of the 2017 General Meeting these restricted shares vested at the General Meeting held at June 30, 2017. All these restricted shares will be locked up for a period ending three years after the date of award (with the exception of a cash settlement to cover taxes due) or the date the Non-executive Director ceases to be a director of the Company, whichever is sooner.

In 2017, each of our Non-executive Directors was awarded 996 restricted shares equivalent to a value of 40,000. The number of restricted shares was set on the basis of the Company’s share price at the closing of the New York Stock Exchange on the day of the 2017 Annual General Meeting. For each Non-executive Director these restricted shares will vest on the day of the 2018 Annual General Meeting, subject to such Non-executive Director having served the entire period. All these restricted shares will be locked-up for a period ending three years after the date of award (with the exception of a cash settlement to cover taxes due), or the date the Non-executive Director ceases to be a director of the Company, whichever is sooner.

In 2018, each of our Non-executive Directors was awarded 746 restricted shares equivalent to a value of 40,000. The number of restricted shares was set on the basis of the Company’s share price at the closing of the New York Stock Exchange on the day of the 2018 Annual General Meeting. For each Non-executive Director these restricted shares will vest on the day of the 2019 Annual General Meeting, subject to such Non-executive Director having served the entire period. All these restricted shares will be locked-up for a period ending three years after the date of award (with the exception of a cash settlement to cover taxes due), or the date the Non-executive Director ceases to be a director of the Company, whichever is sooner.

The Company does not contribute to any pension scheme for its Directors. None of the Non-executive Directors is entitled to any contractually agreed benefit on termination.

The Dutch Corporate Governance Code requires Dutch companies to disclose the internal pay ratio between Executive Directors and other employees. Such pay ratios are specific to a company’s industry, geographical footprint and organizational model, and can be volatile over time due to exchange rate movements and the company’s annual performance and stock performance.

The 2018 the pay ratio between our Executive Director and other Interxion employees was 49.6:1 (2017: 29.7:1). The pay ratio has been calculated by dividing our Executive Director’s 2018 total remuneration by the 2018 company-wide average total remuneration paid per Interxion employee. Total remuneration includes salaries, bonuses, equity compensation (defined as the value of equity awards on vesting date) and contributions to defined contribution pension plans, as derived from note 8 in the Consolidated Financial Statements, included elsewhere in this Annual Report. Furthermore, the total remuneration includes sales commissions, as captured in sales and marketing expenses. The company-wide average total remuneration per Interxion employee has been calculated based on an average of 719 full time equivalents employed in 2018, being 720 minus the Executive Director (2017: 637 full time equivalents employed, being 638 minus the Executive Director).

Further details of the compensation of our Executive Director are disclosed as part of Note 26 to this document.

Shares beneficially owned

In the table below, beneficial ownership includes any shares over which a person exercises sole voting and/or investment power. Shares subject to options and/or restricted shares exercisable, as at December 31, 2018, are deemed outstanding and have therefore been included in the number of shares beneficially owned.

 

  Directors   

Shares beneficially owned as

at December 31, 2018

  David Ruberg

  

997,000 

  Jean F.H.P. Mandeville

  

11,318 

  Frank Esser

  

4,845 

  Mark Heraghty

  

4,845 

  David Lister

  

— 

  Rob Ruijter

  

4,845 

Risk management

Risk management approach

The Board has the ultimate responsibility for the risk management and internal control structure. Local subsidiary management teams are responsible for implementing the strategy, achieving results, identifying underlying opportunities

 

 

26    /    www.interxion.com


    REPORT OF THE BOARD OF DIRECTORS  

 

 

and risks, and ensuring effective operations. They have to act in accordance with the policy and standards set by the Board, in which they are supported by the corporate departments. Compliance to standards and policies is discussed regularly between subsidiary management and representatives of the Board and is subject to review by corporate departments.

Risk management and the internal control structure

The aim of our risk management and internal control structure is to find the right balance between an effective, professional enterprise and the risk profile that we are aiming for as a business. Our risk management and internal controls, based on the Committee of Sponsoring Organizations (COSO) of the Treadway Commission Enterprise Risk Management Framework (2013), make a significant contribution to the prompt identification and adequate management of strategic and market risks. They also support us in achieving our operational and financial targets and in complying with the applicable laws and regulations. The risk management and internal control structure have been designed to meet the Sarbanes-Oxley 404 requirements, as mandatory under SEC listing requirements.

This report provides sufficient insights into any failures in the effectiveness of the internal risk management and control systems. Based on the current state of affairs, it is justified that the financial reporting is prepared on a going concern basis. The report states those material risks and uncertainties that are relevant to the expectation of the Company’s continuity for the period of twelve months after the preparation of the report. In addition, the Board is of the view that the aforementioned risk management and internal control systems provide reasonable assurances that the financial reporting does not contain any material inaccuracies.

Internal audit function

In 2018, an internal audit function was not in place.

Financial instruments

For the Company’s risk management procedures related to financial instruments we refer to the Group’s accounting policies and note 20 of the financial statements, as included in this annual report.

Code of Conduct

Our Code of Conduct and Business Ethics is a reflection of our commitment to act as a responsible social partner and of the way we try to interact with all our stakeholders.

All transactions, in which there are conflicts of interest with one or more Directors, shall be agreed on terms that are customary in the sector concerned. Such transactions must be published in the annual report, together with a statement of the conflict of interest and a declaration that the relevant best practice provisions of the Dutch Corporate Governance Code have been complied with. A director may not take part in any discussion or decision making with regard to topics where such director is conflicted.

Risk factors

Risks related to our business

 

  We cannot easily reduce our operating expenses in the short term, which could have a material adverse effect on our business in the event of a slowdown in demand for our services or a decrease in revenue for any reason.

 

  Our inability to utilize the capacity of newly planned or acquired data centers and data center expansions in line with our business plan would have a material adverse effect on our business, financial condition and results of operations.

 

  If we are unable to expand our existing data centers or locate and secure suitable sites for additional data centers on commercially acceptable terms, our ability to grow our business may be limited.

 

  Failure to renew or maintain real estate leases for our existing data centers on commercially acceptable terms, or at all, could harm our business.

 

  Our leases may obligate us to make payments beyond our use of the property.

 

  We may experience unforeseen delays and expenses when fitting out and upgrading data centers, and the costs could be greater than anticipated.

 

  We may incur non-cash impairment charges to our assets, in particular to our property, plant and equipment, which could result in a reduction in our earnings.

 

  We face significant competition and we may not be able to compete successfully against current and future competitors.

 

  Our services may have a long sales cycle that may materially adversely affect our business, financial condition and results of operations.

 

  Our business is dependent on the adequate supply of electrical power and could be harmed by prolonged electrical power outages or increases in the cost of power.

 

  A general lack of electrical power resources sufficient to meet our customers’ demands may impair our ability to utilize fully the available space at our existing data centers or our plans to open new data centers.

 

  A significant percentage of our Monthly Recurring Revenue is generated by contracts with terms of one year or less remaining. If those contracts are not renewed, or if their pricing terms are negotiated downwards, our business, financial condition and results of operations would be materially adversely affected.

 

  Our inability to use all or part of our net deferred tax assets could cause us to pay taxes at an earlier date and in greater amounts than expected.
 

 

www.interxion.com    /    27


  REPORT OF THE BOARD OF DIRECTORS     

 

 

  Our operating results have fluctuated in the past and may fluctuate in the future, which may make it difficult to evaluate our business and prospects.

 

  We are dependent on third-party suppliers for equipment, technology and other services.

 

  We depend on the ongoing service of our personnel and executive committee and may not be able to attract, train and retain a sufficient number of qualified personnel to maintain and grow our business.

 

  Disruptions to our physical infrastructure could lead to significant costs, reduce our revenues, and harm our business reputation and financial results.

 

  Our insurance may not be adequate to cover all losses.

 

  Our failure to meet the performance standards under our service level agreements may subject us to liability to our customers, which could have a material adverse effect on our reputation, business, financial condition or results of operations.

 

  We could be subject to costs, as well as claims, litigation or other potential liability, in connection with risks associated with the security of our data centers and our Information technology systems. We may also be subject to information technology systems failures, network disruptions and breaches of data security, which could have an adverse effect on our reputation and a material adverse impact on our business.

 

  We face risks relating to foreign currency exchange rate fluctuations.

 

  The lingering effects of the European debt crisis or any future slowdown in global economies may have an impact on our business and financial condition in ways that we cannot currently predict.

 

  Political uncertainty may impact economic conditions which could adversely affect our liquidity and financial condition.

 

  The United Kingdom invoking the process to withdraw from the European Union could have a negative effect on global economic conditions, financial markets and our business, which could adversely affect our results of operations.

 

  Acquisitions, business combinations and other transactions present many risks, and we may not realize the financial or strategic goals that were contemplated at the time of any transaction, and such transactions may alter our financial or strategic goals.

 

  We focus on the development of Communities of Interest within customer segments and the attraction of magnetic customers. Our failure to attract, grow and retain these Communities of Interest could harm our business and operating results.

 

  Consolidation may have a negative impact on our business model.

 

  Our operations are highly dependent on the proper functioning of our information technology systems. We routinely upgrade our information technology systems. The failure or unavailability of such systems during or after an upgrade process could result in the loss of existing or potential customers and harm our reputation, business and operating results.

 

  Substantial indebtedness could adversely affect our financial condition and our ability to operate our business, and we may not be able to generate sufficient cash flows to meet our debt service obligations.

 

  We require a significant amount of cash to service our debt, which may limit available cash to fund working capital and capital expenditure. Our ability to generate sufficient cash depends on many factors beyond our control.

 

  We may need to refinance our outstanding debt.

 

  We are subject to restrictive debt covenants, which limit our operating flexibility.

Risks related to our industry

 

  The European data center industry has suffered from over-capacity in the past, and a substantial increase in the supply of new data center capacity and/or a general decrease in demand for data center services could have an adverse impact on industry pricing and profit margins.

 

  If we do not keep pace with technological changes, evolving industry standards and customer requirements, our competitive position will suffer.

 

  Terrorist activity throughout the world, and military action to counter terrorism, could have an adverse impact on our business.

 

  Our carrier-neutral business model depends on the presence of numerous telecommunications carrier networks in our data centers.

 

  We may be subject to reputational damage and legal action, in connection with information disseminated by our customers.

Risks related to regulation

 

  Laws and government regulations that govern Internet-related services, related communication services and information technology and electronic commerce across the European countries in which we operate, continue to evolve and, depending on the evolution of such regulations, may adversely affect our business.

 

  We, and the industry in which we operate, are subject to environmental, and health and safety laws and regulations, and may be subject to more stringent efficiency, environmental, and health and safety laws and regulations in the future, including in respect of energy consumption and greenhouse gas emissions.
 

 

28    /    www.interxion.com


    REPORT OF THE BOARD OF DIRECTORS  

 

 

  Changes in Dutch or foreign tax laws and regulations, or interpretations thereof may adversely affect our financial position.

 

  Laws and government regulations governing the licences or permits we need across the European countries in which we operate may change, which could adversely affect our business.

Risks related to our ordinary shares

 

  The market price for our shares may continue to be volatile.

 

  A substantial portion of our total outstanding shares may be sold into the market at any time. Such future sales or issuances, or perceived future sales or issues, could adversely affect the price of our shares.

 

  You may not be able to exercise pre-emptive rights.

 

  We may need additional capital and may sell additional ordinary shares or other equity securities, or incur indebtedness, which could result in additional dilution to our shareholders or increase our debt service obligations.

 

  We have never paid, do not currently intend to pay, and may not be able to pay any dividends on our ordinary shares.

 

  Your rights and responsibilities as a shareholder will be governed by Dutch law and will differ in some respects from the rights and responsibilities of shareholders under U.S. law, and your shareholder rights under Dutch law may not be as clearly established as shareholder rights are established under the laws of some U.S. jurisdictions.

 

  We are a foreign private issuer and, as a result, and as permitted by the listing requirements of the NYSE, we may rely on certain home-country governance practices rather than the corporate governance requirements of the NYSE.

 

  You may be unable to enforce judgements obtained in US courts against us.

 

  We incur increased costs as a result of being a public company.

 

  Any failure or weakness in our internal controls could materially and adversely affect our financial condition, results of operation and our stock price.

Controls and procedures

Disclosure controls and procedures

Under the supervision and with the participation of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), has been evaluated as of December 31, 2018. Based on their evaluation of the Company’s disclosure controls and procedures, our CEO and CFO identified a

material weakness in our internal control over financial reporting (as further described below), and further concluded that our disclosure controls and procedures were not effective as of December 31, 2018.

Management’s annual report on internal control over financial reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), and for the assessment of the effectiveness of internal control over financial reporting. Internal control over financial reporting includes maintaining records that, in reasonable detail, accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditure of Company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. The Company’s internal control over financial reporting is a process designed to provide reasonable, but not absolute, assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with generally accepted accounting principles. Due to its inherent limitations, however, internal control over financial reporting may not prevent or detect misstatements.

In connection with the preparation of the Company’s annual consolidated financial statements, management has undertaken an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in the “Internal-Control Integrated Framework (2013)”, established by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework).

Management identified a material weakness relating to insufficient coverage of Assurance Reports on Controls at a Service Organization or Service Organization Controls (“SOC”) reports from a service provider which operates a platform for processing payments and which we use to pay the majority of our operating and capital expenses (the “Payments Vendor”). By using the Payments Vendor’s service, we are required to obtain its SOC reports for the assurance of effectiveness of internal control over their platform system and/or obtain alternative evidence to conclude on the effectiveness of internal control over their platform systems. Despite our requests, we were unable to obtain SOC reports from the Payments Vendor or obtain alternative evidence to conclude on the effectiveness of internal control over their platform system for the year ended December 31, 2018 and therefore, we did not receive sufficient evidence of the operating effectiveness of the relevant internal controls at the Payments Vendor prior to submission of the annual report on Form 20-F. Although, we performed additional testing subsequent

 

 

www.interxion.com    /    29


  REPORT OF THE BOARD OF DIRECTORS     

 

 

to year end, including enquiring whether our vendors and other payees received payments, such testing was performed after the year ended December 31, 2018 and therefore such testing was not performed in a timely manner. Based on our communication with the Payments Vendor, our extensive testing subsequent to the year ended December 31, 2018 and the amount of time that elapsed since December 31, 2018, we are unaware that any of our vendors and payees have not received the correct payments through the Payments Vendor and thus our financial results, financial position and cash flows as of and for the year ended December 31, 2018 have not been affected. Therefore, management does not believe that the material weakness described above has caused our financial statements as of and for the year ended December 31, 2018 to contain a material misstatement.

Based on this assessment, management identified a deficiency in the internal control over financial reporting that constitutes a material weakness, and therefore concluded that our internal control over financial reporting was not effective as of December 31, 2018. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

Remediation efforts to address material weakness identified as of December 31, 2018

The Company began to remediate the identified material weakness in the first quarter of 2019 once we were made aware that the SOC reports would not be available prior to the submission of the annual report on Form 20-F for the year ended December 31, 2018. A series of remedial measures were performed and continue to be taken, including updating our internal policies and assessing procedures to enhance control over services from the Payments Vendor, and monitoring over its services. The Company has also received confirmation from the Payments Vendor regarding rectification, including an indication from the Payments Vendor that it anticipates providing the Company with SOC reports for future reporting periods that will satisfy our internal control requirements. In addition, the Company intends to enhance internal requirements and criteria in selecting future third-party service providers

Based on discussion with the Payments Vendor, the Company anticipates receiving the SOC reports in the second quarter of 2019, covering the period from January 1, 2019 to March 31, 2019, and will review and check for any deficiency or access control issue. We will monitor progress toward that delivery and, if necessary, consider alternative arrangements. In addition, we are reviewing related existing internal controls to consider additional and modified controls to strengthen the control environment without regard to whether we obtain the SOC reports from our Payments Vendor.

Remediation efforts to address material weakness identified as of December 31, 2017

The material weakness disclosed in our annual report on Form 20-F for the year ended December 31, 2017 pertaining to a deficiency in the design of internal controls relating to the technical accounting of share-based payments has been remediated during the year ended December 31, 2018. The specific remediation actions taken by management included:

 

  strengthening our existing review process for the complex area of share-based payments by adding additional independent outside specialists to both evaluate the assumptions applied in the calculations of share-based payments and checking our resulting valuations;

 

  conducting a review of the application of IFRS 2 requirements on individual share awards each quarter, as opposed to solely conducting the analysis at the time new incentive plans and/or modifications to existing incentive plans are made and/or implemented; and;

 

  strengthening our existing control procedures relating to changes in existing share award plans and the forfeitures of share awards by designing and implementing additional controls.

Changes in internal control over financial reporting

Except for the remediation efforts described above in respect of the material weakness identified with respect to the year ended December 31, 2017, there were no other changes that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Dutch Corporate

Governance Code

In addition to the “Structure” section of this report on page 21, a further description of our corporate governance is below.

Since our initial public offering on January 28, 2011, we have been required to comply with the Dutch Corporate Governance Code, that applies to all companies with a registered office in the Netherlands whose shares or depositary receipts for shares are admitted for trading on a regulated market or a comparable system, such as the New York Stock Exchange (NYSE) which is the listing venue of the Company. The current Dutch Corporate Governance Code is dated December 8, 2016 and replaces the former 2008 Code. Because the Company is listed on the NYSE it is also required to comply with the US Sarbanes-Oxley Act of 2002, as well as with NYSE listing rules, and the rules and regulations promulgated by the US Securities and Exchange Commission (SEC).

 

 

30    /    www.interxion.com


    REPORT OF THE BOARD OF DIRECTORS  

 

 

The full text of the Dutch Corporate Governance Code can be found at the website of the Monitoring Commission Corporate Governance Code (www.commissiecorporategovernance.nl).

The Code is based on a “comply or explain” principle. Material changes in the corporate governance structure of the Company, and in its compliance with the Code, will be discussed at the Annual General Meeting as a separate agenda item. The discussion below summarizes the deviations from the best practice provisions of the Code.

 

  Best practice provision 2.1.1 states that a profile for the Non-executive Directors should be prepared, which profile should be posted on the Company’s website. The Company continues to review this matter and the process towards preparing such profile and aims to adopt this and post it on its website in due course.

 

  Best practice provision 2.2.2 states that a supervisory board member is appointed for a period of four years and may then be reappointed once for another four-year period. The supervisory board member may then subsequently be reappointed again for a period of two years, which appointment may be extended by at most two years. In the event of a reappointment after an eight-year period, reasons should be given in the report of the supervisory board. The provisions of the Code relating to supervisory board members apply mutatis mutandis to Non-executive Directors. The Board contemplates to nominate Mr. Mandeville for reappointment at the 2019 Annual General Meeting. Mr. Mandeville was first appointed as member of the Board as per 28 January 2011 and an extension of his term would result in a deviation from this best practice provision. For the reasons mentioned hereafter, the Company feels this deviation is in the best interest of the Company and its stakeholders. Secondly, the Company is part of a relatively new and fast-growing industry that is rapidly evolving and developing. This rapid development of the Company and the industry means that it is critical for the Company to ensure it has the right industry expertise in its Board required to guide the Company, as this is a stabilizing factor for the Company and its management. The pool of persons with this expertise and talent is limited. Mr. Mandeville in his capacity as Chairman of the Company plays a pivotal role in enabling the Company to continue to grow and is able to perform this role due to his financial and industry expertise. The Company and Company’s management greatly benefits from his knowledge and support. The Company will again have to assess whether it deems deviation from best practice provision 2.2.2 necessary by the end of Mr. Mandeville’s upcoming 3-year term.

 

  Best practice provision 2.2.4 states that the Company has a sound plan in place for the succession of the Board that is aimed at retaining the balance in the requisite expertise, experience and diversity. The Company acknowledges this provision and continues to work on such plan.
  Best practice provision 3.1.2 (vi) states that shares granted without financial consideration shall be retained for a period of five years or the end of employment if this period is shorter. The Company is operating long-term incentive plans whereby the beneficiary of the shares can currently, (i; in case of shares awarded to our Executive Director) start trading 50% of the shares after the third anniversary following the Annual General Meeting approving the award and 50% after the fourth anniversary, or (ii; in case of shares awarded to Non-executive Directors) trade all shares after the third anniversary. The Company considers these timeframes to be in line with international industry practice and to align the interests of its Directors with the interests of its shareholders.

 

  Best practice provision 3.3.2 states that a Non-executive Director may not be granted any shares and/or rights to shares by way of remuneration. The Company has granted shares to all, and options to some, of its Non-executive Directors as it believes this is a valuable instrument to align the interests of the Non-executive Directors concerned with those of the Company.

 

  Best practice provision 4.3.3 states that the General Meeting may pass a resolution to cancel the binding nature of a nomination for the appointment of an Executive Director or a Non-executive Director, by an absolute majority, which may have to represent at most one-third of the issued capital. To cancel the binding nature of such a nomination, the Company’s Articles require a two-thirds majority representing more than 50% of the issued capital.

Management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. For management’s internal control statement, we refer to “Management’s annual report on internal control over financial reporting” on page 29.

Outlook for 2019

For 2019, we expect revenue to be between 632 and 647 million, Adjusted EBITDA to range between 324 and 334 million and Capital expenditure (including intangibles) to range between 570 and 600 million. We expect to have sufficient access to capital to fund such capital expenditure. In 2018, the Company employed an average of 720 full-time equivalent employees. We expect this number to increase in 2019, in line with new data center capacity becoming available.

The Board of Directors

Hoofddorp, The Netherlands,

May 27, 2019

 

 

www.interxion.com    /    31


LOGO

 

32    /    www.interxion.com


    REPORT OF THE NONE EXECUTIVE DIRECTORS  

 

 

On an ongoing basis the Board reviews and discusses the Company’s strategy and developments impacting the strategy. The Board is informed regularly by the Executive Director and the Executive Committee about the implementation of the strategy and the results thereof. When deemed necessary Non-executive Directors can discuss any issues amongst themselves.

For the bios of the Non-executive Directors reference is made to the Report of the Board of Directors.

 

Evaluation

During 2018 the Board, its committees and its members have worked effectively and efficiently supporting the Company in its rapid development and growth as evidenced in this annual report.

Independence Non-executive Directors

In the opinion of the Non-executive Directors, the independence requirements referred to in best practice provisions 2.1.7 to 2.1.9 of the Dutch Corporate Governance Code inclusive have been fulfilled, as each Non-executive Director is considered to be independent.

Internal control function

The Company’s internal risk management and control systems are designed to mitigate risks on material misstatements. The internal control function is performed by the Company with support of a specialised consultancy firm. The Board evaluates the effectiveness of the internal control framework on an ongoing basis.

Board committees

The Board has established an audit committee, a compensation committee and a nominating committee. Each committee evaluates its performance annually to determine whether it is functioning effectively.

Audit Committee

Our Audit Committee consists of three independent Directors, Rob Ruijter (Chair), Frank Esser and Mark Heraghty. The Audit Committee is independent as defined under and required by rule 10A-3 under the U.S. Securities Exchange Act of 1934, as amended (“rule 10A-3”) and the NYSE Manual. The Audit Committee is responsible for the appointment (subject to Board and shareholders’ approval) of independent registered public accounting firm KPMG Accountants N.V. as our statutory auditors, for its compensation and retention, and for oversight of its work. In addition, the Audit Committee’s approval is required before we enter into any related-party transaction. It is also responsible for “whistleblowing” procedures, certain other compliance matters, and the evaluation of the Company’s policies with respect to risk assessment and risk management. The Audit Committee met six times during 2018, during these meetings all committee members were present. Most of its time was dedicated to reviewing, with management and with the independent auditor, the unaudited quarterly interim reports and the audited annual Dutch statutory financial statements as well

as the Annual Report on Form 20-F. This included reviewing the effectiveness of the internal controls and of the Company’s disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) and overseeing the Company’s compliance with its legal and regulatory requirements.

Compensation Committee

Our Compensation Committee consists of four independent Directors, Mark Heraghty (Chair), Rob Ruijter, Frank Esser and David Lister. Among other things, the Compensation Committee reviews, and makes recommendations to the Board regarding the compensation and benefits of our CEO and the Board. The committee also administers the issue of shares and stock options and other awards under our equity incentive plan and evaluates and reviews policies relating to the compensation and benefits of our employees and consultants. The Compensation Committee met two times during 2018, with a focus on approving the 2017 Senior Management bonus pay-out, reviewing the long-term compensation philosophy of the Company, and reviewing and approving the Company’s share and option grants and reviewing Senior Management’s short-term and long-term compensation. During these meeting all committee members were present.

Nominating Committee

Our Nominating Committee consists of four independent Directors, Frank Esser (Chair), Jean Mandeville, Mark Heraghty and David Lister. The Nominating Committee is responsible for, among other things, developing and recommending our corporate governance guidelines to our Board, identifying individuals qualified to become Directors, overseeing the evaluation of the performance of the Board, selecting the Director nominees for the next Annual General Meeting, and selecting Director candidates to fill any vacancies on the Board. As the members of our Nominating Committee discussed matters under the responsibility of the Nominating Committee, including the nomination of Non-executive directors, at multiple occasions during the year, the Nominating Committee choose not to have an in person meeting during 2018 to formalize their decision on the nomination of the Non-executive Directors, but to take this decision in writing.

The Non-executive Directors

Hoofddorp, The Netherlands,

May 27, 2019

 

 

www.interxion.com    /    33


LOGO

 

34    /    www.interxion.com


    CONSOLIDATED FINANCIAL STATEMENTS   

 

Consolidated income statements

 

                      For the year ended December 31,      
      Note              2018      

2017

(€’000)

    2016  

Revenues

     5,6                 561,752       489,302       421,788  

Cost of sales

     5,8                 (219,462     (190,471     (162,568

Gross profit

                       342,290       298,831       259,220  

Other income

     5                 86       97       333  

Sales and marketing costs

     5,8                 (36,494     (33,465     (29,941

General and administrative costs

     5,7,8                 (194,646     (167,190     (138,557

Operating income

     5                 111,236       98,273       91,055  

Finance income

     9                 4,094       1,411       1,206  

Finance expense

     9                 (65,878     (45,778     (37,475

Profit before taxation

                       49,452       53,906       54,786  

Income tax expense

     10                        (18,334     (14,839     (16,450

Net income

                       31,118       39,067       38,336  

Earnings per share attributable to shareholders:

                                          

Basic earnings per share: ()

     17                 0.43       0.55       0.54  

Diluted earnings per share: ()

     17                 0.43       0.55       0.54  
Consolidated statements of comprehensive income                                 
                      For the year ended December 31,  
                      2018    

2017(i)

(€’000)

    2016(i)  

Net income

                       31,118       39,067       38,336  

Other comprehensive income

                                          

Items that are, or may be, reclassified subsequently to profit or loss

                                          

Foreign currency translation differences

                       (1,067     (7,029     (11,613

Initial recognition of pension provision1

                       (909            

Effective portion of changes in fair value of cash flow hedge

                       7       110       (45

Tax on items that are, or may be, reclassified subsequently to profit or

loss

                                          

Foreign currency translation differences

                       428       205       1,836  

Initial recognition of pension provision1

                       179              

Effective portion of changes in fair value of cash flow hedge

                       (3     (36     15  

Other comprehensive income/(loss), net of tax

                       (1,365     (6,750     (9,807

Total comprehensive income attributable to shareholders

                       29,753       32,317       28,529  

Note: The accompanying notes form an integral part of these consolidated financial statements.

 

(i):

Certain figures as of December 31, 2017 and 2016 have been corrected compared to those previously reported. For further information on these corrections, see Notes 2 and 28 of these 2018 consolidated financial statements.

 

(1):

The “Initial recognition of pension provision” relates to a pension plan that qualifies as a defined benefit plan in accordance with IAS 19 – Employee Benefits, but was previously accounted for as a defined contribution plan for which the impact to the (interim) financial statements of previous periods and the current period is inconsequential. As from 2018, management elected to change this by recognizing a corresponding entry in “Other comprehensive income”.

 

www.interxion.com    /    35


  CONSOLIDATED FINANCIAL STATEMENTS      

 

Consolidated statements of financial position

 

             

As at December 31,        

 
      Note              2018    

2017(i)

(€’000)

    2016(i)  

Non-current assets

                                          

Property, plant and equipment

     11                 1,721,064       1,342,471       1,156,031  

Intangible assets

     12                 64,331       60,593       28,694  

Goodwill

     12                 38,900       38,900        

Deferred tax assets

     10                        21,807       24,470       20,370  

Other investments

     13                 7,906       3,693       1,942  

Other non-current assets

     14                 16,843       13,674       11,914  
                         1,870,851       1,483,801       1,218,951  

Current assets

                                          

Trade and other current assets

     14                 205,613       179,786       147,821  

Cash and cash equivalents

     15                 186,090       38,484       115,893  
                         391,703       218,270       263,714  

Total assets

                       2,262,554       1,702,071       1,482,665  

Shareholders’ equity

                                          

Share capital

     16                 7,170       7,141       7,060  

Share premium

     16                 553,425       539,448       523,671  

Foreign currency translation reserve

     16                 3,541       4,180       11,004  

Hedging reserve, net of tax

     16                 (165     (169     (243

Accumulated profit/(deficit)

     16                 69,449       39,061       (6
                         633,420       589,661       541,486  

Non-current liabilities

                                          

Borrowings

     19                 1,266,813       724,052       723,975  

Deferred tax liability

     10                 16,875       19,778       8,025  

Other non-current liabilities

     18                 34,054       23,671       20,570  
                         1,317,742       767,501       752,570  

Current liabilities

                                          

Trade payables and other liabilities

     18                 280,877       229,912       171,433  

Income tax liabilities

                       7,185       6,237       5,694  

Borrowings

     19                 23,330       108,760       11,482  
                         311,392       344,909       188,609  

Total liabilities

                       1,629,134       1,112,410       941,179  

Total liabilities and shareholders’ equity

                       2,262,554       1,702,071       1,482,665  

Note: The accompanying notes form an integral part of these consolidated financial statements.

(i):

Certain figures as of December 31, 2017 and 2016 have been corrected compared to those previously reported. For further information on these corrections, see Notes 2 and 28 of these 2018 consolidated financial statements.

 

36    /    www.interxion.com


    CONSOLIDATED FINANCIAL STATEMENTS   

 

Consolidated statements of changes in shareholders’ equity

 

      Note      Share
capital
    

Share

premium

   

Foreign
currency

translation

reserve(i)

    Hedging
reserve
   

Accumulated

profit/(deficit)(i)

   

Total

equity(i)

 
                             (€’000)                

Balance at January 1, 2018

              7,141        539,448       4,180       (169     39,061       589,661  

Profit for the year

                                       31,118       31,118  

Hedging result, net of tax

                                 4             4  
Other comprehensive income/(loss), net of tax                            (639           (730     (1,369

Total comprehensive income/(loss), net of

tax

                           (639     4       30,388       29,753  

Exercise of options

              10        1,726                         1,736  
Issue of performance shares and restricted shares               19        (19                        

Share-based payments

     21               12,270                         12,270  

Total contribution by, and distributions to,

owners of the Company

              29        13,977                         14,006  

Balance as at December 31, 2018

              7,170        553,425       3,541       (165     69,449       633,420  
                                                      

Balance at 1 January 2017(i)

              7,060        523,671       11,004       (243     (6     541,486  

Net income

                                       39,067       39,067  

Hedging result, net of tax

                                 74             74  

Other comprehensive income/(loss), net of

tax

                           (6,824                 (7,040

Total comprehensive income/(loss), net of

tax

 

 

                  (6,824     74       39,067       32,317  

Exercise of options

              55        6,914                         6,969  

Issue of performance shares and restricted shares

 

     26        (26                        

Share-based payments

     21               8,889                         8,889  

Total contribution by, and distributions to,

owners of the Company

              81        15,777                         15,858  

Balance at December 31, 2017(i)

              7,141        539,448       4,180       (169     39,061       589,661  
                                                      

Balance at 1 January 2016(i)

              6,992        509,816       20,781       (213     (38,342     499,034  

Profit for the year

                                       38,336       38,336  

Hedging result, net of tax

                                 (30           (30

Other comprehensive income/(loss), net of

tax

 

 

                  (9,777                 (9,777

Total comprehensive income/(loss), net of

tax

 

 

                  (9,777     (30     38,336       28,529  

Exercise of options

              48        6,284                         6,332  

Issue of performance shares and restricted

shares

 

 

     20        (20                        

Share-based payments

     21               7,591                         7,591  

Total contribution by, and distributions

to, owners of the Company

              68        13,855                         13,923  

Balance at December 31, 2016(i)

              7,060        523,671       11,004       (243     (6     541,486  

Since no minority shareholders in Group equity exist, the Group equity is entirely attributable to the parent’s shareholders.

Note: The accompanying notes form an integral part of these consolidated financial statements.

(i) Certain figures as of December 31, 2017 and 2016 have been corrected compared to those previously reported. For further information on these corrections, see Notes 2 and 28 of these 2018 consolidated financial statements.

 

www.interxion.com    /    37


  CONSOLIDATED FINANCIAL STATEMENTS      

 

Consolidated statements of cash flows

 

             

For the years ended December 31,    

 
      Note              2018      

2017(i)

(€’000) 

    2016(i)  

Net income

                       31,118       39,067       38,336  

Depreciation and amortization

     11, 12                 128,954       108,252       89,835  

Provision for onerous lease contracts

     19                             (1,533

Share-based payments

     21                 12,270       8,889       7,652  

Net finance expense

     9                 61,784       44,367       36,269  

Income tax expense

     10                            18,334       14,839       16,450  
                         252,460       215,414       187,009  

Movements in trade receivables and other assets

                       (13,647     (30,667     (11,126

Movements in trade payables and other liabilities

                       12,187       24,266       7,505  

Cash generated from operations

                       250,984       209,013       183,388  

Interest and fees paid

                       (69,005     (41,925     (36,003

Interest received

                       1       143       136  

Income tax paid

                       (17,126     (11,985     (8,124

Net cash flow from operating activities

                       164,854       155,246       139,397  

Cash flows from investing activities

                                          

Purchase of property, plant and equipment

                       (439,733     (247,228     (241,958

Financial investments - deposits

                       (12,366     (324     1,139  

Acquisition Interxion Science Park

                             (77,517      

Purchase of intangible assets

                       (11,446     (8,787     (8,920

Loan provided to third parties

                       (2,988     (1,764     (1,942

Proceeds from sale of financial asset

                                   281  

Net cash flow used in investing activities

                       (466,503     (335,620     (251,400

Cash flows from financing activities

                                          

Proceeds from exercised options

                       1,736       6,969       6,332  

Proceeds from mortgages

                       5,969       9,950       14,625  

Repayment of mortgages

                       (8,335     (10,848     (4,031

Proceeds from Revolving Facilities

                       148,814       129,521        

Repayments of Revolving Facilities

                       (250,724     (30,000      

Proceeds 6.00% Senior Secured Notes

                                   154,808  

Repayment 6.00% Senior Secured Notes

                       (634,375            

Proceeds 4.75% Senior Notes

                       1,194,800              

Finance lease obligation

                       (1,170     (995      

Interest received at issuance of Additional Notes

                       2,428             2,225  

Transaction costs 4.75% Senior Notes

                       (7,122            

Transaction costs 2018 Revolving Facility

                       (2,542            

Net cash flow from financing activities

                       449,479       104,597       173,959  

Effect of exchange rate changes on cash

                       (224     (1,632     251  

Net movement in cash and cash equivalents

                       147,606       (77,409     62,207  

Cash and cash equivalents, beginning of year

                       38,484       115,893       53,686  

Cash and cash equivalents, end of year

     15                 186,090       38,484       115,893  

Note: The accompanying notes form an integral part of these consolidated financial statements.

 

38    /    www.interxion.com


    CONSOLIDATED FINANCIAL STATEMENTS   

 

 

Notes to the 2018

Consolidated financial

statements

1. The Company

InterXion Holding N.V. (the “Company”) is domiciled in The Netherlands. The Company’s registered office is at Scorpius 30, 2132 LR Hoofddorp, The Netherlands. The consolidated financial statements of the Company for the year ended December 31, 2018 comprise the Company and its subsidiaries (together referred to as the “Group”). The Group is a leading pan-European operator of carrier-neutral Internet data centers.

The financial statements, which were approved and authorized for issue by the Board of Directors on May 27, 2019, are subject to adoption at the Annual General Meeting.

The following sections of this annual report form the Management report within the meaning of section 2:391 of the Dutch Civil Code:

 

  Operational review

 

  Financial review

 

  Report of the Board of Directors

2. Basis of preparation

Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), effective as of December 31, 2018, as issued by the International Accounting Standards Board (“IASB”), and IFRS as endorsed by the European Union (“EU”), and also comply with the financial reporting requirements included in Part 9 of Book 2 of The Netherlands Civil Code.

Basis of measurement

The Group prepared its consolidated financial statements on a going-concern basis and under the historical cost convention except for certain financial instruments that have been measured at fair value.

IFRS basis of presentation

The audited consolidated financial statements as of December 31, 2018, 2017 and 2016 have been prepared in accordance with IFRS as endorsed by the EU. All standards and interpretations issued by the IASB and the IFRS Interpretations Committee effective for the year ended 2018 have been endorsed by the EU, except that the EU historically did not adopt certain paragraphs of IAS 39 applicable to hedge transactions. The Group has historically not entered into hedge transactions to which these paragraphs have been applicable. Under IFRS 9, this disparity is no longer in place. Consequently, the accounting policies applied by the Group

also comply with IFRS as issued by the IASB. The changes in accounting policies that became effective as from January 1, 2018 (IFRS 9 and IFRS 15) are discussed in Note 3.

Correction of errors

Certain comparative amounts in the consolidated statements of financial position, consolidated statements of shareholders’ equity and consolidated statements of comprehensive income have been corrected for immaterial errors with respect to historic application of IAS 17 – Leases. The impact of this correction is disclosed in Note 28 – Correction of errors. Throughout the consolidated financial statements, columns including comparative figures that have been corrected, are indicated with ‘(i)’.

Use of estimates and judgements

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates, which together with underlying assumptions, are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Judgments, estimates and assumptions applied by management in preparing these financial statements are based on circumstances as of December 31, 2018, and the Group operating as a stand-alone company.

In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on amounts recognized in the financial statements are discussed below:

Property, plant and equipment depreciation (see also Note 11) - Estimated remaining useful lives and residual values of property plant and equipment, including assets recognized upon a business combination, are reviewed annually. The carrying values of property, plant and equipment are also reviewed for impairment, where there has been a triggering event, by assessing the fair value less costs to sell or the value in use, compared with net book value. The calculation of estimated future cash flows and residual values is based on the Group’s best estimates of future prices, output and costs and is, therefore, subjective. In addition, the valuation of some of the assets under construction requires judgments that are related to the probability of signing lease contracts and obtaining planning permits. Regarding the properties acquired as part of the acquisition of InterXion Science Park B.V. we recognized fair value at acquisition date, based on the highest and best use.

Intangible assets amortization (see also Note 12) - Estimated remaining useful lives of intangible assets, including those recognized upon a business combination, are reviewed annually. The carrying values of intangible assets are also reviewed for impairment where there has been a triggering event by assessing the fair value less costs to sell or the value in use, compared with net book value. The calculation of estimated

 

 

www.interxion.com    /    39


  CONSOLIDATED FINANCIAL STATEMENTS      

 

 

future cash flows is based on the Group’s best estimates of future prices, output and costs and is, therefore, subjective. The customer portfolio acquired as part of the acquisition of InterXion Science Park B.V. was valued based on the multi-period excess earnings method, which considers the present value of net cash flows expected to be generated by the customer portfolio, excluding any cash flows related to contributory assets.

Goodwill (see also Note 12) - Goodwill is recognized as the amount by which the purchase price of an acquisition exceeds the fair values of the assets and liabilities identified as part of the purchase price allocation. Goodwill is not being amortized, but subject to an annual impairment test.

Lease accounting (see also Note 22) - At inception or modification of an arrangement, the Group determines whether such an arrangement is, or contains, a lease. Classification of a lease contract is based on the extent to which risks and rewards incidental to ownership of a leased asset lie with the lessor or the lessee. The classification of lease contracts includes the use of judgments and estimates.

Costs of site restoration (see also Note 24) - Liabilities in respect of obligations to restore premises to their original condition are estimated at the commencement of the lease and reviewed annually, based on the rent period, contracted extension possibilities, the probability of lease terminations and the probability of incurrence of costs for restoring leasehold premises to their original condition at the end of the lease.

Deferred tax (see also Note 10) - Provision is made for deferred tax at the rates of tax prevailing at the period-end dates unless future rates have been substantively enacted. Deferred tax assets are recognized where it is probable that they will be recovered based on estimates of future taxable profits for each tax jurisdiction. The actual profitability may be different depending on local financial performance in each tax jurisdiction.

Share-based payments (see also Note 21) - The Group issues equity-settled share-based payments to certain employees under the terms of the long-term incentive plans. The charges related to equity-settled share-based payments, options to purchase ordinary shares and restricted and performance shares, are measured at fair value at the grant date. Fair values are being redetermined for market conditions as of each reporting date, until final grant date. The fair value at the grant date of options is determined using the Black Scholes model and is expensed over the vesting period. The fair value at grant date of the performance shares is determined using the Monte Carlo model and is expensed over the vesting period. The value of the expense is dependent upon certain assumptions including the expected future volatility of the Group’s share price at the grant date and, for the performance shares, the relative performance of the Group’s share price compared with a group of peer companies.

Senior debt (see also Note 19) - Senior debt, including in 2018 the Senior Notes due 2025 and in 2017 and 2016 the Senior Secured Notes due 2020, is valued at amortized cost. The indentures under which senior debt was issued, include specific early redemption clauses. As part of the initial measurement of the amortized costs value of senior debt it is assumed that it will

be held to maturity. If an early redemption of all or part of the senior debt is expected, the liabilities will be re-measured based on the original effective interest rate. The difference between liabilities, excluding a change in assumed early redemption and liabilities, including a change in assumed early redemption, will be recorded through profit and loss.

Functional and presentation currency

These consolidated financial statements are presented in euro, the Company’s functional and presentation currency. All information presented in euros has been rounded to the nearest thousand, except when stated otherwise.

3. Significant accounting policies

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and all entities that are directly or indirectly controlled by the Company. Subsidiaries are entities that are controlled by the Group. The Group controls an entity when it is exposed to, or has the right to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

The accounting policies set out below have been applied consistently by all subsidiaries.

Loss of control

When the Group loses control over a subsidiary, the Company de-recognizes the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognized in profit or loss.

Transactions eliminated on consolidation

Intercompany balances and transactions, and any unrealized income and expenses arising from intercompany transactions, are eliminated in preparing the consolidated financial statements.

Subsidiaries

With the exception of Stichting Administratiekantoor Management InterXion, all the subsidiary undertakings of the Group, as set out below are wholly owned as of December 31, 2018. Stichting Administratiekantoor Management InterXion is part of the consolidation based on the Group’s control over the entity.

 

  InterXion HeadQuarters B.V., Amsterdam, The Netherlands;

 

  InterXion Nederland B.V., Amsterdam, The Netherlands;

 

  InterXion Trademarks B.V., Amsterdam, The Netherlands;

 

  InterXion Participation 1 B.V., Amsterdam, The Netherlands;
 

 

40    /    www.interxion.com


    CONSOLIDATED FINANCIAL STATEMENTS  

 

 

 

  InterXion Österreich GmbH, Vienna, Austria;

 

  InterXion Real Estate VII GmbH, Vienna, Austria;

 

  InterXion Belgium N.V., Brussels, Belgium;

 

  InterXion Real Estate IX N.V., Brussels, Belgium;

 

  InterXion Denmark ApS, Copenhagen, Denmark;

 

  InterXion Real Estate VI ApS, Copenhagen, Denmark;

 

  InterXion Real Estate XVII ApS, Copenhagen, Denmark;

 

  Interxion France SAS, Paris, France;

 

  Interxion Real Estate II SARL, Paris, France;

 

  Interxion Real Estate III SARL, Paris, France;

 

  Interxion Real Estate XI SARL, Paris, France;

 

  InterXion Deutschland GmbH, Frankfurt, Germany;

 

  InterXion Ireland DAC, Dublin, Ireland;

 

  Interxion Telecom SRL, Milan, Italy;

 

  InterXion España SA, Madrid, Spain;

 

  InterXion Real Estate XV SL, Madrid, Spain;

 

  InterXion Sverige AB, Stockholm, Sweden;

 

  InterXion (Schweiz) AG, Zurich, Switzerland;

 

  InterXion Real Estate VIII AG, Zurich, Switzerland;

 

  InterXion Carrier Hotel Ltd., London, United Kingdom;

 

  InterXion Europe Ltd., London, United Kingdom;

 

  InterXion Real Estate Holding B.V., Amsterdam, The Netherlands;

 

  InterXion Real Estate I B.V., Amsterdam, The Netherlands;

 

  InterXion Real Estate IV B.V., Amsterdam, The Netherlands;

 

  InterXion Real Estate V B.V., Amsterdam, The Netherlands;

 

  InterXion Real Estate X B.V., Amsterdam, The Netherlands;

 

  InterXion Real Estate XII B.V., Amsterdam, The Netherlands;

 

  InterXion Real Estate XIII B.V., Amsterdam, The Netherlands;

 

  InterXion Real Estate XIV B.V., Amsterdam, The Netherlands;

 

  InterXion Science Park B.V., Amsterdam, The Netherlands;

 

  InterXion Operational B.V., Amsterdam, The Netherlands;

 

  InterXion Datacenters B.V., The Hague, The Netherlands;

 

  InterXion Consultancy Services B.V., Amsterdam, The Netherlands (dormant);

 

  Interxion Telecom B.V., Amsterdam, The Netherlands (dormant);

 

  Interxion Trading B.V., Amsterdam, The Netherlands (dormant);

 

  InterXion B.V., Amsterdam, The Netherlands (dormant);

 

  InterXion Telecom Ltd., London, United Kingdom (dormant);

 

  Stichting Administratiekantoor Management InterXion, Amsterdam, The Netherlands.

Foreign currency

Foreign currency transactions

The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and the financial position of each entity are expressed in euros, which is the functional currency of the Company and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual entities, transactions in foreign currencies other than the entity’s functional currency are recorded at the rates of exchange prevailing at the dates of the transactions. At each balance sheet date, monetary assets and liabilities denominated in foreign currencies are retranslated at the rates prevailing at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. The income and expenses of foreign operations are translated to euros at average exchange rates.

Foreign operations

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are expressed in euros using exchange rates prevailing at the balance sheet date. Income and expense items are translated at average exchange rates for the period. Exchange differences, if any, arising on net investments including receivables from or payables to a foreign operation for which settlement is neither planned nor likely to occur, are recognized directly in the foreign currency translation reserve (“FCTR”) within equity. When control over a foreign operation is lost, in part or in full, the relevant amount in the FCTR is transferred to profit or loss.

Borrowing costs

Borrowing costs attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognized in profit or loss in the period in which they are incurred.

Borrowing costs are capitalized based on the effective interest rate of the Senior debt.

Statement of cash flows

The consolidated statement of cash flows is prepared using the indirect method. The cash flow statement distinguishes between operating, investing and financing activities.

Cash flows in foreign currencies are converted at the exchange rate at the dates of the transactions. Currency exchange differences on cash held are separately shown. Payments and receipts of corporate income taxes and interest paid are included as cash flow from operating activities.

 

 

www.interxion.com    /    41


  CONSOLIDATED FINANCIAL STATEMENTS     

 

 

Financial instruments

Derivative financial instruments

Up until December 31, 2017

Derivatives are initially recognized at fair value; any attributable transaction costs are recognized in profit and loss as they are incurred. Subsequent to initial recognition, derivatives are measured at their fair value, and changes therein are generally recognized in profit and loss.

When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and accumulated in the hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.

The amount accumulated in equity is retained in other comprehensive income and reclassified to the profit or loss in the same period, or periods, during which the hedged item affects profit or loss.

If the hedging instrument no longer meets the criteria for hedge accounting, expires, is sold, terminated or exercised, or the designation is revoked, hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, the amount accumulated in equity is reclassified to profit or loss.

Fair values are obtained from quoted market prices in active markets or, where an active market does not exist, by using valuation techniques. Valuation techniques include discounted cash flow models.

As from January 1, 2018

Derivatives are initially recognized at fair value; any attributable transaction costs are recognized in profit and loss as they are incurred. Subsequent to initial recognition, derivatives are measured at their fair value, and changes therein are generally recognized in profit and loss.

When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and accumulated in the hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.

The amount accumulated in equity is retained in other comprehensive income and reclassified to the profit or loss in the same period, or periods, during which the hedged item affects profit or loss.

If the hedging instrument no longer meets the criteria for hedge accounting, expires, is sold, terminated or exercised, or the designation is revoked, hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, the amount accumulated in equity is reclassified to profit or loss.

Financial instruments that contain embedded derivatives that cannot or should not be separated from the host contract, are recognized at Fair Value through Profit and Loss (“FVTPL”).

 

Fair values are obtained from quoted market prices in active markets or, where an active market does not exist, by using valuation techniques. Valuation techniques include discounted cash flow models.

Non-derivative financial instruments

Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.

Up until December 31, 2017

Non-derivative financial instruments are recognized initially at fair value, net of any directly attributable transaction costs. Subsequent to initial recognition, non-derivative financial instruments are measured at amortized cost using the effective interest method, less any impairment losses.

The Group de-recognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the right to receive the contractual cash flows in a transaction in which substantially all the risk and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability.

Financial assets and liabilities are offset, and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

Financial assets are designated as of fair value through profit and loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group’s risk management or investment strategy. Attributable transaction costs are recognized in profit and loss as incurred. Financial assets at fair value through profit and loss are measured at fair value and changes therein, which takes into account any dividend income, are recognized in profit and loss.

The convertible loan given, is presented as ‘Other investment’ on the balance sheet. This loan is initially measured at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, it is measured at amortized costs using the effective interest method.

As from January 1, 2018

A financial asset is measured at amortized cost (or in case of debt investments at Fair Value through Other Comprehensive Income (“FVOCI”)) if it meets the following conditions and is not designated as of FVTPL:

 

  It is held within a business model whose objective is to hold assets to collect contractual cash flows; and

 

  Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
 

 

42    /    www.interxion.com


    CONSOLIDATED FINANCIAL STATEMENTS  

 

 

All financial assets not classified as measured at amortized cost or FVOCI, are measured at FVTPL. This includes all derivative financial assets and assets that contain an embedded derivative instrument, such as the convertible loan the Group has given to Icolo Ltd.

The Group de-recognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the right to receive the contractual cash flows in a transaction in which substantially all the risk and rewards of ownership of the financial asset are transferred.

Financial assets and liabilities are offset, and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

Trade receivables

Up until December 31, 2017

Trade receivables were recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment.

A provision for impairment of trade receivables and other current assets is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original term of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired.

The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in the income statement.

When a trade receivable and other current asset is uncollectable, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited in the income statement.

As from January 1, 2018

Trade receivables are initially recognized when they are originated. Trade receivables (unless they include a significant financing component) are initially measured at the transaction price (as defined in IFRS 15), minus a loss allowance equal to lifetime expected credit losses.

An allowance for expected credit losses is established when at the date the trade receivable originated, there is objective evidence that the Group will not be able to collect all amounts due according to the original term of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that there is a credit loss allowance necessary.

 

The amount of the allowance is the difference between the transaction price and the present value of estimated future cash flows, discounted at the original effective interest rate.

When a trade receivable and other current asset is uncollectable, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited in the income statement.

Other current assets

Other current assets are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment.

Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. Cash and cash equivalents, including short-term investments, is valued at face value, which equals its fair value. Collateralized cash is included in other (non-) current assets and accounted for at face value, which equals its fair value, taking into account any expected credit losses.

Trade payables and other current liabilities

Trade payables and other current liabilities are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects.

Property, plant and equipment

Property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition or construction of the asset and comprises purchase cost, together with the incidental costs of installation and commissioning. These costs include external consultancy fees, capitalized borrowing costs, rent and associated costs attributable to bringing the assets to a working condition for their intended use and internal employment costs that are directly and exclusively related to the underlying asset. In case of operating leases where it is probable that the lease contract will not be renewed, the cost of self-constructed assets includes the estimated costs of dismantling and removing the items and restoring the site on which they are located.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds

 

 

www.interxion.com    /    43


  CONSOLIDATED FINANCIAL STATEMENTS     

 

 

from disposal with the carrying amount of property, plant and equipment and are recognized within income.

 

The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is de-recognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred.

Depreciation is calculated from the date an asset becomes available for use and is depreciated on a straight-line basis over the estimated useful life of each part of an item of property, plant and equipment. Leased assets are depreciated on the same basis as owned assets over the shorter of the lease term and their useful lives. The principal periods used for this purpose are:

 

Data center freehold land

  Not depreciated  

Data center buildings

  15-30 years

Data center infrastructure and equipment

  5-20 years

Office equipment and other

  3-15 years

Depreciation methods, useful lives and residual values are reviewed annually.

Data center freehold land consists of the land owned by the Company and land leased by the Company under finance lease agreements. The data center buildings consist of the core and shell in which we have constructed a data center. Data center infrastructure and equipment comprises data center structures, leasehold improvements, data center cooling and power infrastructure, including infrastructure for advanced environmental controls such as ventilation and air conditioning, specialized heating, fire detection and suppression equipment and monitoring equipment. Office equipment and other is comprised of office leasehold improvements and office equipment consisting of furniture and computer equipment.

Intangible assets and goodwill

Intangible assets represent power grid rights, software, a customer portfolio previously identified as part of a business combination, and other intangible assets. Intangible assets are recognized at cost less accumulated amortization and accumulated impairment losses. Other intangible assets principally consist of lease premiums (paid in addition to obtain rental contracts).

Software includes development expenditure, which is capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use the asset. The expenditure capitalized includes the cost of material, services and direct labor costs that are directly attributable to preparing the asset for its intended use.

Amortization is calculated on a straight-line basis over the estimated useful lives of the intangible asset. Amortization methods, useful lives are reviewed annually.

 

The estimated useful lives are:

 

Power grid rights

(except for those with an indefinite life)

  10–15 years  

Software

  3–5 years

Customer portfolio

  20 years

Other

  3–12 years

Goodwill represents the goodwill related to business combinations, which is determined based on purchase price allocation. Goodwill is not being amortized, and subject to an annual impairment test.

Impairment of non-financial assets

The carrying amounts of the Group’s non-financial assets, excluding goodwill, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, intangible assets with an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated annually.

The recoverable amount of an asset or cash-generating unit is the greater of either its value in use or its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”).

Considering the Company manages its data centers by country, and, given the data center campus-structures, the financial performance of data centers within a country is highly inter-dependent, the Company has determined that the cash-generating unit for impairment-testing purposes should be the group of data centers per country, unless specific circumstances would indicate that a single data center is a cash-generating unit.

An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of cash-generating units are to reduce the carrying amount of the assets in the unit (group of units) on a pro-rata basis.

Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss previously recognized on assets other than goodwill, is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

 

 

44    /    www.interxion.com


    CONSOLIDATED FINANCIAL STATEMENTS  

 

 

Borrowings

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; with any difference between the proceeds (net of transaction costs) and the redemption value recognized in the income statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. The Group de-recognizes a borrowing when its contractual obligations are discharged, cancelled or expired.

As part of the initial measurement of the amortized cost value of debt, it is assumed that it will be held to maturity. If an early redemption of all or part of certain debt is expected, the liability will be re-measured based on the original effective interest rate. The difference between the liability, excluding a change in assumed early redemption and the liability, including a change in assumed early redemption, will be recognized in profit and loss.

Provisions

A provision is recognized in the statement of financial position when the Group has a present legal or constructive obligation as a result of a past event; it is probable that an outflow of economic benefits will be required to settle the obligation and the amount can be estimated reliably. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. The discount rate arising on the provision is amortized in future years through interest.

A provision for site restoration is recognized when costs for restoring leasehold premises to their original condition at the end of the lease are probable to be incurred and it is possible to make an accurate estimate of these costs. The discounted cost of the liability is included in the related assets and is depreciated over the remaining estimated term of the lease. If the likelihood of this liability is estimated to be possible, rather than probable, it is disclosed as a contingent liability in Note 25.

A provision for onerous lease contracts is recognized when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the discounted amount of future losses expected to be incurred in respect of unused data center sites over the term of the leases. Where unused sites can be sublet or partly sublet, management has taken account of the sublease income expected to be received over the minimum sublease term, which meets the Group’s revenue recognition criteria in arriving at the amount of future losses. Before a provision is established, the Group recognizes any impairment loss on the assets associated with that contract.

Leases

Leases, in which the Group assumes substantially all the risks and rewards of ownership, are classified as finance leases. On initial recognition, the leased asset is measured at an amount

 

equal to the lower of either its fair value or the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. The finance lease obligations are presented as part of the long-term liabilities and, as far as amounts need to be repaid within one year, as part of current liabilities.

Other leases are operating leases and the leased assets are not recognized on the Group’s statement of financial position. Payments made under operating leases are recognized in the income statement, or capitalized during construction, on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease.

Minimum finance lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

At inception or modification of an arrangement, the Group determines whether such an arrangement is, or contains, a lease. This will be the case if the following two criteria are met:

 

  the fulfilment of the arrangement is dependent on the use of a specific asset or assets; and

 

  the arrangement contains the right to use an asset.

For leased properties on which our data centers are located, we generally seek to secure property leases for terms of 20 to 25 years. Where possible, we try to mitigate the long-term financial commitment by contracting for initial lease terms for a minimum period of 10 to 15 years with the option for us either to (i) extend the leases for additional five-year terms or (ii) terminate the leases upon expiration of the initial 10- to 15-year term. Our leases generally have consumer price index based annual rent increases over the full term of the lease. Certain of our leases contain options to purchase the asset.

Segment reporting

The segments are reported in a manner that is consistent with internal reporting provided to the chief operating decision-maker, identified as the Board of Directors. There are two segments: the first is Big4, which comprises France, Germany, The Netherlands and the United Kingdom, the second is Rest of Europe, which comprises Austria, Belgium, Denmark, Ireland, Spain, Sweden and Switzerland. Shared expenses such as corporate management, general and administrative expenses, loans and borrowings and related expenses and income tax assets and liabilities are stated in Corporate and other. The Big4 and Rest of Europe are different segments as management believes that the Big4 countries represent the largest opportunities for Interxion, from market trends and growth perspective to drive the development of its communities of interest strategy within customer segments and the attraction of magnetic customers. As a result, over the past three years we have invested between 68% and 71% of our capital expenditure in the Big4 segment while revenue constituted an average of 65% of total revenue over the same period.

 

 

www.interxion.com    /    45


  CONSOLIDATED FINANCIAL STATEMENTS     

 

 

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items presented as Corporate and other principally comprise loans and borrowings and related expenses; corporate assets and expenses (primarily the Company’s headquarters); and income tax assets and liabilities.

Segment capital expenditure is defined as the net cash outflow during the period to acquire property, plant and equipment, and intangible assets other than goodwill, during the period.

Adjusted EBITDA, Recurring revenue and Cash generated from operations, are additional indicators of our operating performance, and are not required by or presented in accordance with IFRS. We define Adjusted EBITDA as Operating income adjusted for the following items, which may occur in any period, and which management believes are not representative of our operating performance:

 

  Depreciation and amortization – property, plant and equipment and intangible assets (except goodwill) are depreciated on a straight-line basis over the estimated useful life. We believe that these costs do not represent our operating performance.

 

  Share-based payments – represents primarily the fair value at the date of grant of employee equity awards, which is recognized as an expense over the vesting period. In certain cases, the fair value is redetermined for market conditions at each reporting date, until the final date of grant is achieved. We believe that this expense does not represent our operating performance.

 

  Income or expense related to the evaluation and execution of potential mergers or acquisitions (“M&A”) – under IFRS, gains and losses associated with M&A activity are recognized in the period in which such gains or losses are incurred. We exclude these effects because we believe they are not reflective of our ongoing operating performance.

 

  Adjustments related to terminated and unused data center sites – these gains and losses relate to historical leases entered into for certain brownfield sites, with the intention of developing data centers, which were never developed, and for which management has no intention of developing into data centers. We believe the impact of gains and losses related to unused data centers are not reflective of our business activities and our ongoing operating performance.

In certain circumstances, we may also adjust for items that management believes are not representative of our current ongoing performance. Examples of this would include: adjusting for the cumulative effect of a change in accounting principle or estimate, impairment losses, litigation gains and losses or windfall gains and losses.

We define Recurring revenue as revenue incurred from colocation and associated power charges, office space, amortized set-up fees, cross-connects and certain recurring managed services (but excluding any ad hoc managed services) provided by us

 

 

directly or through third parties, excluding rents received for the sublease of unused sites.

Cash generated from operations is defined as net cash flows from operating activities, excluding interest and corporate income tax payments and receipts. Management believe that the exclusion of these items provides useful supplemental information to net cash flows from operating activities to aid investors in evaluating the cash generating performance of our business.

We believe Adjusted EBITDA, Recurring revenue and Cash generated from operations provide useful supplemental information to investors regarding our ongoing operational performance because these measures help us and our investors evaluate the ongoing operating performance of the business after removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization). Management believes that the presentation of Adjusted EBITDA, when combined with the primary IFRS presentation of net income, provides a more complete analysis of our operating performance. Management also believes the use of Adjusted EBITDA facilitates comparisons between us and other data center operators (including other data center operators that are REITs) and other infrastructure-based businesses. Adjusted EBITDA is also a relevant measure used in the financial covenants of our revolving credit facility (the “Revolving Facility”) and our 4.75% Senior Notes due 2025 (the “Senior Notes”).

This information, provided to the chief operating decision-maker, is disclosed to permit a more complete analysis of our operating performance. Exceptional items are those significant items that are separately disclosed by virtue of their size, nature or incidence to enable a full understanding of the Group’s financial performance.

Revenue recognition under IAS 18 - Revenue

In the comparative periods 2017 and 2016, the Group applied the following accounting policies for recognition of revenue under IAS 18.

Revenue is recognized when it is probable that future economic benefits will flow to the Group and that these benefits, together with their related costs, can be measured reliably. Revenue is measured at the fair value of the consideration received or receivable considering any discounts or volume rebates.

The Group reviews transactions for separately identifiable components and, if necessary, applies individual recognition treatment, revenues are allocated to separately identifiable components based on their relative fair values.

The Group earns colocation revenue as a result of providing data center services to customers at its data centers. Colocation revenue and lease income are recognized in profit or loss on a straight-line basis over the term of the customer contract. Incentives granted are recognized as an integral part of the total income, over the term of the customer contract. Customers are usually invoiced quarterly in advance and income is recognized on a straight-line basis over the quarter. Initial setup fees payable at the beginning of customer contracts are deferred at inception

 

 

46    /    www.interxion.com


    CONSOLIDATED FINANCIAL STATEMENTS  

 

 

and recognized in the income statement on a straight-line basis over the initial term of the customer contract. Power revenue is recognized based on customers’ usage.

Other services revenue, including managed services, connectivity and customer installation services including equipment sales are recognized when the services are rendered. Certain installation services and equipment sales, which by their nature have a non-recurring character, are presented as non-recurring revenues and are recognized on delivery of service.

Deferred revenues relating to invoicing in advance and initial setup fees are considered contract liabilities and carried on the statement of financial position as part of trade payables and other liabilities. Deferred revenues due to be recognized after more than one year are held in non-current liabilities.

Revenue recognition under IFRS 15 – Revenues from contracts with customers

The Group has initially applied IFRS 15 from January 1, 2018, and recognized revenues based on applying the recognition model prescribed by IFRS 15. Due to the transition method chosen in applying IFRS 15, comparative information has not been restated to reflect the new requirements.

Identification of contracts with customers

Contracts that are in scope of IFRS 15 include mutually approved service agreements and customer order forms. Based on these contracts and forms, both parties can identify their rights and obligations. In certain circumstances two or more agreements and customer order forms may be considered a combined contract.

Identification of performance obligations

Under IFRS 15 the Group identified four performance obligations:

 

1.

Primary data center services

This performance obligation includes providing space, power capacity, connectivity, required setup and installation services and energy to customers. These services are not capable of being distinct from each other and therefore considered one performance obligation. Since customers simultaneously receive and consume the benefits as the Group meets its performance obligation, revenues are being recognized over time. Each month we deliver services which are substantially similar. Customers can benefit from each individual month of service. Therefore, and since an individual month of providing primary data center services is separately identifiable, each month of providing primary data center services is considered a distinct performance obligation. Most of our contracts include price indexation clauses which in general apply as of January each year.

Under the new standard, a series of distinct goods or services will be accounted for as a single performance obligation if they are substantially the same, have the same pattern of transfer and both of the following criteria are met:

(i)   each distinct good or service in the series represents a performance obligation that would be satisfied over time; and

 

(ii)   the entity would measure its progress towards satisfaction of the performance obligation using the same measure of progress for each distinct good or service in the series.

The principles in IFRS 15 therefore apply to each single performance obligation when the series criteria are met, rather than the individual services that make up the single performance obligation. As a result, revenue is allocated to the relative standalone selling price of the series as one performance obligation, rather than to each distinct service within it., except for allocating variable considerations.

 

2.

Hands and eyes recurring

This performance obligation represents remote hands and eyes activities for which the customer is being charged a recurring monthly fee.

 

3.

Additional setup and installation

This performance obligation relates to selling goods and one-off installation services to the customer, which are not part of providing primary data center services.

 

4.

Hands and eyes on demand

This type of remote hands and eyes support is being provided upon the customers’ specific request and charged on an as-incurred basis. This performance obligation is fulfilled as soon as the requested support is provided.

Determination of the transaction price

The transaction price is the amount of consideration to which the Group expects to be entitled in exchange for transferring the goods and providing the services to customers.

Allocation of revenue

Revenue from contracts with customers is being allocated to separate performance obligations, based on the relative standalone selling price of each performance obligation. This includes the allocation of discounts given to customers.

Recognition of revenue

Revenue from primary data center services and from Hands and eyes recurring is being recognized over time, considering one month of providing service as a separate performance obligation. Incentives granted are recognized as an integral part of the total income, over the term of the customer contract. Initial setup fees payable at the beginning of customer contracts are deferred at inception and recognized in the income statement on a straight-line basis over the initial term of the customer contract. Power revenue is recognized based on customers’ usage.

Hands and eyes on demand and additional setup and installation, which have a non-recurring character, are presented as non-recurring revenues and are recognized at the point in time of the delivery of the service.

Delivery of these goods and providing these services triggers transfer of control and is the point in time at which revenue is recognized.

 

 

www.interxion.com    /    47


  CONSOLIDATED FINANCIAL STATEMENTS     

 

 

Contract balances

Under IFRS 15 the Group recognizes three types of contract balances:

 

1.

Contract assets

A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group performs services to a customer before the customer pays consideration or before payment is due, a contract asset is recognized. In our consolidated statement of financial position, these assets are included as accrued revenue in trade and other current assets (see also note 14).

 

2.

Trade receivables

A receivable represents the Group’s right to an amount of consideration that is unconditional (i.e. only the passage of time is required before payment of the consideration is due).

 

3.

Contract liabilities

A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is that is unconditionally due) from the customer. If the customer pays consideration before the Group transfers the services to the customer, a contract liability is recognized when the payment is made by the customer or when the payment is due (whichever is earlier). Contract liabilities are recognized as flow to revenue in line with the fulfilling of the performance obligations under the contract. In our consolidated statement of financial position, these liabilities are presented as deferred revenue in trade payables and other liabilities (see also note 18).

Cost of sales

Cost of sales consists mainly of rental costs for the data centers and offices, power costs, maintenance costs relating to the data center equipment, operation and support personnel costs and costs related to installations and other customer requirements. In general, maintenance and repairs are expensed as incurred. In cases where maintenance contracts are in place, the costs are recorded on a straight-line basis over the contractual period.

Sales and marketing costs

The operating expenses related to sales and marketing consist of costs for personnel (including sales commissions), marketing and other costs directly related to the sales process. Costs of advertising and promotion are expensed as incurred.

General and administrative costs

General and administrative costs are expensed as incurred and include amortization and depreciation expenses.

 

 

Employee benefits

Defined contribution pension plans

A defined contribution pension plan is a post-employment plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognized as an employee benefit expense in the income statement in the periods during which the related services are rendered by employees. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan, which are due more than 12 months after the end of the period in which the employees render the service, are discounted to their present value.

Termination benefits

Termination benefits are recognized as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancy are recognized as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting date, they are discounted to their present value.

Share-based payments

The long-term incentive plans enable Group employees to earn and/or acquire shares of the Group. The fair value at the date of grant of share options, restricted shares and performance shares is recognized over the vesting period, with a corresponding increase in equity. The fair value of options is determined using the Black Scholes model, the fair value of performance shares is determined using the Monte Carlo model. Restricted shares are valued based on the market value at the date of grant. Based on the actual performance on non-market conditions the number of performance shares that will vest is updated after the performance period. The fair value of performance share awards which are conditionally granted and are subject to market conditions is redetermined at each reporting date until the final date of grant is achieved. The amount recognized as an expense is adjusted to reflect the actual number of share options, restricted and performance shares that vest.

Finance income and expense

Finance income and expense include interest payable on borrowings calculated using the effective interest rate method, gains on financial assets recognized at fair value through profit and loss and foreign exchange gains and losses. Borrowing costs attributable to the acquisition or construction of data center assets, which are assets that necessarily take a substantial period of time to get ready for their intended use, are added to the costs of those assets, until such time as the assets are ready for their intended use.

 

 

48    /    www.interxion.com


    CONSOLIDATED FINANCIAL STATEMENTS  

 

 

Interest income is recognized in the income statement as it accrues, using the effective interest method. The interest expense component of finance lease payments is recognized in the income statement using the effective interest rate method.

Foreign currency gains and losses are reported on a net basis, as either finance income or expenses, depending on whether the foreign currency movements are in a net gain or a net loss position.

Other financial income and expense may include the changes in fair value of financial instruments carried at fair value through profit and loss.

Income tax

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognized in the income statement except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognized in respect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, nor differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date that are expected to be applied to temporary differences when they reverse, or loss carry forwards when they are utilized.

A deferred tax asset is also recognized for unused tax losses and tax credits. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Additional income taxes that arise from the distribution of dividends are recognized at the same time as the liability to pay the related dividend.

In determining the amount of current and deferred tax, the Company takes into account the impact of uncertain tax positions and whether additional taxes, penalties and interest may be due. The Company believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New information may become available that causes the Company to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will have an impact on tax expense in the period that such a determination is made.

 

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

Earnings per share

The Group presents basic and diluted earnings per share (“EPS”) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary and preference shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is determined by adjusting the basic earnings per share for the effects of all dilutive potential ordinary shares.

Changes in accounting policies

This is the first set of consolidated financial statements in which IFRS 9 – Financial Instruments and IFRS 15 – Revenue from Contracts with Customers have been reflected. The nature and effect of the changes as a result of adoption of these new accounting standards is described below.

Several other amendments and interpretations, including Amendments to IFRS 2 – Classification and Measurement of Share-based Payment Transactions, apply for the first time in 2018, but do not have an impact on the consolidated financial statements of the Group. The Group has not adopted any standards, interpretations or amendments that have been issued but are not yet effective.

IFRS 9 – Financial instruments

IFRS 9 sets out requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 – Financial Instruments: Recognition and measurement.

As a result of the adoption of IFRS 9, the Company has adopted consequential amendments to IAS 1 – Presentation of Financial Statements, which require impairment of financial assets to be presented in a separate line item in the consolidated income statement, as far as these impairment losses are material. Impairment losses on other financial assets, if any, are presented under ‘Finance expense’, similar to the presentation under IAS 39, and not presented separately in the consolidated income statement due to materiality considerations.

Additionally, the Company had adopted consequential amendments to IFRS 7 – Financial Instruments: Disclosures that are applied to disclosures about 2018 but have not been generally applied to comparative information.

IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, at fair value through other comprehensive income (“FVOCI”) and at fair value through profit and loss (“FVTPL”). The standard eliminates the IAS 39 categories of held to maturity, loans and receivables and available for sale. Under IFRS 9, derivatives embedded in

 

 

www.interxion.com    /    49


  CONSOLIDATED FINANCIAL STATEMENTS     

 

 

contracts where the host is a financial asset in the scope of the standard, are never separated. Instead, the hybrid financial instrument as a whole is assessed for classification.

 

IFRS 9 largely retains the requirements in IAS 39 for the classification and measurement of financial liabilities. The adoption of IFRS 9 has not had a significant effect on the Group’s accounting policies related to financial liabilities and derivative financial instruments.

IFRS 15 – Revenue from Contracts with Customers

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue from contracts with customers is recognized. It replaced IAS 18 – Revenue, IAS 11 – Construction Contracts and related interpretations. Under IFRS 15, revenue is recognized when a customer obtains control of the goods or services. Determining the timing of the transfer of control – at a point in time or over time – requires judgment.

The Group has adopted IFRS 15 using the cumulative effect method, applying the practical expedient that allows to only apply IFRS 15 to contracts that are not completed as per the initial date of application. Accordingly, the information presented for 2017 and 2016 has not been restated, i.e., it is presented, as previously reported, under IAS 18 and related interpretations. Additionally, the disclosure requirements in IFRS 15 have not generally been applied to comparative information.

IFRS 15 does not have a significant impact on the way the Group accounts for revenues from primary data center services, because the services provided to customers meet the requirements to apply the series guidance under IFRS 15. Revenues relating to non-recurring performance obligations are being recognized at a point in time upon the Group fulfilling its performance obligation, which is similar to how the Group historically recognized such revenues in the past. Accordingly, there would not be material adjustments to be reported in the retained earnings of the comparative period.

New standards and interpretations not yet adopted

Of the new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial statements, IFRS 16 – Leases is disclosed below. This is the only standard becoming effective in the future, that will significantly impact the Group’s financial statements.

IFRS 16 – Leases

In January 2016, the IASB issued IFRS 16 - Leases, the new accounting standard for leases. The new standard is effective for annual periods beginning on or after January 1, 2019 and will replace IAS 17 – Leases and IFRIC 4 – Determining whether an Arrangement contains a Lease. IFRS 16 has been endorsed by the EU in October 2017.

Leases in which the Group is a lessee

The new standard requires lessees to apply a single, on-balance sheet accounting model to all its leases, unless a lessee elects the recognition exemptions for short-term leases and/or leases of low-value assets. A lessee must recognize a right-of-use asset representing its right to use the underlying asset and a lease obligation representing its obligation to make lease payments. The standard permits a lessee to elect either a full retrospective or a modified retrospective transition approach.

The most significant impact on the income statement is that operating lease expenses will no longer be recognized, except for those lease contracts for which the Group is going to apply the practical expedients mentioned hereafter. The impact of lease contracts on the consolidated income will move from cost of sales to amortization of the right of use asset and interest relating to the lease liability. As a result, certain key metrics such as operating profit and Adjusted EBITDA will change significantly. Compared to lease accounting under IAS 17, total expenses will be higher in the earlier years of a lease and lower in the later years.

The lease liability will be calculated based on the minimum future lease payments under the lease contract, discounted at the incremental borrowing rate, which is calculated per class of leased assets (e.g. real estate, ducts, cars and office equipment) and per country in which the relevant asset is operating. Additionally, the incremental borrowing rate will be the rate at which the interest charges relating to the lease liability are calculated.

Implementation of IFRS 16 is not expected to have a significant impact on the Group’s compliance with the debt covenants in the Revolving Facility Agreement and Indenture, because the relevant definitions in the Revolving Facility Agreement and Indenture exclude the impact of IFRS 16.

The Group elected to apply the practical expedients for lease contracts with lease terms ending within twelve months from the date of initial contract start date, and lease contracts for which the underlying asset is of low value. As a result, it will not apply lease accounting to these contracts. Furthermore, the payments under lease contracts in which the Group is a lessee will not be separated into lease- and non-lease elements.

Leases in which the Group is a lessor

The Company has investigated which elements of its contracts with customers will be subject to lessor accounting under the requirements of IFRS 16. The portion of the contracts with customers that meet the criteria for recognition of a lease (primarily real estate) based on guidance in IFRS 16 will be identified as lease elements and fall within the scope of IFRS 16 and no longer within the scope of IFRS 15 – Revenue from contracts with customers as from January 1, 2019, since leases are specifically excluded from that standard. Therefore, as of January 1, 2019, the Group will account for the lease-elements in its contracts with customers in accordance with IFRS 16. Non-lease elements which are included in those contracts will continue to be accounted for in accordance with IFRS 15.

 

 

50    /    www.interxion.com


    CONSOLIDATED FINANCIAL STATEMENTS  

 

 

Transition

The Group will adopt IFRS 16 on January 1, 2019, using the modified retrospective approach, and will apply the practical expedient to grandfather the definition of a lease on transition and therefore will not apply IFRS 16 to all contracts entered into before January 1, 2019 which were not identified as leases in accordance with IAS 17 and IFRIC 4.

Impact analysis

The adoption of IFRS 16 will have the following significant impact on the opening balance of 2019 compared to the consolidated statement of financial position as of December 31, 2018:

 

  a 420 million increase in non-current assets due to the recognition of right-of-use assets relating to leases that were accounted for under IAS 17 as operating leases;

 

  a 20 million decrease in current assets due to reclassification of certain prepayments to the right-of-use assets;

 

  a 422 million increase in financial liabilities due to the recognition of lease liabilities relating to leases that were accounted for under IAS 17 as operating leases; and

 

  a 22 million decrease in current liabilities due to the reclassification of certain accruals to lease liabilities.

In addition to the above impact, the adoption of IFRS 16 will also result in a reclassification of finance lease liabilities from borrowings to lease liabilities and impact the consolidated income statement and certain of the Company’s key financial metrics as a result of changes in the classification of charges recognized in the consolidated income statement and the consolidated statement of cash flows. The application of the new standard will decrease both cost of sales and operating costs (excluding depreciation) in the income statement, giving rise to an increase of the underlying Adjusted EBITDA, but this will largely be offset by corresponding increases in depreciation and finance expenses, and hence the impact on the Company’s Net income for the year will not be material. Net cash flows from operating activities will increase due to certain lease expenses no longer being recognized as operating cash outflows, however this will be offset by a corresponding decrease in Net cash flows from financing activities due to repayments of the principal amount of lease liabilities.

4. Financial risk management

Overview

The Group has exposure to the following risks from its use of financial instruments:

 

  credit risk;

 

  liquidity risk;

 

  market risk;

 

  other price risks.

 

This note presents information about the Group’s exposure to each of the above risks, the Group’s goals, policies and processes for measuring and managing risk, and its management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.

The Board of Directors has overall responsibility for the oversight of the Group’s risk management framework.

The Group continues developing and evaluating the Group’s risk management policies with a view to identifying and analyzing the risks faced, to setting appropriate risk limits and controls, and to monitoring risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Board of Directors oversees the way management monitors compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks the Group faces.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer, bank or other counterparty to a financial instrument were to fail to meet its contractual obligations. It principally arises from the Group’s receivables from customers. The Group’s most significant customer, which is serviced from multiple locations and under a number of service contracts, accounted for 14% of revenues in 2018, for 14% of revenues in 2017, and for 13% in 2016.

Trade and other receivables

Credit risk is the risk of financial loss to the Group if a customer, bank or other counterparty to a financial instrument were to fail to meet its contractual obligations. It principally arises from the Group’s receivables from customers. The Group’s most significant customer, which is serviced from multiple locations and under a number of service contracts, accounted for 14% of revenues in 2018, for 14% of revenues in 2017, and for 13% in 2016.

Trade and other receivables

The Group’s exposure to credit risk is mainly influenced by the individual characteristics of each customer. The makeup of the Group’s customer base, including the default risk of the industry and the country in which customers operate, has less of an influence on credit risk.

The Group has an established credit policy under which each new customer is analyzed individually for creditworthiness before it begins to trade with the Group. If customers are independently rated, these ratings are used. If there is no independent rating, the credit quality of the customer is analyzed taking its financial position, past experience and other factors into account.

 

 

www.interxion.com    /    51


  CONSOLIDATED FINANCIAL STATEMENTS     

 

 

The Group’s standard terms require invoices for contracted services to be settled before the services are delivered. In addition to the standard terms, the Group provides service-fee holidays on long-term customer contracts, for which an accrued revenue balance is accounted. In the event that a customer fails to pay amounts that are due, the Group has a clearly defined escalation policy that can result in a customer’s access to their equipment being denied or in service to the customer being suspended.

In 2018, 95% (2017: 95% and 2016: 95%) of the Group’s revenue was derived from contracts under which customers paid an agreed contracted amount, including power on a regular basis (usually monthly or quarterly) or from deferred initial setup fees paid at the outset of the customer contract.

As a result of the Group’s credit policy and the contracted nature of the revenues, losses have been infrequent (see Note 20). Prior to the transition to IFRS 9, the Group established an allowance that represents its estimate of potential incurred losses in respect of trade and other receivables. This allowance is entirely composed of a specific loss component relating to individually significant exposures. After the transition to IFRS 9, the Group recognizes trade receivables at the transaction price, minus a loss allowance at an amount equal to lifetime expected credit losses.

Loans granted

The Group has granted USD 7.5 million (excluding accrued interest) in convertible loans to Icolo, a company that is investing in a green field and operating a data center business in Kenya. Interxion has the option to convert the loan into equity on the maturity date or upon occurrence of an enforcement event. Upon implementation of IFRS 9 – Financial Instruments, the convertible loan is considered a single instrument, to be carried at fair value through profit and loss. Since January 1, 2018, it has been accounted for as such.

Bank counterparties

The Group has certain obligations under the terms of its Revolving Facility Agreement and Senior Notes which limit disposal of surplus cash balances. The Group monitors its cash position, including counterparty and term risk, on a daily basis.

Guarantees

Certain of our subsidiaries have granted guarantees to our lending banks in relation to our facilities. The Company grants rent guarantees to landlords of certain of the Group’s property leases (see Note 24).

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to its reputation or jeopardizing its future.

 

The majority of the Group’s revenues and operating costs are contracted, which assists it in monitoring cash flow requirements, which it does on a daily and weekly basis. Typically, the Group ensures that it has sufficient cash on demand to meet expected normal operational expenses, including the servicing of financial obligations, for a period of 60 days; this excludes the potential impact of extreme circumstances, such as natural disasters, that cannot reasonably be predicted.

All significant capital expansion projects are subject to formal approval by the Board of Directors, and material expenditure or customer commitments are made only once the management is satisfied that the Group has adequate committed funding to cover the anticipated expenditure (see Note 22).

Senior Notes

On June 18, 2018, the Company issued an aggregate principal amount of 1,000 million 4.75% Senior Notes due 2025 (the “Initial Notes”). The net proceeds of the offering were used to redeem the entire amounts relating to the 625 million Senior Secured Notes due 2020, to repay amounts drawn under our former revolving credit facilities, to pay all related fees, expenses and premiums and for other general corporate purposes. On September 20, 2018, the Company issued a further 200.0 million aggregate principal amount of 4.75% Senior Notes due 2025 (the “Additional Notes” and together with the Initial Notes, the “Senior Notes”).

The Senior Notes are governed by an indenture dated June 18, 2018, between the Company, as issuer, and The Bank of New York Mellon, London Branch, as Trustee (the “Indenture”). The Indenture contains customary restrictive covenants including, but not limited to, limitations or restrictions on our ability to incur debt, grant liens and sell assets. The restrictive covenants are subject to customary exceptions including, in relation to the incurrence of certain additional debt, a consolidated fixed charge coverage ratio (calculated as a ratio of Adjusted EBITDA to consolidated interest expense) of at least 2.00 to 1.00 on a pro forma basis for the four full fiscal quarters (taken as one period) for which financial statements are available immediately preceding the incurrence of such debt. The Senior Notes are guaranteed by certain of the Company’s subsidiaries

On September 20, 2018, the Company issued a further 200.0 million aggregate principal amount of Senior Notes. The net proceeds of the offering amounted to 203.8 million, net of offering fees and expenses of 2.2 million. The net proceeds contained the nominal value of the Additional Notes, plus an issuance premium of 103.00%. The Additional Notes, which are guaranteed by certain subsidiaries of the Company, were issued under the Indenture pursuant to which, on June 18, 2018, the Company issued the Initial Notes.

Revolving Facility Agreements

On June 18, 2018, the Company entered into the 200.0 million revolving facility agreement (the “Revolving Facility Agreement”) between, among others, InterXion Holding N.V., the arrangers named therein and ABN AMRO Bank N.V. as agent (for the purpose of this section, the “Agent”), pursuant to which the Revolving Facility has been made available to the Company.

 

 

52    /    www.interxion.com


    CONSOLIDATED FINANCIAL STATEMENTS  

 

 

As at December 31, 2018, the Revolving Facility was undrawn. In the first quarter of 2019, this facility was increased by 100.0 million for a total commitment of 300.0 million.

Covenants regarding Revolving Facility Agreement

The Revolving Facility Agreement requires us to maintain a specified financial ratio. The restrictive covenants are subject to customary exceptions including, in relation to the incurrence of certain debt, a consolidated fixed charge coverage ratio (calculated as a ratio of Adjusted EBITDA to consolidated interest expense) of at least 2.00 to 1.00 on a pro forma basis for the four full fiscal quarters (taken as one period) for which financial statements are available immediately preceding the incurrence of such debt.

The Revolving Facility Agreement also includes a net leverage ratio (tested on a quarterly basis provided that the aggregate base currency amount of the outstanding loans (excluding any non-cash ancillary outstandings and any non-cash utilization) exceeds 35% of the total commitments thereunder on the applicable quarter date (the “Test Condition”)), which requires total net debt (calculated as a ratio to pro forma Adjusted EBITDA of consecutive four quarters) not to exceed 5.00 to 1.00. In addition, the Revolving Facility Agreement permits us to elect, on a one-time basis and subject to certain conditions, to adjust the financial covenant to 5.50 to 1.00 for two consecutive quarter periods (including the quarter such election is made). In addition, the Company must ensure, under the Revolving Facility Agreement, that the guarantors represent a certain percentage of Adjusted EBITDA, and a certain percentage of the consolidated net assets of the Group.

The breach of any of these covenants by the Company or the failure by the Company to maintain its leverage ratio could result in a default under the Revolving Facility Agreement. As of December 31, 2018, the Company’s consolidated fixed charge ratio was 4.01 to 1.00 and the Consolidated Total Net Leverage Ratio was 4.39 to 1.00.

The Company has remained in full compliance with all its covenants. In addition, the Company does not anticipate, in the next twelve months, any breach or failure that would negatively impact its ability to borrow funds under the Revolving Facility Agreement.

Mortgages

On January 18, 2013, the Group completed a 10.0 million financing agreement, consisting of two loans that are secured by mortgages on the PAR3 land owned by Interxion Real Estate II Sarl and the PAR5 land owned by Interxion Real Estate III Sarl and a pledge on the rights under the intergroup lease agreements between Interxion Real Estate II Sarl and Interxion Real Estate III Sarl, as lessors, and Interxion France SAS, as lessee, and are guaranteed by Interxion France SAS. The principal amounts of the mortgage loans are required to be repaid in quarterly installments collectively amounting to 167,000 of which the first quarterly installment was paid on April 18, 2013. The mortgage loans have a maturity of 15 years and a variable interest rate based on EURIBOR plus an individual margin ranging from 240 to 280 basis points. The financing agreement requires the interest rate to be fixed for a minimum

 

of 40% of the principal outstanding amount for a minimum of six years. In April 2013, the interest rate was fixed for approximately 75% of the principal outstanding amount for a period of ten years. The financing agreement does not include any financial covenants.

On April 1, 2014, the Group completed a 9.2 million financing agreement, consisting of a loan that is secured by a mortgage on the data center property in Belgium owned by Interxion Real Estate IX N.V. and a pledge on the rights under the intergroup lease agreement between InterXion Real Estate IX N.V., as lessor, and InterXion Belgium N.V., as lessee, and is guaranteed by Interxion Real Estate Holding B.V. The principal amount of the mortgage loan is required to be repaid in quarterly installments of 153,330 of which the first quarterly installment was paid on July 31, 2014. The mortgage loan has a maturity of 15 years and a variable interest rate based on EURIBOR plus 200 basis points. The financing agreement does not include any financial covenants.

On October 13, 2015, the Group completed a 15.0 million financing agreement, consisting of a loan that is secured by a mortgage on certain data center property (FRA8 and FRA10) in Germany owned by Interxion Real Estate I B.V. and a pledge on the rights under the intergroup lease agreement between InterXion Real Estate I B.V., as lessor, and Interxion Deutschland GmbH, as lessee. The principal amount of the mortgage loan is required to be repaid in four annual installments of 1.0 million of which the first annual installment was paid on September 30, 2016, and a final installment of 11.0 million which is due on September 30, 2020. The mortgage loan has a maturity of five years and has a variable interest rate based on EURIBOR plus 225 basis points. The financing agreement includes a minimum required debt service capacity ratio of 1.20 to 1.00, based on the operations of Interxion Real Estate I B.V.

On April 8, 2016, the Group completed a 14.6 million financing agreement, consisting of a loan that is secured by a mortgage on certain data center property in Austria owned by Interxion Real Estate VII GmbH and a pledge on the rights under the intergroup lease agreement between InterXion Real Estate VII GmbH, as lessor, and Interxion Österreich GmbH, as lessee. The principal amount of the mortgage loan is required to be repaid in 177 monthly installments, increasing from 76,000 to 91,750. The mortgage loan has a maturity of fourteen years and nine months and has a variable interest rate based on EURIBOR plus 195 basis points. The financing agreement includes a minimum required debt service capacity ratio of 1.20 to 1.00, based on the operations of Interxion Real Estate VII GmbH.

On December 1, 2017, the Group renewed a 10.0 million financing agreement, entered into in 2012, consisting of a loan that is secured by a mortgage on certain data center property in The Netherlands owned by Interxion Real Estate IV B.V. The principal amount of the mortgage loan is required to be repaid in four annual instalments of 667,000 commencing in December 2018 and a final installment of 7,332,000 which is due on December 31, 2022. The mortgage loan has a variable interest rate based on EURIBOR (subject to a zero percent EURIBOR floor) plus 225 basis points. The financing agreement includes a minimum required debt service capacity ratio of 1.20 to 1.00, based on the operations of Interxion Real Estate IV B.V.

 

 

www.interxion.com    /    53


  CONSOLIDATED FINANCIAL STATEMENTS     

 

 

On July 12, 2018, the Group completed a 6.0 million financing agreement, consisting of a loan that is secured by a mortgage on certain data center property in The Netherlands owned by Interxion Real Estate V B.V. and a pledge on rights under the intergroup lease agreement between Interxion Real Estate V B.V., as lessor, and Interxion Nederland B.V., as lessee. The principal amount of the mortgage loan is required to be repaid in four annual instalments of 400,000 commencing July 12, 2019 and a final installment of 4,400,000 which is due on July 1, 2023. The mortgage loan has a variable interest rate based on EURIBOR plus 225 basis points. The financing agreement includes a minimum required debt service capacity ratio of 1.20 to 1.00, based on the operations of Interxion Real Estate V B.V.

Further details are in the Borrowing section (see Note 19).

Market risk

Currency risk

The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of Group entities, primarily the euro, but also pounds sterling (GBP), Swiss francs (CHF), Danish kroner (DKK) and Swedish kronor (SEK). The currencies in which these transactions are primarily denominated are EUR, GBP, CHF, DKK, SEK and USD.

Historically, the revenues and operating costs of each of the Group’s entities have provided an economic hedge against foreign currency exposure and have not required foreign currency hedging.

It is anticipated that a number of capital expansion projects will be funded in a currency that is not the functional currency of the entity in which the associated expenditure will be incurred. In the event that this occurs and is material to the Group, the Group will seek to implement an appropriate hedging strategy.

The majority of the Group’s borrowings are euro denominated and the Company believes that the interest on these borrowings will be serviced from the cash flows generated by the underlying operations of the Group, the functional currency of which is the euro. The Group’s investments in subsidiaries are not hedged.

Interest rate risk

Following the issue of the Senior Notes, the Group is not exposed to significant variable interest rate expense for borrowings.

The Group has a number of mortgages which have variable interest rates, based on EURIBOR plus individual margins. These mortgages are disclosed in “Liquidity Risk—Mortgages” and Note 20 “Financial Instruments”.

 

Other risks

Price risk

There is a risk that changes in market circumstances, such as strong unanticipated increases in operational costs, construction of new data centers or churn in customer contracts, will negatively affect the Group’s income. Customers individually have short-term contracts that require notice before termination. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

The Group is a significant user of power and is exposed to increases in power prices. It uses independent consultants to monitor price changes in electricity and seeks to negotiate fixed-price term agreements with the power supply companies, not more than for own use, where possible. The risk to the Group is mitigated by the contracted ability to recover power price increases through adjustments in the pricing for power services.

Capital management

The Group has a capital base comprising its equity, including reserves, Senior Notes, mortgage loans, finance leases and committed debt facilities. It monitors its solvency ratio, financial leverage, funds from operations and net debt with reference to multiples of its previous 12 months’ Adjusted EBITDA levels. The Company’s policy is to maintain a strong capital base and access to capital in order to sustain the future development of the business and maintain shareholders’, creditors’ and customers’ confidence.

The principal use of capital in the development of the business is through capital expansion projects for the deployment of further Equipped space in new and existing data centers. Major capital expansion projects are not initiated unless the Company has access to adequate capital resources to complete the project, and the projects are evaluated against target internal rates of return before approval. Capital expansion projects are continually monitored before and after completion.

There were no changes in the Group’s approach to capital management during the year.

 

 

54    /    www.interxion.com


    CONSOLIDATED FINANCIAL STATEMENTS  

 

 

5. Information by segment

Operating segments are to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performance. The Board of Directors monitors the operating results of its business units separately for the purpose of making decisions about performance assessments.

There are two segments: the first, Big4, comprises France, Germany, The Netherlands and the United Kingdom; the second, Rest of Europe, comprises Austria, Belgium, Denmark, Ireland, Spain, Sweden and Switzerland. Shared expenses, such as corporate management, general and administrative expenses, expenses relating to loans and borrowings, and income tax assets and liabilities, are stated in Corporate and other.

 

The evaluation of the performance of the operating segments is primarily based on the measures of revenue and Adjusted EBITDA. Other information, except as noted below, provided to the Board of Directors is measured in a manner consistent with that in the financial statements.

The geographic information analyzes the Group’s revenues and non-current assets by country of domicile and other individually material countries. In presenting the geographic information, both revenue and assets excluding deferred tax assets and financial instruments are based on geographic location.

 

 

      Revenues            Non-Current assets excluding deferred
tax assets and  financial instruments
 
      2018        2017      2016                      2018        2017      2016    

France

     100,391          86,180        68,816             349,312          261,558        223,917    

Germany

     138,016          106,069        84,449             442,681          374,893        281,935    

The Netherlands

     84,019          80,411        70,678             475,757          373,390        286,604    

United Kingdom

     47,882          45,977        45,831             103,893          87,955        81,156    

Other countries

     191,444          170,665