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 1, 2018

(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 2017 Dutch Statutory Annual Report” and (ii) 2017 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 2017 Dutch Statutory Annual Report”, dated June 1, 2018.
99.2    2017 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 1, 2018

EX-99.1

Exhibit 99.1

 

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Press release 1 June 2018

Interxion Files 2017 Dutch Statutory Annual Report

AMSTERDAM 1 June 2018. 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 2017 Dutch Statutory Annual Report with the Securities and Exchange Commission. The 2017 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 2017 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 50 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

 

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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 utilise the capacity of newly planned data centres and data centre expansions;

 

  significant competition;

 

  cost and supply of electrical power;

 

  data centre industry over-capacity;

 

  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.

 

 

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IN THIS REPORT

 

Operational review
07   Our 2017 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 Committees

26

  Compensation

26

  Shares beneficially owned

26

  Risk management

27

  Risk factors

29

  Controls and procedures

30

  Dutch Corporate Governance Code

31

  Outlook for 2018
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

36

  Consolidated statements of financial position

37

  Consolidated statements of changes in shareholders’ equity

38

  Consolidated statements of cash flows

39

  Notes to the 2017 consolidated financial statements
Company financial statements
99   InterXion Holding N.V. Company financial statements

100

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

112

  Appendix
Find out more
114   Our locations

114

  Contact us

115

  Definitions

 

 

 

 

 

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    OPERATIONAL REVIEW  

 

Our 2017 performance at a glance

Interxion delivered another set of very good results in 2017, characterised by strong year-over-year growth in both Revenue and Adjusted EBITDA1. This was the result of our continued execution of a consistent strategy that we have successfully deployed for over a decade.

 

Central to our strategy has been the development of targeted communities of interest. We have focused and continue to focus on attracting and developing the core connectivity and Cloud platforms that drive value for customers in our data centers. This strategic and disciplined approach has yielded strong growth rates across the markets where we operate, and we expect these trends to continue.

Customer focus has always been at the heart of everything we do. By understanding our customers’ requirements, not only have we been able to differentiate our company and sustain its growth, but we’ve also been able to anticipate future directions and make the appropriate investments to continue to meet our customers’ requirements. Our mission has not changed – we enable our customers to enhance their value proposition by interconnecting their businesses within their communities of interest.

Our company sits at the heart of the digital economy. It is in our data centers that the data and content lives, where data is gathered and processed and where the hubs to transfer the data around the world are based. And since the digitization of the consumer and enterprise worlds is still in the very early stages and the future growth opportunity for Interxion remains substantial.

We are seeing opportunities across the deal size spectrum and revenue growth rates have remained strong across our footprint, while customer churn has remained low. Bookings have been strong across a number of main business segments, particularly cloud and connectivity platforms as well as the enterprise segment in general and, specifically, financial services and digital media. Customers recognize the value of our communities of interest and our trusted provider status for their mission critical applications.

In response to healthy customer demand, we continued to expand in Europe throughout 2017 opening 4 new data centers in 3 markets: FRA11 and FRA12 in Frankfurt, MRS2 in Marseille and STO5 in Stockholm and completing expansions of existing data centers in 7 countries.

As 2018 gets underway, I thank all our employees for their on-going contributions. Their dedication and commitment is fundamental to Interxion’s continuing success.

David Ruberg, Chief Executive Officer

May 23, 2018

    

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Our results for 2017 confirm continued strong strategic execution and customer recognition of our Communities of Interest and trusted provider status for their mission critical applications.”

 

David Ruberg

Chief Executive Officer

 

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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.

 

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Selected Financial Data

 

        2017        2016        2015        2014        2013  

Recurring revenue

       462.5          400.0          365.2          319.2          291.3  

Non-recurring revenue

       26.8          21.8          21.4          21.4          15.8  

Revenue

       489.3          421.8          386.6          340.6          307.1  

Adjusted EBITDA

       221.0          190.9          171.3          146.4          131.8  

Adjusted EBITDA margin

       45.2%          45.3%          44.3%          43.0%          42.9%  

Capital expenditures (including intangibles)

       (256.0)          (250.9)          (192.6)          (216.3)          (143.4)  

Cash generated from operations

       209.0          183.4          169.4          135.4          102.7  

Revenue-generating space

       99.8          87.2          79.1          71.0          59.7  

Equipped space

       122.5          110.8          101.2          93.5          80.1  

Utilisation rate

       81%          79%          78%          76%          75%  

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 approximately 1,800 customers through 49 data centers (as of December 31, 2017) 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 infrastructures. 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, data backup and storage.

Our headquarters are near Amsterdam, 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 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, generating 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.

 

 

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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 Centre, 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

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 normally only begin new expansions only once we have identified customers and have the capital to fund the build out fully, with the goal of selling at least 25% of a data center’s space by the time it opens. In order to reduce risk and improve our return on capital to meet our target internal

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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 managed services to our customers.

Colocation

We provide clients with the space and power to deploy IT infrastructure in our 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 secured 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 to our clients to deploy their own IT infrastructure. Depending on their space and security needs, customers can choose individual cabinets, secure cages or an individual private room.

 

 

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

 

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Power

Each of our data centers offers our customers high power availability. The majority of our data centers have redundant grid connections and, since power availability is essential to their operation, all have a power backup installation in case of outage. 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%.

Interconnection

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 interconnections running from our customers’ equipment to the equipment of our connectivity, Internet service providers and Internet exchange customers, as well as to other customers. All Cross Connects are secured in dedicated Meet-Me Rooms. Our staff tests and installs cables and maintains cable trays and patch panels according to industry best practice.

Innovation and technical excellence

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

Our dedicated Digital, 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.

Organisational Structure

European Telecom Exchange B.V., which was incorporated on 6 April 1998, was renamed InterXion Holding B.V. on June 12, 1998, and was converted into InterXion Holding N.V. on January 11, 2000. Since 2001, we have developed our geographic footprint in 13 cities across 11 countries.

Our subsidiaries perform various tasks, including servicing our customers, operating our data centers, customer 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 at December 31, 2017:

 

 

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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 Datacentres B.V.    The Netherlands    100%    Data centre sales & marketing
                   
     
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 Science Park B.V.    The Netherlands    100%    Provision of colocation services
                   
     
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 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 SAU    Spain    100%    Provision of colocation services
                   
     
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

 

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Our people

Our senior team

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

 

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 the 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, contributing 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.
      
       
RICHARD   
ROWSON   

Richard Rowson, Interim Chief Financial Officer

 

LOGO    Mr. Rowson joined Interxion in 2017, as VP of Finance and was appointed to the Interim CFO role in January 2018, where he is responsible for all financial policy, funding strategy, financial and treasury planning, reporting and control. He has served in senior financial executive roles in data center, network and telecommunications businesses for more than 20 years. Before joining Interxion, Mr. Rowson served as CFO at two international data center organizations and in his most recent role was at Romonet, a software company utilizing predictive analytics to deliver data center operating efficiencies. Mr. Rowson worked in professional accounting practice for six years, most recently with PWC. He holds a degree in Geography from Bristol University and is a fellow of the Institute of Chartered Accountants in England and Wales.
      
       
GIULIANO DI   
VITANTONIO   

Giuliano Di Vitantonio, Chief Marketing and Strategy Officer

 

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Mr. Di Vitantonio joined Interxion in January 2015 and is responsible for our market and product strategies, including product management, product marketing, segment strategy, business development and commercial governance. He joined from Cisco Systems, where he held the position of Vice President Marketing, Data center & 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 has a Master’s Degree in EE/Telecommunications from the University of Bologna and an MBA from the London Business School.

      

 

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JAN-PIETER   
ANTEN   

Jan-Pieter Anten, Senior Vice President Human Resources

 

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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   
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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 our Executive Vice President Legal 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 Utrecht University.

      
       
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. Until 2015 he was responsible for operating Interxion’s UK business. 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 & 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.

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    FINANCIAL REVIEW  

 

 

Financial review                     
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In 2017, Interxion continued its consistent record of profitable revenue growth. We continue to focus on investing in response to strong demand, while securing attractive long-term cash returns in a disciplined and measured manner.”

 

Richard Rowson

Interim Chief Financial Officer

  
        

Interxion delivered another year of strong financial performance. Total revenue increased by 16% to 489.3 million while Recurring revenue3 was up 16% to 462.5 million, year-on-year. Normalizing for the acquisition of Interxion Science Park and foreign exchange movements, Recurring revenue grew by 15% year-over-year. Non-recurring revenue, which increased by 23% to 26.8 million, was driven by the on-going volume of customer installations. Adjusted EBITDA increased by 16%, to 221.0 million, and the Adjusted EBITDA margin was 45.2%, compared with 45.3% in 2016.

Net finance expense for the year was 44.4 million (2016: 36.3 million), the year-over-year increase primarily due to the interest expense associated with increased borrowings. Our underlying cost of debt was 5.3%, a 20 basis points reduction compared with the prior year. Net income for the year was 39.1 million (2016: 38.3 million), a 2% increase compared with 2016, while Adjusted net income3 for the year increased by 19% to 40.3 million (2016: 35.0 million).

We continue to generate significant cash from our operations: 209.0 million in 2017, representing a 14% increase over 2016. At the same time, we are allocating capital to meet the strong demand that we see across all of our markets and continue to deliver attractive and sustainable long-term returns. During 2017 we invested 256.0 million in capital expenditure. Of this capital expenditure, nearly 225.0 million, or 88%, was invested in discretionary expansion and upgrade projects. Four new data centers and numerous other expansions were opened across our data center footprint, together with an expansion of our land bank in multiple markets to provide for future growth. Approximately 70% of overall capital expenditure was deployed in the Big 4 countries.

During the year, we added 11,700 square meters of data center equipped space and 12,600 square meters of revenue generating space, resulting in a utilization rate of 81% as at December 31, 2017, which was an increase from 79% in the prior year. During the past five years, we have invested well over a billion euros of capital, resulting in nearly 50,000 square meters of additional equipped space, yet our utilization rate has steadily climbed during this period. These metrics demonstrates the discipline that we have always exercised in the deployment of capital.

Richard Rowson, Interim Chief Financial Officer, May 23, 2018

 

Income statement highlights

 

( millions)

  2017     2016(i)     2015(i)
Total revenue     489.3       421.8       386.6    
Recurring revenue percentage     95%       95%       94%    
Cost of sales     (190.5)       (162.6)       (151.7)    
Gross profit     298.8       259.2       234.9    
Gross profit margin     61%       61%       61%    
Other income     0.1       0.3       21.3    
Sales and marketing costs     (33.5)       (29.9)       (28.2)    
General and administrative costs     (167.1)       (138.5)       (134.4)    
Operating profit     98.3       91.1       93.6    
Adjusted EBITDA     221.0       190.9       171.3    
Adjusted EBITDA margin     45%       45%       44%    
Net income     39.1       38.3       46.7    
Diluted earnings per share (€)     0.55       0.54       0.66    

(i): Comparative figures for the years ended December 31, 2016 and 2015 were restated. For further information on the errors, see Notes 2 and 29 of these 2017 consolidated financial statements.

(3) Recurring revenue and Adjusted net income are non-IFRS measures. Refer to “Definitions” for a detailed explanation of this measure.

Revenue

Our business model benefits from a high proportion of recurring revenue. Of total revenue for the year of 489.3 million, 462.5 million or 95% was recurring. This percentage was in line with 2016, when 400.0 million out of 421.8 million total revenue, was recurring. In our Big 4 segment, 302.3 million or 95%, of 318.6 million of total revenue was recurring compared with 256.0 million or 95% of 269.8 million of total revenue in 2016. Recurring revenue in the Big 4 segment grew 19% on a constant-currency basis, with strong performances from our operations in Germany, France and The Netherlands. In our Rest of Europe segment, 160.2 million or 94% of 170.7 million of total revenue was recurring, compared with 144.0 million or 95% of 152.0 million of total revenue in 2016. Recurring revenue in the Rest of Europe segment grew 12% on a constant currency basis, driven by Austria, Denmark, Ireland and Sweden.

Towards the end of 2016, we embarked on a project to convert our legacy cross connects to a recurring revenue model. This project was nearly complete by the end of 2017 and the results were consistent with our initial expectations, with recurring cross connect revenue contributing nearly 6% of total revenue for the year.

 

 

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Non-recurring revenue increased by 23% to 26.8 million compared to 21.8 million in 2016. The increase in the level of non-recurring revenue was driven by the high volume of customer installations during the year, particularly in Germany, France, The Netherlands and Austria.

Consistent growth across our market reporting segments

Total revenue (m); segment % of total revenue (%)

 

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Other income

Other income represents income that we do not consider to be part of our core business. It represents items such as income from the subleases on unused data center sites, amounting to 0.1 million (2016: 0.1 million) and, up to the end of 2016, included decreases in the provision for site restoration.

Cost of sales

Cost of sales increased by 17% in 2017 to 190.5 million (2016: 162.6 million). During the year we continued to make investments in new data centers and in upgrading operational processes and systems, consistent with scaling our infrastructure to support future growth.

Gross profit

Gross profit for the year was 298.8 million, up 15% year-over-year with a gross profit margin of 61.1%, representing a reduction from 61.5% in 2016 reflecting the expansion drag generated by the on-going investments in new data centers and operations.

Sales and marketing costs

Sales and marketing costs increased by 12%, to 33.5 million (2016: 29.9 million), representing approximately 7% of total revenue, consistent with 2016. 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 both expand our customers’ deployments within our data center portfolio and enhance our Communities of Interest.

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

General and administrative costs

General and administrative costs increased by 21% in 2017, to 167.2 million (2016: 138.6 million) and amounted to 34% of total revenue (2016: 33%). General and administrative costs consist of depreciation, amortization and impairments, share-based payments, increase/(decrease) in provision for onerous lease contracts and other general and administrative costs.

Depreciation and amortization increased to 108.3 million for the year ended December 31, 2017, from 89.8 million for the year ended December 31, 2016, an increase of 20% which was the result of our on-going investment in new data centers and data center expansions. The increase in the other general and administrative costs was due to increases in professional advisory services, in software licenses, and in salaries associated with a larger headcount and higher external hires.

Adjusted EBITDA

Adjusted EBITDA increased by 16% during the year to 221.0 million (2016: 190.9 million). Adjusted EBITDA margin decreased by 10 basis points to 45.2% (2016: 45.3%), reflecting the expansion drag generated by the on-going investment in the business to support our continued growth. Adjusted EBITDA in the Big 4 segment increased by 18% to 174.8 million (2016: 148.2 million), representing a 54.9% margin (2016: 54.9%).

Adjusted EBITDA in the Rest of Europe totaled 99.7 million (2016: 88.2 million), representing a 58.4% margin (2016: 58.0%). Growth in adjusted EBITDA and the adjusted EBITDA margin expansion were particularly strong in Sweden, Ireland and Denmark.

Employees

We employ the majority of our personnel in operations and support roles that operate our data centers 24 hours a day, 365 days a year. As of December 31, 2017, we employed 658 full-time equivalent employees (the average for the year was 638 compared with 574 in 2016), of which 403 worked in operations and support, 129 in sales and marketing and 126 in general and administrative roles.

Operating profit

Operating profit increased by 8%, to 98.3 million in 2017 (2016: 91.1 million), reflecting the on-going profitable growth of the business in 2017.

 

 

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Net finance expense

Net finance expense increased to 44.4 million (2016: 36.3 million), primarily due to (i) the full-year interest expense on the additional 150.0 million 6.00% Senior Secured Notes due 2020, which were issued in April 2016; (ii) utilization of the 100.0 million 2017 Senior Secured Revolving Facility; (iii) a positive adjustment to a financial lease obligation in France in 2016: (iv) additional financing fees; and, (v) increased foreign currency exchange losses. 3.1 million of borrowing costs were capitalized in connection with the construction of new data center space in the year ended December 31, 2017 and 3.5 million in the year ended December 31, 2016.

Income tax expense

Income tax expense decreased by 10% in 2017 to 14.8 million (2016: 16.5 million). Our effective tax rate decreased from 30.0% in 2016 to 27.5% in 2017. The reduction in our effective tax rate was primarily a result of a change in the mix of profits from countries with a higher tax rate to countries with a lower tax rate together with revaluation of deferred tax balances in the UK and France (due to decreases in future local tax rates) partly offset by an increase in non-deductible share-based payments,

Net income

Net income increased to 39.1 million (2016: 38.3 million). Net income, adjusted for M&A transaction costs, capitalized interest, the adjustment of a finance lease in 2016, and certain other items, increased by 15% to 40.3 million, (2016: 35.0 million).

Diluted Earnings per share

Diluted earnings per share (EPS) increased to 0.55 per share in 2017 (2016: 0.54 per share) on a diluted share count of 71.9 million shares.

Balance sheet highlights

 

( millions)    2017      2016(i)      2015(i)
PP&E and intangible assets      1,442.0        1,184.7        1,022.3  
Cash and cash equivalents      38.5        115.9        53.7  
Other current and non-current assets      221.6        182.1        176.1  
Total assets      1,702.1        1,482.7        1,252.1  
Borrowings      832.8        735.5        555.8  
Other current and non-current liabilities      272.5        198.4        188.9  
Total liabilities      1,105.3        933.9        744.7  
Shareholders’ equity      596.7        548.8        507.4  
Total liabilities and shareholders’ equity      1,702.1        1,482.7        1,252.1  

 

Net income reconciliation

 

( millions)   2017     2016(i)     2015(i)  
Net profit - as reported     39.1               38.3               46.7  
Add back                        
Refinancing charges                  
M&A transaction costs     4.6       2.4       11.8  
      4.6       2.4       11.8  
Reverse                        
Adjustments to onerous lease                 (0.2)  
Interest Capitalised     (3.1)       (3.4)       (2.6)  
M&A transaction break fee income                 (20.9)  
Profit on sale of financial asset           (0.3)       (2.3)  
Adjustments to site restoration           (0.2)        
Adjustment of financial lease obligation           (1.4)        
Deferred tax asset adjustment           (0.8)        
      (3.1)       (6.1)       (26.0)  

Tax effect of above

add backs & reversals

    (0.4)       0.4       3.5  
Adjusted net income     40.2       35.0       36.0  
                         
Reported Basic EPS: ()     0.55       0.54       0.67  
Reported Diluted EPS: ()     0.55       0.54       0.66  
Adjusted Basic EPS: ()     0.57       0.50       0.52  
Adjusted Diluted EPS: ()     0.56       0.49       0.51  

Balance sheet

The Company maintained a solid balance sheet at the end of financial year 2017, with growing assets and increasing shareholders’ equity compared to the prior year.

During 2017, we invested 256.0 million in capital expenditure of which 224.8 million was for discretionary expansion and upgrade projects. Four new data centers were opened accompanied by expansions in a total of seven countries, increasing equipped space by 11,700 square meters to 112,500 square meters.

Net of depreciation, this resulted in a 186.5 million increase in property, plant and equipment. As at December 31, 2017, the total book value of the Company’s property, plant and equipment was 1,342.5 million.

Intangible assets increased on a net basis by 70.8 million to end the year at 99.5 million. The main increase related to the acquisition of Interxion Science Park, which we acquired for 78.5m in February 2017. As a result of the purchase price allocation, we identified a customer portfolio of 28.0 million and other assets and liabilities, after which the remaining goodwill amounts to 38.9 million.

 

 

(i): Comparative figures for the years ended December 31, 2016 and 2015 were restated. For further information on the errors, see Notes 2 and 29 of these 2017 consolidated financial statements.

 

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  FINANCIAL REVIEW     

 

 

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, 2017, the balance of these deferred tax assets was 24.5 million (December 31, 2016: 20.4 million). The increase is primarily the result of the revaluation of deferred tax balances in the UK and France (due to decreases in future local tax rates).

Cash and cash equivalents decreased to 38.5 million as at December 31, 2017 December 31, 2016: 115.9 million), primarily as a result of capital expenditure, and the acquisition of Interxion Science Park, partly offset by proceeds from drawings under our credit facilities and cash generated from operations.

Other current and non-current assets increased by 22% to 221.6 million (December 31, 2016: 182.1 million). This amount comprises:

 

trade and other current assets of 179.8 million (December 31, 2016: 147.8 million). Our services 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 increased as described above;

 

other investments of 3.7 million (December 31, 2016: 1.9 million), representing a convertible loan entered into with Icolo Ltd a start-up company that has set up a data center business in Kenya; and,

 

other non-current assets, which increased by 15% to 13.7 million (December 31, 2016: 11.9 million). These assets include prepaid expenses, collateralized cash related to bank guarantees, and customer deposits.

Borrowings at December 31, 2017 increased by 97.3 million to 832.8 million (December 31, 2016: 735.5 million), which was primarily the result of 100.0 million of drawings under our 2017 Senior Secured Revolving Facility which we increased from 75.0 million in July 2017. This was partly offset by regular mortgage repayments. No amounts were drawn under our 100 million 2013 Super Senior Secured Revolving Facility as at December 31, 2017. This was facility was fully drawn down after the year end.

Total trade payables and other liabilities increased by 34% to 245.0 million (2016: 183.1 million). Of this, 94%, or 229.9 million (2016: 171.4 million), comprised current liabilities. Other liabilities included deferred revenue, customer deposits, tax and social security liabilities, and accrued expenses.

As at December 31, 2017, we were in compliance with all covenants in our Revolving Facilities Agreements. 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 Facilities Agreements.

 

Our net debt leverage ratio at year-end 2017 was 3.6x last twelve months Adjusted EBITDA (2016: 3.6x) compared with a covenant requirement under our Revolving Facilities of less than 4.75x. Of the Company’s total debt of 832.8, 87% matures in 2020 or beyond. Our 625 million 6.00% Senior Secured Notes mature in July 2020.

Shareholders’ equity increased by 47.9 million in 2017 to 596.7 million, as a result of the total comprehensive income for 2017 of 32.1 million and an increase of 4.7 million relating to new shares issued in respect of share-based payments and share options exercised.

Cash flow highlights

 

( millions)   2017     2016     2015  
Cash generated from operations     209.0       183.4       169.4  
Net cash flows from operating activities     155.2       139.4       127.1  
Capital expenditures, including intangible assets     (256.0)       (250.9)       (192.6
Net cash flows used in investing activities     (335.6)       (251.4)       (187.5
Net cash flows from financing activities     104.6       173.9       18.2  
Net movement in cash and cash equivalents     (77.4)       62.2       (41.0
Cash and cash equivalents at the end of the year     38.5       115.9       53.7  

Cash flow

Cash generated from operations in 2017 was 209.0 million, an increase of 14% compared with 2016 (2016: 183.4 million), primarily due to the on-going growth of the business.

Cash interest paid in 2017 was 41.9 million (2016: 36.0 million). In accordance with IFRS, the Company is required to capitalize interest costs during the data center construction phases. Accordingly, during 2017, 3.1 million of borrowing costs were capitalized (2016: 3.4 million).

The related cash interest paid, reported in “purchase of property, plant and equipment”, was 3.9 million (2016: 2.2 million).

Strong cash generation

Cash generated from operations (m)

 

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Net cash flow from operating activities increased by 11% to 155.2 million (2016: 139.4 million). This increase reflecting the on-going growth of our business partly offset by increased cash outflow from interest payments of 41.9 million (2016: 36.0 million).

Net cash flow from investing activities increased by 34% to 335.6 million (2016: 251.4 million). Excluding the acquisition of Interxion Science Park (75.8m) capital expenditure for 2017, including the purchase of property, plant and equipment, plus the purchase of intangible assets, totaled 256.0 million. Of this capital expenditure 174.8 million (68%) was deployed in the Big 4 segment and 69.8m (28%) in the Rest of Europe segment compared to 170.7 million (68%) and 69.7m (28%) in 2016.

These investments were financed through the cash generated from operations and incremental financing. Of the total capital expenditure, 224.8 million was invested in expansion and upgrade projects to facilitate future growth.

Net cash flow from financing activities was 104.6 million (2016: 173.9 million). This cash flow was principally the result of 100.0 million of drawings under our 2017 Senior Secured Revolving Facility.

In 2017, we renewed 10.0 million of mortgage financing, which was secured on the AMS 6 property. Scheduled repayments for our mortgages amounted to 10.8 million in 2017. The Company also received 7.0 million from the exercise of stock options. While the Company does not currently hedge its foreign exchange exposure, exchange rates had a negative impact of 1.6 million on cash balances during the year.

Cash and cash equivalents decreased by 77.4 million in 2017 from 115.9 million at the beginning of the year to 38.5 million at the year-end.

Events subsequent to the balance sheet date

2018 Subordinated Revolving Facility

On March 16, 2018, we entered into a 225.0 million unsecured subordinated revolving facility agreement (the “2018 Subordinated Revolving Facility Agreement”) by and among InterXion Holding N.V. (the “Company”), ABN AMRO Bank N.V. and Bank of America Merrill Lynch International Limited as arrangers and original lenders thereunder and ABN AMRO Bank N.V. as agent.

The 2018 Subordinated Revolving Facility Agreement has an initial maturity date of December 31, 2018, with the Company having the option to extend the maturity date by a further twelve months. The 2018 Subordinated Revolving Facility Agreement initially bears interest at an annual rate equal to EURIBOR plus a margin of 3.00% per annum, subject to a margin ratchet pursuant to which the margin may increase thereafter on certain specified dates and subject to a maximum margin of 4.50% per annum.

Capital expenditure

Capital expenditure, including intangibles (m)

 

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    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. Until April 16, 2018, our principal office is located at Tupolevlaan 24, 1119 NX, Schiphol-Rijk, The Netherlands. As of April 16, 2018, 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 71,414,513 had been issued and paid-up as of December 31, 2017. 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 four 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 2017, the Board met nine 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 Senior Management.

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 a maximum of seven members. The number of Executive Directors and Non-executive Directors is determined by our 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

 

 

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for a term that expires at the Annual General Meeting to be held in 2018; and the Class III Directors are serving for a term that 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.

On January 1, 2013 the Act on Management and Supervision became effective. Until December 31, 2015 this Act contained the consideration that a board is well balanced if it consists of at least 30% women and 30% men. As the Dutch Government has expressed the intention to reintroduce this consideration in this Act, the Company will continue to report on this topic. “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

 

    58     Male     Belgian     Chairman and Non-executive Director     2019
                   

David C. Ruberg

    72     Male     American    

President,

Chief Executive Officer

Vice-Chairman and

Executive Director

    2019
                   

Frank Esser

 

    59     Male     German     Non-executive Director     2020
                   

Mark Heraghty

 

    54     Male     Irish     Non-executive Director     2020
                   

Rob Ruijter

 

    66     Male     Dutch     Non-executive Director     2018

 

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David Ruberg, 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.

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 in Applied Economics in 1982 and a Special degree in Sea Law in 1985.

 

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 Dalensys S.A. Furthermore, Mr. Esser serves on the Board of Swisscom AG and is a member of the remuneration committee. 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. His most recent executive role was as Managing Director of Virgin Media Business. In December 2016 he was appointed as Non-executive Chairman of John Henry Group Ltd. 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).

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.

 

 

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Directors’ insurance and indemnification

In order to attract and retain qualified and talented persons to serve as members of the Board or of our Senior Management, 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 Senior Management 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;

 

  the 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.

 

 

2. The Company, under US securities regulations, separately files its Annual Report on Form 20-F, incorporating major parts of the Annual Report as prepared under the requirements of Dutch law.

 

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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 authorised to issue shares and grant rights to subscribe for shares up to the amount of our authorised share capital with the power to limit or exclude the rights of pre-emption thereto. On June 28, 2016, the General Meeting designated the Board of Directors for a period of 18 months, which will terminate on December 28, 2017, as the corporate body of the Company authorised to issue shares or grant rights to subscribe for shares, up to 10% of the authorised share capital of the Company as it stands at the date of the resolution. On June 30, 2017, the General Meeting designated the Board of Directors for a period of 18 months, which will terminate on December 29, 2018, as the corporate body of the Company authorised to issue shares or grant rights to subscribe for shares, up to 10% of the authorised share capital of the Company as it stands at the date of the resolution.

Issue of shares

The General Meeting is authorised 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 30, 2017, the General Meeting designated the Board of Directors for a period of 18 months, which will terminate on December 29, 2018, as the corporate body of the Company authorised to, (i) issue shares or grant rights to subscribe for up to 2,871,542 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 authorised share capital of the Company as it stands at the date of the resolution, in order to enable the Company to be sufficiently flexible in relation to its funding requirements.

 

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 authorised 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’ remuneration 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 remuneration 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.

 

 

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Compensation

Non-executive Director Compensation

The annual compensation to our Non-executive Directors for the year ended December 31, 2017 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 27.

In 2015, each of our Non-executive Directors was awarded 1,615 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 2015 Annual General Meeting. For each Non-executive Director who served for the entire period from the day of the 2015 General Meeting to the day of the 2016 General Meeting these restricted shares vested at the General Meeting held at June 24, 2016. 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 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.

 

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.

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

Further details of the compensation of our Executive Director are disclosed as part of Note 27 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, 2017, are deemed outstanding and have therefore been included in the number of shares beneficially owned.

 

Directors  

Shares beneficially owned as

at December 31, 2017

David Ruberg

 

1,059,986

Jean F.H.P. Mandeville

 

11,318

Frank Esser

 

4,845

Mark Heraghty

 

4,845

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 and risks, and ensuring effective operations. They have to act in accordance with the policy and standards set by the Board,

 

 

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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, 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 2017, 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 21 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 centres, or locate and secure suitable sites for additional data centres 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.
 

 

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  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 on-going service of our personnel and senior management team 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 significant 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.
 

 

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  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 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 New York Stock Exchange, we may rely on certain home-country governance practices rather than the corporate governance requirements of the New York Stock exchange.

 

  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 Interim Chief Financial Officer (Interim 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, 2017. Based on their evaluation of the Company’s disclosure controls and procedures, our CEO and Interim CFO identified a material weakness in our internal control over financial reporting (as further described below), and consequently concluded that our disclosure controls and procedures were not effective as of December 31, 2017.

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 unauthorised 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, 2017, 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).

 

 

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The Company acquired Vancis B.V., which was renamed InterXion Science Park B.V. following the acquisition thereof on February 24, 2017. Management excluded InterXion Science Park B.V. from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017. InterXion Science Park B.V. accounted for approximately 1.2% of the Company’s consolidated total assets as of December 31, 2017 and approximately 1.3% of the Company’s consolidated revenues as of and for the year ended December 31, 2017.

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, 2017. 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.

The material weakness identified pertains to a deficiency in the design of internal controls relating to technical accounting of share-based payments. The design of the review controls relating to the complex process of applying IFRS 2 (Share-based Payments) to the Company’s incentive plan award schemes were not sufficiently precise to detect an error in the application of IFRS 2 with respect to the valuation of incentive plan awards. Specifically, incentive plan awards related to performance shares were incorrectly valued on an aggregate basis rather than by treating each vesting of the incentive plan awards as a separate award. This resulted in an incorrect determination of the IFRS 2 grant date for purposes of determining the fair value of such awards and an incorrect application of graded vesting requirements.

The incorrect application of graded vesting resulted in the allocation of share-based payment charges to the incorrect periods. Furthermore, the valuation of awards was based on the total incentive plan awards rather than on a separate valuation based on the underlying instruments and failed to take into account the impact of stock appreciation and performance conditions. Consequently, post grant date changes in service and non-market performance conditions were not reflected in the related share-based payments charges. For further information on the impact of this error, see Notes 2 and 29 of our 2017 consolidated financial statements, included elsewhere herein.

The attestation report of KPMG Accountants N.V., an independent registered public accounting firm, on management’s assessment of our internal control over financial reporting is included on page 106 in this annual report.

 

Remediation efforts to address material weakness

Management has been actively engaged in the development and implementation of a remediation plan to address the foregoing material weakness in internal control over financial reporting. Our remediation plan includes the following measures:

 

  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 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;

 

  simplifying the wording of our share award plans to reduce the risk of the incorrect application of IFRS 2; 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.

Management continues to assign the highest priority to the prompt remediation of the foregoing material weakness.

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. The revised Dutch Corporate Governance Code, dated December 8, 2016, became effective as from the start of the 2017 financial year and 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. Consequently, the Company will be required to report in 2018 on compliance in the 2017 financial year on the basis of this revised Dutch Corporate Governance Code for the financial years ending December 31, 2017 and beyond. 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).

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).

 

 

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    REPORT OF THE BOARD OF DIRECTORS  

 

 

 

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 is currently in the process of preparing such profile and aims to adopt this and post it as soon as possible.

 

  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 is currently in the process of drawing up 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 a long-term incentive plan whereby the beneficiary (other than the Executive Director) of the shares can currently, start trading 50% of the shares after the first year, and 25% after the second and third anniversary. Although not in accordance with the Code, the Company considers that this is in the best interest of the Company as, given the international environment in which the Company competes, it allows for greater flexibly to attract and retain the right talent.

 

  Best practice provision 3.1.2 (vii) states among others that if options are granted, they shall, in any event, not be exercised in the first three years following the date of granting. The Company has granted options to some of its Directors, which vest starting within three years of the date of granting. Although not in accordance with the Code, the Company considers that it is in the best interest of the Company and its stakeholders to align the vesting of the options with the term of their appointment as Director.

 

  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 2018

For 2018, we expect revenue to range between 553 and 569 million, Adjusted EBITDA to range between 250 and 260 million and Capital expenditure (including intangibles) to range between 365 and 390 million. We expect to have sufficient access to capital to fund such capital expenditure. In 2017, the Company employed an average of 638 full-time equivalent employees. We expect this number to increase in 2018, in line with new data center capacity becoming available.

The Board of Directors

Amsterdam, The Netherlands,

May 23, 2018

 

 

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LOGO


    REPORT OF THE NONE EXECUTIVE DIRECTORS  

 

 

On an on-going 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 2017 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 on-going 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 five times during 2017, during these meeting 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 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 three independent Directors, Mark Heraghty (Chair), Rob Ruijter and Frank Esser. 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 four times during 2017, with a focus on approving the 2016 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 and approving Senior Management’s short-term and long-term compensation. During these meeting all committee members were present.

Nominating Committee

Our Nominating Committee consists of three independent Directors, Frank Esser (Chair), Jean Mandeville and Mark Heraghty. 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 Meeting of Shareholders, and selecting Director candidates to fill any vacancies on the Board. The Nominating Committee met once during 2017, during this meeting all committee members were present. The main focus of this meeting was to discuss the nomination of a Non-executive Director and of the Executive Director.

The Non-executive Directors

Amsterdam, The Netherlands,

May 23, 2018

 

 

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LOGO


    CONSOLIDATED FINANCIAL STATEMENTS   

 

 

Consolidated income statements

 

                      For the year ended December 31,      
      Note              2017       2016(i)
(€’000) 
    2015(i)  

Revenue

     5,6                 489,302       421,788       386,560  

Cost of sales

     5,8                 (190,471     (162,568     (151,613

Gross profit

                       298,831       259,220       234,947  

Other income

     5                 97       333       21,288  

Sales and marketing costs

     5,8                 (33,465     (29,941     (28,217

General and administrative costs

     5,7,8                 (167,190     (138,557     (134,391

Operating income

     5                 98,273       91,055       93,627  

Finance income

     9                 1,411       1,206       3,294  

Finance expense

     9                 (45,778     (37,475     (32,316

Profit before taxation

                       53,906       54,786       64,605  

Income tax expense

     10                 (14,839     (16,450     (17,925

Net income

                       39,067       38,336       46,680  

Earnings per share attributable to shareholders:

                                          

Basic earnings per share: ()

     17                 0.55       0.54       0.67  

Diluted earnings per share: ()

     17                 0.55       0.54       0.66  
Consolidated statements of comprehensive income                                 
                      For the year ended December 31,  
                      2017      

2016(i)

(€’000) 

    2015(i)  

Net income

                       39,067       38,336       46,680  

Other comprehensive income

                                          

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

                                          

Foreign currency translation differences

                       (7,245     (12,713     11,633  

Effective portion of changes in fair value of cash flow hedge

                       110       (45     50  

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

                                          

Foreign currency translation differences

                       205       1,836       (1,208

Effective portion of changes in fair value of cash flow hedge

                       (36     15       (16

Other comprehensive income/(loss), net of tax

                       (6,966     (10,907     10,459  

Total comprehensive income attributable to shareholders

                       32,101       27,429       57,139  

 

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

(i): Comparative figures for the years ended December 31, 2016 and 2015 were restated. For further information on the errors, see Notes 2 and 29 of these 2017 consolidated financial statements.

 

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  CONSOLIDATED FINANCIAL STATEMENTS      

 

 

Consolidated statements of financial position

 

              As at December 31,          
      Note              2017       2016(i)
(€’000) 
    2015 (i)  

Non-current assets

                                          

Property, plant and equipment

     11                 1,342,471       1,156,031       999,072  

Intangible assets

     12                 60,593       28,694       23,194  

Goodwill

     12                 38,900              

Deferred tax assets

     10                 24,470       20,370       23,024  

Other investments

     13                 3,693       1,942        

Other non-current assets

     14                 13,674       11,914       11,152  
                         1,483,801       1,218,951       1,056,442  

Current assets

                                          

Trade and other current assets

     14                 179,786       147,821       141,936  

Cash and cash equivalents

     15                 38,484       115,893       53,686  
                         218,270       263,714       195,622  

Total assets

                       1,702,071       1,482,665       1,252,064  

Shareholders’ equity

                                          

Share capital

     16                 7,141       7,060       6,992  

Share premium

     16                 539,448       523,671       509,816  

Foreign currency translation reserve

     16                 2,948       9,988       20,865  

Hedging reserve, net of tax

     16                 (169     (243     (213

Accumulated profit/(deficit)

     16                 47,360       8,293       (30,043
                         596,728       548,769       507,417  

Non-current liabilities

                                          

Borrowings

     20                 724,052       723,975       550,812  

Deferred tax liability

     10                 21,336       9,628       9,951  

Other non-current liabilities

     18                 15,080       11,718       12,049  
                         760,468       745,321       572,812  

Current liabilities

                                          

Trade payables and other liabilities

     18                 229,878       171,399       162,629  

Income tax liabilities

                       6,237       5,694       2,738  

Provision for onerous lease contracts

     19                             1,517  

Borrowings

     20                 108,760       11,482       4,951  
                         344,875       188,575       171,835  

Total liabilities

                       1,105,343       933,896       744,647  

Total liabilities and shareholders’ equity

                       1,702,071       1,482,665       1,252,064  

 

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

(i): Comparative figures for the years ended December 31, 2016 and 2015 were restated. For further information on the errors, see Notes 2 and 29 of these 2017 consolidated financial statements.

 

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    CONSOLIDATED FINANCIAL STATEMENTS   

 

 

Consolidated statements of changes in shareholders’ equity

 

      Note      Share
capital
     Share
premium
    Foreign
currency
translation
reserve
    Hedging
reserve
    Accumulated
deficit
    Total
equity
 
                             (€’000)                

Balance at January 1, 2017

              7,060        523,671       9,988       (243     8,293       548,769  

Profit for the year

                                       39,067       39,067  

Hedging result, net of tax

                                 74             74  

Other comprehensive income/(loss)

                           (7,040                 (7,040

Total comprehensive income/(loss), net

of tax

                           (7,040     74       39,067       32,101  

Exercise of options

              55        6,914                         6,969  

Issue of performance shares and restricted

shares

 

 

     26        (26                        

Share-based payments

     22               8,889                         8,889  

Total contribution by, and distributions

to, owners of the Company

              81        15,777                         15,858  

Balance as at December 31, 2017

              7,141        539,448       2,948       (169     47,360       596,728  
                                                      

Balance at 1 January 2016(i)

              6,992        509,816       20,865       (213     (30,043     507,417  

Profit for the year

                                       38,336       38,336  

Hedging result, net of tax

                                 (30           (30

Other comprehensive income/(loss)

                           (10,877                 (10,877

Total comprehensive income/(loss), net

of tax

                           (10,877     (30     38,336       27,429  

Exercise of options

              48        6,284                         6,332  

Issue of performance shares and restricted

shares

 

 

     20        (20                        

Share-based payments

     22               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       9,988       (243     8,293       548,769  
                                                      

Balance at January 1, 2015, as previously

reported

              6,932        495,109       10,440       (247     (76,089     436,145  

Impact of correction of errors

                     634                   (634      

Balance at January 1, 2015, as restated

              6,932        495,743       10,440       (247     (76,723     436,145  

Profit for the year

                                       46,680       46,680  

Hedging result, net of tax

                                 34             34  

Other comprehensive income/(loss)

                           10,425                   10,425  

Total comprehensive income/(loss), net

of tax

                           10,425       34       46,680       57,139  

Exercise of options

              43        5,686                         5,729  

Issue of performance shares

              17        (17                        

Share-based payments

     22               8,404                         8,404  

Total contribution by, and distributions

to, owners of the Company

              60        14,073                         14,133  

Balance at December 31, 2015(i)

              6,992        509,816       20,865       (213     (30,043     507,417  

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) Comparative figures for the years ended December 31, 2016 and 2015 were restated. For further information on the errors, see Notes 2 and 29 of these 2017 consolidated financial statements.

 

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  CONSOLIDATED FINANCIAL STATEMENTS     

 

 

Consolidated statements of cash flows

 

                    For the years ended December 31,  
      Note            2017      

2016(i)

(€’000) 

    2015(i)  

Net income

                       39,067       38,336       46,680  

Depreciation, amortisation and impairments

     11,12                 108,252       89,835       78,229  

Provision for onerous lease contracts

     19                       (1,533     (3,532

Share-based payments

     22                 8,889       7,652       8,404  

Net finance expense

     9                 44,367       36,269       29,022  

Income tax expense

     10                 14,839       16,450       17,925  
                         215,414       187,009       176,728  

Movements in trade receivables and other current assets

                       (30,667     (11,126     (19,380

Movements in trade payables and other liabilities

                       24,266       7,505       12,040  

Cash generated from operations

                       209,013       183,388       169,388  

Interest and fees paid

                       (41,925     (36,003     (30,522

Interest received

                       143       136       152  

Income tax paid

                       (11,985     (8,124     (11,948

Net cash flow from operating activities

                       155,246       139,397       127,070  

Cash flows from investing activities

                                          

Purchase of property, plant and equipment

                       (247,228     (241,958     (186,115

Financial investments - deposits

                       (324     1,139       418  

Acquisition Interxion Science Park

                       (77,517            

Purchase of intangible assets

                       (8,787     (8,920     (6,521

Loan to third parties

                       (1,764     (1,942      

Proceeds from sale of financial asset

                             281       3,063  

Redemption of short-term investments

     15                             1,650  

Net cash flow used in investing activities

                       (335,620     (251,400     (187,505

Cash flows from financing activities

                                          

Proceeds from exercised options

                       6,969       6,332       5,686  

Proceeds from mortgages

                       9,950       14,625       14,850  

Repayment of mortgages

                       (10,848     (4,031     (2,346

Proceeds from Revolving Facilities

                       129,521              

Repayments of Revolving Facilities

                       (30,000            

Finance lease obligation

                       (995            

Proceeds Senior Secured Notes at 6%

                             154,808        

Interest received at issuance of Additional Notes

                             2,225        

Net cash flow from financing activities

                       104,597       173,959       18,190  

Effect of exchange rate changes on cash

                       (1,632     251       1,294  

Net movement in cash and cash equivalents

                       (77,409     62,207       (40,951

Cash and cash equivalents, beginning of year

                       115,893       53,686       94,637  

Cash and cash equivalents, end of year

     15                 38,484       115,893       53,686  

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

(i): Comparative figures for the years ended December 31, 2016 and 2015 were restated. For further information on the errors, see Notes 2 and 29 of these 2017 consolidated financial statements.

 

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Notes to the 2017

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, 2017 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 authorised for issue by the Board of Directors on May 23, 2018, are subject to adoption at the General Meeting of Shareholders.

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 at December 31, 2017, as issued by the International Accounting Standards Board (“IASB”), and IFRS as adopted by the European Union, 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, 2017, 2016 and 2015 have been prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union (EU). All standards and interpretations issued by the International Accounting Standards Board (IASB) and the IFRS Interpretations Committee effective for the year ended 2017 have been endorsed by the EU, except that the EU did not adopt certain paragraphs of IAS 39 applicable to hedge transactions. The Group has no hedge transactions to which these paragraphs are applicable. Consequently, the accounting policies applied by the Group also comply with IFRS as issued by the IASB.

 

Change in accounting policies

The Group has consistently applied the accounting policies set out below to all periods presented in these consolidated financial statements. The standards below are applicable for financial statements as prepared after January 1, 2016, for IFRS as issued by the International Accounting Standards Board, and are effective for IFRS as endorsed by the EU for periods ending after January 1, 2017.

 

  Amendments to IAS 7 – Disclosure initiative

 

  Amendments to IAS 12 – Recognition of Deferred Tax Assets for Unrealized Losses

For preparation of these financial statements, the Group has concluded that these standards do not have a significant impact.

Correction of errors

Certain comparative amounts in the consolidated income statements, consolidated statements of comprehensive income, consolidated statements of financial position and consolidated statements of cash flows have been restated to correct for errors with respect to share-based payments. The impact of this restatement is disclosed in note 29 – Correction of errors. Throughout the consolidated financial statements, columns including comparative figures that have been restated, 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 on-going 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 at December 31, 2017, and Interxion 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 present value of estimated future cash flows and net realizable value 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

 

 

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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 present value of estimated future cash flows and fair value compared with net book value. The calculation of estimated 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 24) - 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.

Provision for onerous lease contracts (see also Note 19) - A provision is made for the discounted amount of future losses that are 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 contracted 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.

Costs of site restoration (see also Note 26) - 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 and possibilities of lease terminations.

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 22) - 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 Secured Notes due 2020 (see also Note 20) - The Senior Secured Notes due 2020 are valued at amortized cost. The Senior Secured Notes due 2020 indenture includes specific early redemption clauses. As part of the initial measurement of the amortized costs value of the Senior Secured Notes due 2020 it is assumed that the Notes will be held to maturity. If an early redemption of all or part of the Notes 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 go through the 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 to all periods presented in these consolidated financial statements.

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.

 

 

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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, 2017. Stichting Administratiekantoor 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;

 

  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 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 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 (formerly Centennium Detachering B.V.);

 

 

  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 directly 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 Secured Notes.

 

 

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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.

Financial instruments

Derivative financial instruments

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.

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.

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 at 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 fair values of investments in equity are determined with reference to their quoted closing bid price at the measurement date or, if unquoted, using a valuation technique.

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.

Trade receivables and other current assets

Trade receivables and other current assets are 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.

Cash and cash equivalents

Cash and cash equivalents includes 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.

 

 

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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 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 centre freehold land

  Not depreciated

Data centre buildings

  15-30 years

Data centre 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 and other intangible assets, and 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

   10–15 years            

Software

   3–5 years

Other

   3–12 years

Customer portfolio

   20 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, 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 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

 

 

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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.

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 the Senior Secured Notes due 2020, it is assumed that the Notes will be held to maturity. If an early redemption of all or part of the Notes 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 26.

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.
 

 

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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 consistent with internal reporting provided to the chief operating decision-maker, identified as the Board of Directors. There are two segments: the first is France, Germany, The Netherlands and the United Kingdom (the “Big4”), 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 70% of our capital expenditure in the Big4 segment while revenue constituted an average of 64% of total revenue over the same period.

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 – primarily the fair value at the grant date to employees of equity awards, is recognized as an employee expense over the vesting period. 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 incurred. We exclude these effects because we believe they are not reflective of our on-going 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 on-going operating performance.

In certain circumstances, we may also adjust for items that management believes are not representative of our current on-going 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 monthly from colocation, connectivity and associated power charges, office space, amortized set-up fees 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 on-going operational performance. These measures help us and our investors evaluate the on-going 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 2017 Senior Secured Revolving Facility, our 2013 Super Senior Revolving Facility and our 6.00% Senior Secured Notes due 2020.

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.

 

 

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Revenue recognition

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 taking into account 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 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 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.

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 grant date to employees of share options, as determined using the Black Scholes model for options and the Monte Carlo model for the performance shares, is recognized as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the options and/or shares. Restricted shares are valued based on the market value at grant date. 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 expense includes 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 directly 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.

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.

 

 

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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.

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 substantively 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 of 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, which comprise the share options granted.

New standards and interpretations not yet adopted

The new standards, amendments to standards and interpretations listed below are available for early adoption in the annual period beginning January 1, 2017, although they are not mandatory until a later period. The Group has decided not to adopt these new standards or interpretations until a later point in time.

 

Effective date

 

 

New standard or amendments

 

Deferred indefinitely

  Amendments to IFRS 10 and IAS 28: Sale or contribution of assets between an investor and its associate or joint venture

January 1, 2018

  IFRS 15 – Revenue from Contracts with Customers;

January 1, 2018

  IFRS 9 – Financial Instruments;

January 1, 2018

  Amendments to IFRS 2: Classification and measurement of share-based payment transactions;

January 1, 2019

  IFRS 16 – Leases.

IFRS 9 – Financial instruments

IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics. 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 existing IAS 39 categories of held to maturity, loans and receivables and available for sale.

Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification.

Based on its assessment, the Company does not believe that the new classification requirements will have a material impact on its accounting for financial instruments.

When implementing IFRS 9, the Company will take advantage of the exemption allowing it not to restate comparative information for prior periods with respect to classification and measurement.

 

 

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IFRS 15 – Revenue from Contracts with Customers

In 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers. This standard specifies how and when revenue is recognized and includes enhanced disclosure requirements.

IFRS 15 replaces existing revenue recognition standards IAS 11 Construction Contracts and IAS 18 Revenue, and certain revenue-related interpretations. The Group will implement IFRS 15 using the modified retrospective method.

The new standard provides a single, principles based five-step model to be applied to all contracts with customers. The core principle of IFRS 15 is that an entity recognizes revenue related to the transfer of promised goods or services when control of the goods or services passes to the customer. The amount of revenue recognized should reflect the consideration to which the entity expects to be entitled in exchange for those goods or services.

We have completed our assessment of the impact of the adoption of IFRS 15 and concluded that the new standard will have no significant financial impact. This is due to the fact that we concluded that the services provided to our customers do meet the requirements to apply the series guidance under IFRS 15. 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 the new revenue standard are therefore applied to the single performance obligation as 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.

We have determined that the measure of progress for the single performance obligation that best depicts the transfer of the services is the one-month (time) increment. By applying the series guidance on such basis Interxion revenues will be recognized on a monthly basis in line with the satisfaction of the monthly increment of service which is in line with current accounting for these revenues.

 

IFRS 16 – Leases

In January 2016, the International Accounting Standards Board (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.

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 Company is investigating whether certain elements of its contracts with customers will be subject to lessor accounting under the requirements of IFRS 16. Generally, the impact on the income statement is that operating lease expenses will no longer be recognized. The impact of lease contracts on the consolidated income, which is currently part of the operating expenses, will be included in amortization (related to the right of use asset) and interest (related to the lease liability). As a result, key metrics such as operating profit and Adjusted EBITDA are likely to change significantly. Compared to current lease accounting, total expenses will be higher in the earlier years of a lease and lower in the later years. The impact on the consolidated statement of cash flows will be visible in higher Net cash flows from operating activities, since cash payments allocated to the repayment of the lease liability will be included in Net cash flow from financing activities.

We are in the process of assessing the impact of IFRS 16 on the consolidated financial statements. We are not yet in the position to conclude on this. However, based on the work we have done so far, based on current lease commitments of EUR 361 million (see note 24), this standard is likely to have a material impact on the measurement of assets and liabilities and on classifications in the Consolidated income statement and Consolidated statement of cash flows.

These new principles will be applied by Interxion from the annual reporting period starting on January 1, 2019. The Group has elected to apply the recognition exemptions that are allowed under the modified retrospective transition method.

We expect to be in a position to give more detail and an indication of potential impact during 2018.

 

 

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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 2017, for 13% of revenues in 2016, and for 11% in 2015.

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.

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 2017, 95% (2016: 95% and 2015: 94%) 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 21). The Group establishes 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.

Loans given

The Group has given a USD 4.5 million convertible loan to Icolo Ltd, a start-up company that has set up a data center business in Kenya. Of this loan, USD 4.0 million was disbursed as at December 31, 2017

Bank counterparties

The Group has certain obligations under the terms of its Revolving Facility Agreements and Senior Secured 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 25).

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.

 

 

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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 23).

Senior Secured Notes

On July 3, 2013, the Company issued an aggregate principal amount of 325.0 million 6.00% Senior Secured Notes due 2020 (the “Senior Secured Notes due 2020”). The net proceeds of the offering were used to purchase all of the 260 million Senior Secured Notes due 2017, which were tendered in the offer for those notes and to redeem the 260 million Senior Secured Notes due 2017, which remained outstanding following the expiration and settlement of the tender offer and consent solicitation, to pay all related fees, expenses and premiums and for other general corporate purposes.

The Senior Secured Notes due 2020 are governed by an indenture dated July 3, 2013, between the Company, as issuer, and The Bank of New York Mellon, London Branch as Trustee. The indenture contains customary restrictive covenants including, but not limited to, limitations or restrictions on our ability to incur debt, grant liens, make restricted payments and sell assets. The restrictive covenants are subject to customary exceptions and are governed by a consolidated fixed charge ratio (Adjusted EBITDA to Finance Charges) to exceed 2.00 and a consolidated senior leverage ratio (Total Net Debt to Pro-forma EBITDA) not to exceed 4.00. In addition, the aggregate of any outstanding debt senior to our Senior Secured Notes should not exceed 100.0 million.

The obligations under the Senior Secured Notes due 2020 are guaranteed by certain of the Company’s subsidiaries.

On April 29, 2014, the Company completed the issuance of 150.0 million aggregate principal amounted of 6.00% Senior Secured Notes due 2020 (the “Additional Notes”). The net proceeds of the offering amount to 157.9 million, net of offering fees and expenses of 2.3 million. The net proceeds reflect the issuance of the Additional Notes at a premium at 106.75 and net of offering fees and expenses. The Additional Notes, which are guaranteed by certain subsidiaries of the Company, were issued under the indenture pursuant to which, on July 3, 2013, the Company issued 325.0 million in aggregate principal amount of 6.00% Senior Secured Notes due 2020.

On April 14, 2016, the Company completed the issuance of an additional 150.0 million aggregate principal amount of its 6.00% Senior Secured Notes due 2020 (together with the

 

notes issued on April 29, 2014, the “Additional Notes”). The net proceeds of the offering amounted to 155.3 million, net of offering fees and expenses of 2.1 million. The net proceeds include the nominal value of the Additional Notes increased with a premium at 104.50. The Additional Notes, which are guaranteed by certain subsidiaries of the Company, were issued under the indenture dated July 3, 2013, pursuant to which the Company has previously issued 475.0 million in aggregate principal amount of 6.00% Senior Secured Notes due 2020.

Revolving Facility Agreements

2013 Super Senior Revolving Facility

On June 17, 2013, the Company entered into the Super Senior Revolving Facility Agreement.

On July 3, 2013, in connection with the issuance of the 325.0 million Senior Secured Notes due 2020, all conditions precedent to the utilization of the 2013 Super Senior Revolving Facility Agreement were satisfied. On July 31, 2017, the Company extended the maturity of the 2013 Super Senior Revolving Facility from July 3, 2018 to December 31, 2018.

As at December 31, 2017, the 2013 Super Senior Revolving Facility was undrawn

2017 Senior Secured Revolving Facility

On March 9, 2017, the Company entered into the 2017 Senior Secured Revolving Facility Agreement.

The Senior Secured Revolving Facility had an initial maturity date of 12 months from the date of the Senior Secured Revolving Facility with the Company having the option to extend the maturity date by a further six-month period in accordance with the terms therein. The 2017 Senior Secured Revolving Facility initially bears interest at a rate per annum equal to EURIBOR (subject to a zero percent floor) plus a margin of 2.25% per annum, subject to a margin ratchet, pursuant to which the margin may be increased to a maximum of 3.25% per annum if the 2017 Senior Secured Revolving Facility is extended up to an additional six months after its initial maturity date.

On July 28, 2017, the Company amended the terms of the 2017 Senior Secured Revolving Facility to increase the amount available under the facility to 100.0 million and to add a second extension option to enable extension of the maturity of the 2017 Senior Secured Revolving Facility to December 31, 2018. The Company elected, as of March 1, 2018, to extend the maturity of the 2017 Senior Secured Revolving Facility to September 9, 2018.

As at December 31, 2017, the 2017 Senior Secured Revolving Facility was fully drawn.

Covenants regarding Revolving Facility Agreements

The Revolving Facility Agreements also require the Company to maintain a specified financial ratio. The restrictive covenants are subject to customary exceptions including, in relation to the incurrence of subordinated debt, a consolidated fixed charge

 

 

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ratio (calculated as a ratio of Adjusted EBITDA to consolidated interest expense), to exceed 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 and, if such debt is senior debt, a consolidated senior leverage ratio (calculated as a ratio of outstanding senior debt net of cash and cash equivalents of the Company and its restricted subsidiaries (on a consolidated basis) to pro forma Adjusted EBITDA), to be less than 4.00 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 Agreements also include a leverage ratio financial covenant (tested on a quarterly basis) that requires total net debt (calculated as a ratio to pro forma EBITDA) not to exceed a leverage ratio of 4.75 to 1.00 and stepping down to 4.00 to 1.00 for each applicable test date after (but not including) June 30, 2018. In addition, the Company must ensure, under the Revolving Facility Agreements, that the guarantors represent a certain percentage of Adjusted EBITDA, and a certain percentage of the consolidated net assets of the Group as a whole. Our ability to meet these covenants may be affected by events beyond our control and, as a result, we cannot assure you that we will be able to meet the covenants. In the event of a default under the Revolving Facility Agreements, the lenders could terminate their commitments and declare all amounts owed to them to be due and payable. Borrowings under other debt instruments that contain cross acceleration or cross default provisions, including the Senior Secured Notes, may as a result also be accelerated and become due and payable.

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 Agreements. As of December 31, 2017, the Company’s consolidated fixed charge ratio stood at 4.92 and the net debt ratio/consolidated senior leverage ratio stood at 3.60.

On February 20, 2018, the Company received the requisite consents from lenders under its 2013 Super Senior Revolving Facility to waive, from the date of such consent becoming effective and up to, and including, May 1, 2018, the undertaking requiring certain material subsidiaries of the Company to accede to the 2013 Super Senior Revolving Facility Agreement as additional guarantors and, for the same period, to reduce the guarantor coverage threshold as a percentage of the group’s consolidated adjusted EBITDA (as more fully set out in the 2013 Super Senior Revolving Facility Agreement) from 85% to 80%. On April 19, 2018, the Company received the requisite consents from lenders under its 2013 Super Senior Revolving Facility Agreement to extend the foregoing waivers, up to, and including, July 31, 2018

On February 19, 2018 the Company also received the requisite consents from lenders under its 2017 Senior Secured Revolving Facility Agreement to extend the date by which certain subsidiaries of the Company are required to accede to the 2017 Senior Secured Revolving Facility Agreement as guarantors to April 30, 2018. On April 20, 2018, the Company received the requisite consents from lenders under its 2017 Senior Secured Revolving Facility Agreement to extend the

 

foregoing waivers, up to, and including, July 31, 2018.

The Company also received, on March 1, 2018, the requisite consents from lenders under its 2017 Senior Secured Revolving Facility Agreement in relation to entering into the 2018 Subordinated Revolving Facility Agreement.

Interxion 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 Agreements.

Mortgages

On January 18, 2013, the Group completed two mortgage financings totaling 10.0 million. The loans 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 by pledges on the lease agreements, and are guaranteed by Interxion France SAS. The principal amounts on the two loans are to be repaid in quarterly installments in an aggregate amount of 167,000, commencing on April 18, 2013. The mortgages have a maturity of 15 years and have a variable interest rate based on EURIBOR plus an individual margin ranging from 240 to 280 basis points. The interest rates have been fixed through an interest rate swap for 75% of the principal outstanding amount for a period of ten years. No financial covenants apply to this loan next to the repayment schedule.

On June 26, 2013, the Group completed a 6.0 million mortgage financing. The loan is secured by a mortgage on the AMS3 property, owned by Interxion Real Estate V B.V., and a pledge on the lease agreement. The principal is to be repaid in annual instalments of 400,000 commencing May 1, 2014 and a final repayment of 4,400,000 due on May 1, 2018. The mortgage has a variable interest rate based on EURIBOR plus 275 basis points. The loan contains a minimum of 1.1 debt service capacity covenant ratio based on the operations of Interxion Real Estate V B.V.

On April 1, 2014, the Group completed a 9.2 million mortgage financing. The facility is secured by a mortgage on the data center property in Zaventem (Belgium), which was acquired by Interxion Real Estate IX N.V. on January 9, 2014, and a pledge on the lease agreement, and is guaranteed by Interxion Real Estate Holding B.V. The facility has a maturity of 15 years and has a variable interest rate based on EURIBOR plus 200 basis points. The principal amount is to be repaid in 59 quarterly instalments of 153,330 of which the first quarterly instalment was paid on July 31, 2014, and a final repayment of 153,330, which is due on April 30, 2029. No financial covenants apply to this loan next to the repayment schedule.

On October 13, 2015, the Group completed a 15.0 million mortgage financing. The facility is secured by a mortgage on the German real estate property owned by Interxion Real Estate I B.V. and a pledge on the lease agreement. The facility has a maturity of five years and has a variable interest rate based on EURIBOR plus 225 basis points. The principal amount is to be repaid in four annual instalments of 1,000,000 of which the first annual instalment was paid on September 30, 2016. The final repayment of 11,000,000 is due on September 30, 2020.

 

 

 

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No financial covenants apply to this loan in addition to the repayment schedule.

On April 8, 2016, the Group completed a 14.6 million financing. The facility is secured by a mortgage on the data center property in Vienna (Austria), acquired by Interxion Real Estate VII GmbH in January 2015, and a pledge on the lease agreement, and is guaranteed by Interxion Real Estate Holding B.V. The facility has a maturity of 14 years and nine months and has a variable interest rate based on EURIBOR plus 195 basis points. The principal amount is due to be repaid in 177 monthly instalments, increasing from 76,000 to 91,750. The first monthly instalment of 76,000 was paid on April 30, 2016, and a final repayment of 91,750 is due on December 31, 2030.

On December 1, 2017, we renewed a 10.0 million mortgage financing entered into in 2012, which was secured by mortgages on the AMS6 property, owned by Interxion Real Estate IV B.V. The principal is to be repaid in annual instalments of 667,000 commencing December 2018, and a final repayment of 7,332,000 due on December 31, 2022. The mortgage has a variable interest rate based on higher of 0% and EURIBOR plus 225 basis points.

Further details are in the Borrowing section (see Note 20).

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 6.00% Senior Secured Notes due 2020, the Group is not exposed to significant variable interest rate expense for borrowings.

 

 

On January 18, 2013, the Group completed two mortgage financings totaling 10.0 million. The loans 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 pledges on the lease agreements, and are guaranteed by Interxion France SAS. The mortgages have a maturity of 15 years and have a variable interest rate based on EURIBOR plus an individual margin ranging from 240 to 280 basis points. The interest rates have been fixed through an interest rate swap for 75% of the principal outstanding amount for a period of ten years.

On June 26, 2013, the Group completed a 6.0 million mortgage financing. The loan is secured by a mortgage on the AMS3 property, owned by Interxion Real Estate V B.V., and a pledge on the lease agreement. The mortgage loan has a variable interest rate based on EURIBOR plus 275 basis points.

On April 1, 2014, the Group completed a 9.2 million mortgage financing. The facility is secured by a mortgage on the data center property in Zaventem (Belgium), which was acquired by Interxion Real Estate IX N.V. on January 9, 2014, and a pledge on the lease agreement, and is guaranteed by Interxion Real Estate Holding B.V. The mortgage loan has a variable interest rate based on EURIBOR plus 200 basis points.

On October 13, 2015, the Group completed a 15.0 million mortgage financing. The facility is secured by a mortgage on the real estate property in Germany, which is owned by Interxion Real Estate I B.V., and a pledge on the lease agreement. The facility has a maturity of five years and has a variable interest rate based on EURIBOR plus 225 basis points.

On April 8, 2016, the Group completed a 14.6 million financing. The facility is secured by a mortgage on the data center property in Vienna (Austria), acquired by Interxion Real Estate VII GmbH in January 2015, and a pledge on the lease agreement, and is guaranteed by Interxion Real Estate Holding B.V. The facility has a maturity of 14 years and nine months and has a variable interest rate based on EURIBOR plus 195 basis points. The principal amount is due to be repaid in 177 monthly instalments, increasing from 76,000 to 91,750. The first monthly instalment of 76,000 was paid on April 30, 2016, and a final repayment of 91,750 is due on December 31, 2030.

On December 1, 2017, we renewed our mortgage on the AMS6 data center property. The existing mortgage loan was repaid and replaced by a new five-year 10.0 million mortgage, bearing a floating interest rate per annum equal to EURIBOR (subject to a zero percent floor) plus an individual margin of 225 basis points. Interest is due quarterly in arrears.

As at December 31, 2017, on the 2013 Super Senior Revolving Facility the interest payable on EUR amounts drawn would be at the rate of (i) in relation to any EUR amount drawn, EURIBOR plus 350 basis points, (ii) in relation to any Danish Kroner amounts drawn would be at the rate of CIBOR plus 350 basis points per annum, (iii) in relation to any Swedish Krona amounts drawn would be at the rate of STIBOR plus 350 basis points per annum and (iv) other applicable currencies, including GBP, amounts drawn at the rate of LIBOR plus 350 basis points per annum. The Super Senior Secured Revolving Facility was undrawn as at December 31, 2017.

 

 

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The 2017 Senior Secured Revolving Facility initially bears interest at a rate of EURIBOR (subject to a zero percent floor) plus a margin of 2.25% per annum, subject to a margin ratchet, pursuant to which the margin may be increased to a maximum of 3.25% per annum if the 2017 Senior Secured Revolving Facility is extended up to an additional six months after its initial maturity date. This facility was fully drawn as at December 31, 2017.

Further details are in the Financial Instruments section (see Note 21).

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 Secured 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.

 

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. Management monitors the operating results of its business units separately for the purpose of making decisions about performance assessments.

There are two segments: the first, The 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, loans and borrowings, and related expenses, 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.

 

 

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  CONSOLIDATED FINANCIAL STATEMENTS     

 

 

 

      Revenues               

Non-Current assets excluding deferred

tax assets and financial instruments

 
      2017        2016      2015      2017        2016      2015    

France

     86,180          68,816        62,007        261,558          223,917        189,926    

Germany

     106,069          84,449        68,568        374,893          281,935        231,309    

The Netherlands

     80,411          70,678        65,225        373,390          286,604        235,270    

United Kingdom

     45,977          45,831        51,114        87,955          81,156        96,747    

Other countries

     170,665          152,014        139,646        350,624          316,644        272,771    

Total

     489,302          421,788        386,560        1,448,420          1,190,256        1,026,023    

 

Information by segment, 2017    Big4      Rest of Europe      Subtotal      Corporate     Total  
                                and other        
                             (€’000)                 

Recurring revenue

     302,346        160,170                462,516              462,516  

Non-recurring revenue

     16,291        10,495                26,786              26,786  

Total revenue

     318,637        170,665                489,302              489,302  

Cost of sales

     (119,931      (57,810              (177,741      (12,730     (190,471

Gross profit/(loss)

     198,706        112,855                311,561        (12,730     298,831  

Other income

     97                       97              97  

Sales and marketing costs

     (9,780      (5,891              (15,671      (17,794     (33,465

General and administrative costs

     (87,903      (37,045              (124,948      (42,242     (167,190

Operating income

     101,120        69,919                171,039        (72,766     98,273  

Net finance expense

                                                (44,367

Profit before taxation

                                                53,906  
                                                     

Total assets

     1,229,960        393,644                1,623,604        78,467       1,702,071  

Total liabilities

     267,751        77,505                345,256        760,087       1,105,343  

Capital expenditures, including intangible assets(1)

     (174,818      (69,832              (244,650      (11,365     (256,015

Depreciation, amortisation and impairments

     72,721        29,365                102,086        6,166       108,252  

Adjusted EBITDA(2)

     174,818        99,665                274,483        (53,522     220,961  

 

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Information by segment, 2016    Big4      Rest of Europe      Subtotal      Corporate     Total  
                                and other        
                             (€’000)                 

Recurring revenue

     256,004        143,954                399,958              399,958  

Non-recurring revenue

     13,770        8,060                21,830              21,830  

Total revenue

     269,774        152,014                421,788              421,788  

Cost of sales

     (100,921      (51,769              (152,690      (9,878     (162,568

Gross profit/(loss)

     168,853        100,245                269,098        (9,878     259,220  

Other income

     333                       333              333  

Sales and marketing costs

     (8,390      (5,209              (13,599      (16,342     (29,941

General and administrative costs

     (73,238      (32,632              (105,870      (32,687     (138,557

Operating income

     87,558        62,404                149,962        (58,907     91,055  

Net finance expense

                                                (36,269

Profit before taxation

                                                56,333  
                                                     

Total assets

     990,406        363,444                1,353,850        128,815       1,482,665  

Total liabilities

     202,330        73,613                275,943        657,953       933,896  

Capital expenditures, including intangible assets(1)

     (170,707      (69,650              (240,357      (10,521     (250,878

Depreciation, amortisation and impairments

     60,128        25,371                85,499        4,336       89,835  

Adjusted EBITDA(2)

     148,191        88,195                236,386        (45,510     190,876  
Information by segment, 2015    Big4      Rest of Europe      Subtotal      Corporate     Total  
                                and other        
                             (€’000)                 

Recurring revenue

     232,624        132,551                365,175              365,175  

Non-recurring revenue

     14,290        7,095                21,385              21,385  

Total revenue

     246,914        139,646                386,560              386,560  

Cost of sales

     (93,311      (49,440              (142,751      (8,862     (151,613

Gross profit/(loss)

     153,603        90,206                243,809        (8,862     234,947  

Other income

     365                       365        20,923       21,288  

Sales and marketing costs

     (7,925      (5,145              (13,070      (15,147     (28,217

General and administrative costs

     (62,828      (30,687