Annual Review & Accounts 2013

Transcription

1 Annual Review & Accounts 2013

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3 Contents 04 Chairman s Statement 06 CEO s Statement 11 CFO s Statement 16 Our Locations 18 Board of Directors 20 Financial Report Founded in 1997, Host Europe Group provides domain registration, mass hosting, customised managed hosting, cloud hosting and has a growing software-as-a-service offering to over 1.7 million customers. As the biggest domain registrar in the UK and largest virtualisation provider in Europe, Host Europe Group is the leading hosting provider for businesses seeking a high quality service combined with an excellent price / performance ratio. With its brands 123-reg, Heart Internet, Host Europe, domainfactory, Webfusion, Domainmonster, RedCoruna and Domainbox, the Group has a strong market presence in the UK, Germany, Austria, Switzerland and Spain. Host Europe Group is the largest privately owned hosting company in Europe. HOST EUROPE GROUP ANNUAL REVIEW 3

4 HOST EUROPE GROUP ANNUAL REVIEW Chairman s Statement I am delighted that in my first year as Chairman of Host Europe Group I can report a year of excellent progress. We have invested - and will continue to invest - in our people, processes, and customers to ensure that we can continue to offer the highest levels of service, and meet the needs of a fast changing and dynamic market. Important changes The past year has seen the Group go through a number of important changes including being acquired in August 2013 by Cinven from Montagu Private Equity. Host Europe Group s growth, strong earnings, and dynamic leadership team, made for a compelling investment. Thomas Vollrath, the then Chief Executive Officer, decided to step down from his position to pursue other business opportunities following the acquisition. He remains a significant investor in Host Europe Group. His dedication to the position and the Group was self-evident, and we would like to wish him well in his future endeavours. His role was subsequently filled by Patrick Pulvermüller, who, having worked with Host Europe Group for many years, knows the organisation intimately and is well placed to help drive the business forward. I joined the Board as Non-Executive Chairman in November 2013 and was immediately impressed by the Group s commitment to delivering best practice and quality assurance in all that we do. The European hosting market is currently undergoing an intense period of change and consolidation. Host Europe Group is playing a central role in this movement, very much to the benefit of our customers, who have access to a wider talent pool of committed individuals, greater expertise, and a large diverse product portfolio. Host Europe Group has an ambitious growth strategy saw the Group undertake two major acquisitions that significantly enhanced our market offering, broadened our portfolio, and increased our customer base. The first of two acquisitions took place in October, when we added Telefónica Germany Online Services GmbH -a leading enterprise managed hosting provider and subsidiary of Telefónica Deutschland - to our Group portfolio. Its high-end hosting expertise complemented our product portfolio and business capabilities, making it a particularly attractive business proposition. Our current brand portfolio: 4 HOST EUROPE GROUP ANNUAL REVIEW

5 Later in the year, we acquired German hosting provider domainfactory, further enhancing Host Europe s presence and capabilities in the German mass hosting market. At the time it was acquired, domainfactory was managing 1.1 million domains and serving approximately 173,000 customers. As a result of the acquisition, we now have almost 400,00 German customers, and we are comfortably placed as the number 3 hosting provider in Germany. is The European hosting market is currently undergoing an intense period of change and consolidation. Host Europe Group playing a central role in this. Lord Birt Chairman Untapped potential Looking to the coming period, opportunities abound in the hosting space. Most SMEs do not have an online presence, and/or still manage their IT infrastructure themselves. As the economy increasingly moves online, the services we provide are critical to business success. We have an outstanding team, and our commitment to the Group s development and growth is recognised by all that work for and with us. We are confident that our strategy has created a strong base from which we can continue to develop and we look forward to delivering long-term growth for our stakeholders. Lord Birt Chairman HOST EUROPE GROUP ANNUAL REVIEW 5

6 HOST EUROPE GROUP ANNUAL REVIEW CEO s Statement Leading the European hosting market Host Europe Group has performed extremely well in the past year, and in spite of challenging economic conditions. We have in place an ambitious growth strategy that will see us continue to build on this momentum and I believe our future will be both exciting and extremely successful. We are firmly committed to being the key enabler of success for businesses online, and it is our vision to be the first choice for companies looking to make the most out of the web. Over the past few years, our brands collectively have made significant progress in this regard. Compared with our immediate competitors, we rank number one in the direct sale and resale of domains in the UK, while in Germany our cloud hosting and managed hosting businesses also come in first place. In fact, two-thirds of our revenues are derived from segments where we are number one, and we are on target to increase our overall market share in the year ahead. Customer-centric approach It is important to recognise, however, that the market in which we operate is crowded and highly competitive. In the hosting industry, technology is no longer the key differentiator it once was; there are many hosting providers all offering similar solutions to the end user. With this being the case, customer service and support become increasingly important. Fortunately, these are areas in which Host Europe Group excels. Customer service is very much part of our DNA. Our mission and value statements are focused heavily towards our customers; we listen to our customers, solve their problems, and deliver the best possible support. This customer-centric approach pays dividends. We currently have around 1.7 million customers: a number that is growing at circa 11 per cent per annum. Moreover, we experience competitive rates of customer churn and our largest customer acquisition channels are through referrals and direct search. This, of course, would not be possible without our staff, who have played a significant role in our journey. Having been with the company for more than a decade, I ve seen Host Europe Group undergo 123-reg fantastic support Written on 29/05/2014 by Brynlee (1 review written) From something simple to something mind boggling, 123-reg can and will help you out no matter what it is. Value for money a great number of changes, leading us to become the multi-national corporation that we are today. Good, motivated staff have been a constant throughout this evolution, and for that, I would like to take this opportunity to thank the management team and our entire body of employees. 6 HOST EUROPE GROUP ANNUAL REVIEW

7 Influence and recognition Host Europe Group has won a number of plaudits from the industry in the past year. We were particularly pleased when our cloud hosting capabilities were recognised through the Experton Vendor Benchmark 2013 which listed Host Europe in the leader quadrant of the category Public Cloud IaaS solutions. We achieved this accolade on the strength of our market position, and the attractiveness of our product portfolio. In the UK our Reseller Hosting Brand Heart Internet was the number 1 web host for 2013 (PC Pro Awards). The PC Pro Excellence Awards are based on the largest independent IT survey in the UK. Votes are entirely from the readers of PC Pro, and the web hosting award goes to the company that has provided the best customer satisfaction in their opinion. Our success to date has been supported by a strong ethos of customer support, which remains a key focus for the business. Early on we adopted a philosophy of unlimited support to retain and grow customers. This philosophy has served the business well and stands as a key brand differentiator across Europe. We lead the way in online marketing. In the UK we are well ahead of our direct competitors in terms of website traffic and generate over 1.25 million visitors every month, while in Germany we are ranked third. Our customer ratings on Google are, by any standards, impressive. domainfactory has been awarded 4.8 stars out of a maximum of 5 over the last 12 months on Google, Host Europe has earned 4.5 stars, while 123-reg has been given 4 stars. These ratings, given by our customers, provide invaluable customer insight into each one of our brands, letting us know where we are performing well, while allowing us to immediately identify any areas that require attention. We also actively measure our Net Promoter Score (NPS), which is an important indicator of customer loyalty and satisfaction. It is part of our ethos to ensure every customer interaction with our brands is a positive experience. All customer touchpoints are monitored and measured. We measure our NPS score (collectively and by brand). Currently, for example, the NPS for Host Europe in Germany stands at 51per cent which is an exceptionally positive indicator when compared to others in our industry and in similar technical organisations. Heart Internet - WINNER Number 1 web host for 2013 (PC Pro Awards) 51% NPS Score - 51% (Host Europe.de) HOST EUROPE GROUP ANNUAL REVIEW 7

8 HOST EUROPE GROUP ANNUAL REVIEW Our Vision, Mission and Values The intrinsic values we believe in, the frame-work by which we make decisions, hire, evaluate and promote people is central to our business culture. Our Vision To cloud enable businesses like no other. We want to be the first choice for companies looking to make the most of the web Our Mission We listen to our customers, solve their problems, and deliver the best possible support Our People We find and inspire the best people for our business Our Practice We seek to improve everything we do Our Customers We deliver the best possible support to our customers Our Products We listen to our customers and develop products which solve their problems Our Planning We focus on the future and anticipate the changes it brings Our Partners We foster valuable relationships with our suppliers and partners Working together with Host Europe was effective and straightforward. The deadlines and the quality standards were met perfectly. Michael Jorissen - Director IT Dealer Networks Renault Deutschland AG 8 HOST EUROPE GROUP ANNUAL REVIEW

9 CEO s Statement - continued Continual improvement It is our belief that good service is as much about meeting customer demands today as anticipating what they will be in five years time. As part of the Group s development plans there will be significant continued investment in products, technical infrastructure, acquisitions and customer support. Group governance and CSR We are commited to meeting the requirements of corporate governance and CSR. We have established a Compliance Committee with representation across the entire Group. The remit of this Committee is to develop our compliance framework to ensure that we can deliver against our key KPIs, and to establish consistent policies across all companies, against which we can be measured. We actively monitor and measure our energy usage, NPS and Klout scores in this context, and these are reported on and reviewed on a monthly basis. and our data centres, we are firmly committed to driving down our carbon footprint, and we are making significant progress in this regard. In Germany we have a Plant-a-Tree programme, with our partner PRIMAKLIMA -weltweit- e.v whereby for every server that we sell we offer our customers the chance to plant a tree. We have approximately 500 customers every month who choose to do so with so far more than 80,000 trees having been planted. We monitor our PUE (Power Usage Effectiveness) at a country level on a monthly basis and have seen positive declines in both Germany and the UK, spurred on, in part, by the use of more energyefficient technologies in our data centres in Cologne and Leeds. Our average PUE rating in Germany, for example, declined from 1.62 in 2012 to 1.58 in We expect this figure to reduce further still in the coming year. Our core KPIs for the Group relate to a range of different areas, including the environment, customer loyalty and Group reputation. Environmental sustainability forms a key component of our governance framework, our KPIs, and, indeed, our strategy for corporate social responsibility. As a business that is fully dependent upon technology HOST EUROPE GROUP ANNUAL REVIEW 9

10 HOST EUROPE GROUP ANNUAL REVIEW CEO s Statement - continued Host Europe Group is committed to integrating environmental best practice into our business activities and we accept our responsibilities to protect and improve the environment. Examples of this within the workplace include: Actively encouraging all employees to print double sided Encouraging employees to turn off lights, computers and printers We have replaced tube lights with energy saving LED panels in our recently refurbished Romanian office We give our old servers to a recycling company that separates the different materials in the servers We are equally as committed to being a socially responsible company, and wherever possible seek to contribute to the local communities in which our operations are based. For example we donate to a number of children s charities in Romania and we run a matched funding scheme in Germany whereby for every Euro that is donated by our employees, Host Europe provides another 2. Compliance with reporting guidelines As a private equity owned company, Host Europe Group is committed to providing full and transparent reporting of its performance as detailed in the guidelines established by the Walker Review in 2007 five It is our belief that service excellence is as much about meeting customer demands today as anticipating what they will be in years time. Patrick Pulvermüller CEO and updated by the Guidelines Monitoring Group in Future strategy We remain dedicated to offering our customers the highest standards of support and service. I am confident we have in place the platforms, the systems, the people and the product set to allow us to continue to grow organically and by strategic acquisition. We have built an excellent model for future growth and sustainability and our values and capabilities will drive the future success of the Group. Patrick Pulvermüller CEO 10 HOST EUROPE GROUP ANNUAL REVIEW

11 CFO s Statement This is currently a very exciting time to be in the domain and hosting industry. The market is moving at pace, spurred on not least by the ever-increasing demand for cloud services, the on-going proliferation of the domains market, and the boom in mobile devices. These factors have, in part, contributed enormously to our success to date, and will continue to do so in the future. We are acutely aware of the need to ensure that our infrastructure can meet the needs of our customers today, whilst also anticipating the needs of our customers tomorrow. As such, we have invested heavily, and will continue to invest, in our networks and data centres. This continued investment in our IT will help to build a foundation on which we can base our growth and consolidation plans for the coming years. The cloud opportunity Cloud computing has been hailed as the next big frontier in business. In just a few short years, businesses have grown increasingly comfortable with outsourcing some or all of their IT to an external provider, but there remains a section of the market that is yet to embrace this technology. However, all signs suggest that it is only a matter of time until they do so. Looking specifically at the UK, the Cloud Industry Forum estimates that 68 per cent of businesses currently using cloud services will extend their use of cloud over the next 12 months, while around a third of organisations that do not use a cloud service today are expected to use their first service during the next 12 months. The continued investment into our own IT capabilities will allow Host Europe Group to take advantage of this emerging market. The domains opportunity The domain industry will undergo the biggest change since the internet began, with hundreds of new gtlds set to enter the market throughout In total, approximately 1,300 new domains will launch, and Host Europe Group is in a strong position to take advantage of this new market opportunity. Looking to more traditional domains such as.co.uk and.com, sales remain buoyant. As the UK s number one domain registrar, we sell and manage more.uk domains every day than any other registrar. In fact, one in three new.uk domains are sold by 123-reg in the UK. HOST EUROPE GROUP ANNUAL REVIEW 11

12 HOST EUROPE GROUP ANNUAL REVIEW Central to our market success has been the broad and diverse product portfolio on offer. Our mix of hosting and managed hosting services, combined with our customer on-boarding and customer service facilities, mean that we are able to win new customers, meet a wide range of needs, and, importantly, retain them. Empowering the digital economy There is no doubt that the economy is shifting online which in turn is driving the demand for hosting services. This change will positively accelerate our growth potential. Businesses rely more and more on gaining new customers through the internet, and are steadily increasing their online advertising spend to drive traffic to their sites. Performance Turnover on a like-for-like basis was million in 2013 compared with million in Turnover for the Group is expected to increase further in 2014 driven by scheduled price increases and a forecasted increase in the Group s customer base. EBITDA on a like-for-like basis was 54.0 million in 2013 compared with 43.5 million in 2012 and this is forecasted to continue to increase in The Group has a positive cash balance as of 31 December 2013, and this is expected to remain the case throughout this calendar year. It is clear that there is a great deal more growth to come, especially in the SME space in which we operate. As and when this occurs, we will be in a good position to capitalise on the shifting business IT landscape. Tobias Mohr CFO 12 HOST EUROPE GROUP ANNUAL REVIEW

13 Our year in numbers: Turnover million 143 Like for like compared to million in 2012.* 54 EBITDA million The results for the Group for the whole 12 months show an adjusted EBITDA of 54.0 million on a like-for-like basis.* more growth to come, especially in the SME space in which we operate. It is clear that there is a great deal Tobias Mohr CFO *Please refer to the reconciliation on page 24 of the financial statements. HOST EUROPE GROUP ANNUAL REVIEW 13

14 HOST EUROPE GROUP ANNUAL REVIEW The explosion of mobile devices will create additional demand for domains and hosting services Internet Usage: % of the world s population % of the world s population minutes a day hours a day 2002 Total Websites: million million Social Media: Friendster launched in 2002 with 3 million users 2012 Facebook had circa 900 million users 2012 Statistics source: 14 HOST EUROPE GROUP ANNUAL REVIEW

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16 HOST EUROPE GROUP ANNUAL REVIEW Our Locations Host Europe Group is renowned for providing high quality hosting products with comprehensive technical support to its many customers around the world Offices Across Europe 1. London (United Kingdom) 2. Bromsgrove (United Kingdom) 3. Nottingham (United Kingdom) 4. Leeds (United Kingdom) 5. Lugo (Spain) 6. Cologne (Germany) 7. Iasi (Romania) 8. Lucerne (Switzerland) 16 HOST EUROPE GROUP ANNUAL REVIEW

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18 HOST EUROPE GROUP ANNUAL REVIEW Management and Chairman Lord Birt 02. Patrick Pulvermüller 03. Tobias Mohr 04. David Barker 05. Florian Luther 06. Thomas Railhac HOST EUROPE GROUP ANNUAL REVIEW

19 01. Lord Birt Chairman After a successful career in ITV, Lord Birt was the BBC s Director-General from 1992 until During his tenure, Birt won plaudits for equipping the corporation for the digital age. 02. Patrick Pulvermüller CEO Host Europe Group Patrick Pulvermüller is the CEO at Host Europe Group Europe`s largest privately owned hosting provider. Patrick joined the Group in 2001 as a sales manager. From 2003 he was the Head of Operations. Following his time at the BBC, Birt has held a number of high profile positions, including Chairman of PayPal Europe. Birt became a crossbencher in the House of Lords in 2000, and was Strategy Adviser to the Prime Minister from In 2013, Lord Birt was appointed non-executive Chairman of Host Europe Group. With the establishment and development of new business areas such as managed hosting and cloud hosting he has been instrumental in driving the Group`s success and growth. Thanks to Patrick`s dedication, Host Europe today is the largest virtualisation provider in Europe and the leading Managed Hosting player in Germany. Patrick Pulvermüller has an MBA from the Open University Business School and is an expert in operational management and strategic financial planning. 03. Tobias Mohr CFO Host Europe Group Tobias Mohr joined the Host Europe Group in April 2008, and since then he has been responsible for the set-up and streamlining of the Group s financial systems. Tobias is also involved in the improvement of controlling and reporting processes within the Group and has been heavily involved in repositioning the Host Europe Group s product offering in the UK. Prior to joining the Host Europe Group, Tobias worked for 5 years for United Internet / 1&1 Internet AG as the Head of Financial Controlling for the Webhosting Division in Germany and internationally. Tobias has also held various financial positions within the private banking and asset management sectors. HOST EUROPE GROUP ANNUAL REVIEW 19

20 HOST EUROPE GROUP ANNUAL REVIEW 04. David Barker Executive Director David joined Cinven in 1996 and is a member of the Industrials and TMT sector teams. He has since been involved in numerous transactions including Aprovia, CPA Global, Eutelsat, Host Europe Group, MediMedia, Springer, Ufinet and Ziggo. David has a BA in Natural Sciences from Cambridge University and is a Chartered Accountant. 05. Florian Luther Executive Director Florian joined Cinven in 2007 and is a member of the TMT sector team. He has worked on a number of transactions including Host Europe Group, JOST and SLV. Prior to joining Cinven, Florian worked in corporate finance at UBS, advising companies within the metals and mining sector. Previously, he was at Hewlett-Packard. Florian has a joint MA in Business Administration and Computer Engineering and an MA in Computer Science, from the Technical University of Berlin. 06. Thomas Railhac Executive Director Thomas joined Cinven in 2008 and is a member of the TMT sector team. He has been involved in a number of transactions including Host Europe Group, Numericable Group and Ufinet. Prior to joining Cinven, Thomas spent over four years in the private equity division of Goldman Sachs (GS Principal Investment Area) in London. Thomas has a MSc in Engineering from the Ecole Centrale Paris. 20 HOST EUROPE GROUP ANNUAL REVIEW

21 About Cinven Cinven is a leading European private equity firm, founded in 1977, with offices in Guernsey, London, Frankfurt, Paris, Milan,Luxembourg and Hong Kong. It acquires European-based companies that require an equity investment of 100 million or more. Its European focus and expertise are complemented by an ability to capitalise on global growth opportunities through its Asian Portfolio team. It focuses on six sectors: Healthcare, Business Services, Consumer, Financial Services, Industrials and Technology, Media and Telecommunications (TMT). Cinven acquires successful, high-quality companies and works with them to help them grow and develop, using its proven value creation strategies. It takes a responsible approach towards its portfolio companies, their employees, suppliers and local communities, the environment and society. HOST EUROPE GROUP ANNUAL REVIEW 21

22 HOST EUROPE GROUP ANNUAL REVIEW Financial Report Officers and professional advisers Directors Lord Birt D Barker F Luther T Railhac T Mohr M Mansell Patrick Pulvermüller Secretary J Shutler Registered Office 5 Roundwood Avenue Stockley Park Uxbridge Middlesex UB11 1FF Bank Lloyds Bank Plc City Office Monument Street London EC3V 9JA Auditor Deloitte LLP Reading United Kingdom 22 HOST EUROPE GROUP ANNUAL REVIEW

23 Financial Report Strategic report Principal activity and future developments Host Europe Holdings Limited and its subsidiaries (the Group) provides web hosting, application hosting, managed hosting services and internet domain names mainly to SME customers. The Group plans to continue its existing activities. Incorporation and change of name The company was incorporated on 18 July 2013 under the name Devon Topco Limited. On 25 September 2013 it changed its name to Host Europe Holdings Limited. Business review On 30 August 2013 the Group acquired HEL Holding Limited for million consideration including costs of 21.9 million. The consideration and costs were paid in cash. The acquisition was funded by bank loans (as detailed in note 16) and the issue of loan notes to the main holders of ordinary shares. These loan notes are held in Host Europe Finance Co Limited, which is an intermediate holding company in the Group of Host Europe Holdings Limited. On 29 November 2013 the Group acquired Domain Factory GmbH and its subsidiaries for million consideration including costs of 1.5 million. The acquisition was funded by bank loans (as detailed in note 16) and the issue of loan notes to the main holders of ordinary shares. These loan notes are held in Host Europe Finance Co Limited. Turnover on a like-for-like basis (for the full 2013 and 2012 calendar years for the acquired companies including any pre-acquisition periods) was million for 2013, compared with million for Turnover for the Group is expected to increase further in 2014 driven by scheduled price increases and forecasted increase in the Group s customer base. It should be noted that the results for the period consist of the first 123 days of operations from 31 August to 31 December The results for the Group for the whole 12 months show an adjusted EBITDA of 40.4 million compared to total senior debt of million. With 21.4 million of cash liquidity and with revenues and EBITDA expected to grow, the business appears well funded for the foreseeable future. On 31 October 2013 the Group acquired Telefonica Germany Online Services GmbH for 36.6 million including costs of 0.6 million. The consideration and costs were paid in cash. The acquisition was funded by bank loans (as detailed in note 16). HOST EUROPE GROUP ANNUAL REVIEW 23

24 HOST EUROPE GROUP ANNUAL REVIEW Financial Report Strategic report - continued In the 4 months from 30 August to 31 December 2013 the Group generated revenue of 39.9 million and a loss on ordinary activities of 22.2 million. An analysis of the like-for-like comparison is shown below: Year ended 31 December 2010 (unaudited) Year ended 31 December 2011 (unaudited) Year ended 31 December 2012 (unaudited) Year ended 31 December 2013 (unaudited) Compound Annual Growth Rate Note m m m m Turnover Like-for-like adjustment* Like-for-like Turnover % Adjusted EBITDA** Like-for-like adjustment* Like-for-like Adjusted EBITDA % *Pro-forma retrospective adjustment for the results of Host Europe Solutions GmbH (formerly Telefonica Germany Online Services GmbH), Domain Factory GmbH, Heart Internet Limited, Mesh Digital Limited, RedCoruna SLU and Host Europe Suisse AG (formerly dynamic-net.ch AG) for the relevant periods pre-acquisition so that the like-forlike figures above include full year results for each subsidiary for each year shown. **EBITDA is adjusted for any non-recurring income or expense as defined in the accounting policies (see note 1). The Group has financial key performance indicators (KPIs) as follows: 24 HOST EUROPE GROUP ANNUAL REVIEW

25 Period ended 31 December 2013 m Revenue 39.9 Gross profit 28.6 Adjusted EBITDA 15.0 Capital expenditure 5.5 The Group s net debt at 31 December 2013 was as follows: 2013 m Cash (21.4) Bank loans Loan notes Finance leases 1.2 Total net debt HOST EUROPE GROUP ANNUAL REVIEW 25

26 HOST EUROPE GROUP ANNUAL REVIEW Financial Report Strategic report - continued Financial risk management objectives and policies Senior management are aware of their responsibility for managing risks within their business units. Each business unit head reports to the board on the status of these risks through management reports. Risk is regularly reviewed at board level to ensure that risk management is being implemented and monitored effectively. The board s policy is to ensure that the business units are empowered to run their business effectively and appropriately, bearing in mind the requirements for timely decision making and commercial reality. Through management reports, risks are highlighted and monitored to identify potential business risk areas and to quantify and address the risk wherever possible. Commercial and general risk Standard form contracts are provided for commercial use and to assist the commercial function to negotiate within approved parameters. Insurance policies are regularly reviewed to ensure these are adequate and appropriate, in line with the nature, size and complexity of the business. Interest rate risk out an interest rate swap to remove its exposure to floating exchange rates on bank debt. Credit risk The majority of the Group s customers pay in advance for services. Where services are supplied without advance payment, a credit review of the customer is performed when the order is received and subsequently on a periodic basis. Liquidity risk The Group actively maintains a mixture of long-term and short-term debt finance that is designed to ensure the company has sufficient available funds for its operations. Currency risk The Group is exposed to movements in foreign currency exchange rates in respect of foreign currency denominated transactions and movements in respect of the translation of net assets and profit and loss of foreign subsidiaries. The Group does not hedge the translation effect of exchange rate movements in the profit and loss or balance sheet of foreign subsidiaries. The Group has arranged for the majority of its debt to be on a fixed interest basis. The Group has taken 26 HOST EUROPE GROUP ANNUAL REVIEW

27 Going concern The Group has net current liabilities of 1,103,000 as set out in the balance sheet on page 34. Excluding an accrual for shareholder interest the Group has net assets of 10,179,000 and made a loss in the period of 26,007,000 as set out in the profit and loss statement on page 31. In assessing whether the going concern basis is appropriate, the directors take into account all available information about the future, which is at least, but is not limited to, 12 months from the date of approval of these financial statements. The directors have performed this review at a company level and have also performed a review for the entire Group. The directors have a reasonable expectation that despite the current economic uncertainty the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis in preparing these financial statements. Approved by the Board of Directors and signed on behalf of the Board James Shutler Secretary 14 April 2014 HOST EUROPE GROUP ANNUAL REVIEW 27

28 HOST EUROPE GROUP ANNUAL REVIEW Directors Report The directors present their report together with the audited financial statements for the period ended 31 December Results and dividends The profit and loss account is set out on page 33 and shows the result for the period. The directors do not recommend the payment of a dividend. Directors The directors of the company during the period and to the date of approval of the financial statements were: David Barker (appointed 18 July 2013) Thomas Railhac (appointed 18 July 2013) Thilo Sautter (appointed 18 July 2013) (resigned 30 August 2013) Thomas Vollrath (appointed 30 August 2013) (resigned 4 February 2014) Employment of disabled persons Applications for employment by disabled persons are always fully considered, bearing in mind the respective aptitudes and abilities of the applicant concerned. In the event of members of staff becoming disabled every effort is made to ensure that their employment with the Group continues and the appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of a disabled person should, as far as possible, be identical to that of a person who does not suffer from a disability. Employee participation Consultation with employees or their representatives has continued at all levels, with the aim of ensuring that their views are taken into account when decisions are made that are likely to affect their interests and that all employees are aware of the financial and economic performance of their business units. Florian Luther (appointed 30 August 2013) P. Pulvermueller (appointed 30 August 2013) Tobias Mohr (appointed 30 August 2013) Lord Birt (appointed 25 November 2013) 28 HOST EUROPE GROUP ANNUAL REVIEW

29 Auditor and disclosure of information to auditor Each of the persons who is a director at the date of approval of this report confirms that: So far as the director is aware, there is no relevant audit information of which the company s auditor is unaware; and The director has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the company s auditor is aware of that information. Deloitte LLP have expressed their willingness to continue in office and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting. Approved by the Board of Directors and signed on behalf of the Board James Shutler Secretary 14 April 2014 HOST EUROPE GROUP ANNUAL REVIEW 29

30 HOST EUROPE GROUP ANNUAL REVIEW Directors Responsibilities Statement The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to: Select suitable accounting policies and then apply them consistently; Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies (Jersey) Law They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Make judgments and accounting estimates that are reasonable and prudent; State whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and 30 HOST EUROPE GROUP ANNUAL REVIEW

31 Independent auditor s report to the members of Host Europe Holdings Limited We have audited the financial statements of Host Europe Holdings Limited for the period ended 31 December 2013 which comprise the consolidated profit and loss account, the consolidated statement of total recognised gains and losses, the consolidated and company balance sheets, the consolidated cash flow statement and the related notes 1 to 30. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the company s members, as a body, in accordance with Article 113A of the Companies (Jersey) Law Our audit work has been undertaken so that we might state to the company s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Directors Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the HOST EUROPE GROUP ANNUAL REVIEW 31

32 HOST EUROPE GROUP ANNUAL REVIEW Independent auditor s report to the members of Host Europe Holdings Limited - continued accounting policies are appropriate to the company s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: Give a true and fair view of the state of the Group s and of the parents company s affairs as of 31 December 2013 and of the Group s loss for the period then ended Have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies (Jersey) Law 1991 requires us to report to you if, in our opinion: Proper accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or The financial statements are not in agreement with the accounting records and returns; or Certain disclosures of directors remuneration specified by law are not made; or We have not received all the information and explanations we require for our audit. Andrew Bond ACA (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor Reading, United Kingdom 14 April 2014 Have been prepared in accordance with the requirements of the Companies (Jersey) Law HOST EUROPE GROUP ANNUAL REVIEW

33 Consolidated profit and loss account 18 July to 31 December 2013 Note 18 July to 31 December 2013 Turnover 2 39,900 Cost of sales (11,287) Gross profit 28,613 Amortisation of goodwill and other intangibles (16,146) Other administrative expenses (18,779) Operating loss 5 (6,312) Interest receivable and similar income 6 20 Interest payable and similar charges 7 (15,945) Loss on ordinary activities before taxation (22,237) Taxation on loss from ordinary activities 9 (3,770) Loss for the financial period 19 (26,007) All amounts relate to continuing operations. Consolidated statement of total recognised gains and losses 18th July to 31st December 2013 Loss for the financial period (26,007) Exchange translation differences on consolidation 19 1,123 Total recognised losses for the financial period (24,884) HOST EUROPE GROUP ANNUAL REVIEW 33

34 HOST EUROPE GROUP ANNUAL REVIEW Consolidated balance sheet at 31 December 2013 Note 2013 Fixed assets Intangible assets ,762 Tangible assets 11 35, ,246 Current assets Debtors 13 13,905 Cash at bank and in hand 21,407 35,312 Creditors: amounts falling due within one year 14 (36,415) Net current liabilities (1,103) Total assets less current liabilities 596,143 Creditors: amounts falling due after more than one year 15 (593,647) Deferred income (10,541) Provisions for liabilities 17 (1,554) Net liabilities (9,599) Capital and reserves Called up share capital 18 15,285 Profit and loss account 19 (24,884) Shareholder s deficit 20 (9,599) The financial statements of Host Europe Holdings Limited, registered number , were approved by the Board of Directors and authorised for issue on 14 April Signed on behalf of the Board of Directors Tobias Mohr CFO 34 HOST EUROPE GROUP ANNUAL REVIEW

35 Company balance sheet at 31 December 2013 Note 2013 Fixed assets Investments 12 12,830 Current assets Debtors 13 2,493 Net assets 15,323 Capital and reserves Called up share capital 18 15,285 Profit and loss account Shareholders' funds 20 15,323 The financial statements of Host Europe Holdings Limited, registered number , were approved by the Board of Directors and authorised for issue on 14 April Signed on behalf of the Board of Directors Tobias Mohr CFO HOST EUROPE GROUP ANNUAL REVIEW 35

36 HOST EUROPE GROUP ANNUAL REVIEW Consolidated cash flow statement 18 July to 31 December 2013 Note 18 July to 31 December 2013 Net cash inflow from operating activities 26 10,382 Returns on investments and servicing of finance Bank loan interest paid (2,705) Interest on loan notes (53,838) Amortisation of debt issue costs (522) Interest element of finance leases payments (135) Bank interest received 20 Net cash outflow from investments and servicing of finance (57,180) Taxation paid (1,482) Capital expenditure and financial investment Payments to acquire fixed assets (5,680) Net cash outflow from capital expenditure and financial investment (5,680) Acquisitions and disposals Purchase of shares in subsidiary undertakings (347,840) Cash acquired with subsidiary undertakings 28,657 Net cash outflow from acquisitions and disposals (319,183) Net cash outflow before financing (308,471) 36 HOST EUROPE GROUP ANNUAL REVIEW

37 Note 18 July to 31 December 2013 Financing New bank loans (net of debt fees) 280,285 Shareholder debt repayment (135,055) Proceeds from issue of loan notes 316,270 Proceeds from issue of ordinary shares 15,285 Repayment of bank loans (81,569) New finance leases less capital element repaid (546) Net cash inflow from financing 394,670 Total cash flow 21,527 Exchange differences (120) Increase in cash 21,407 HOST EUROPE GROUP ANNUAL REVIEW 37

38 HOST EUROPE GROUP ANNUAL REVIEW Notes to the financial statements 18 July to 31 December Accounting policies The financial statements are prepared in accordance with applicable United Kingdom accounting standards. Accounting convention The financial statements have been prepared under the historical cost convention and in accordance with United Kingdom generally Accepted Accounting Practice. The particular accounting policies adopted, which have been applied consistently throughout the current period, are described below. Basis of consolidation The consolidated financial statements incorporate those of the parent undertaking and each of its subsidiary undertakings made up to 31 December The results of subsidiaries acquired are included in the profit and loss account from the date effective control passed. Going concern The Group has net current liabilities of 1,103,000 as set out in the balance sheet on page 34, and made a loss in the period of 26,007,000 as set out in the profit and loss statement on page 33. available information about the future, which is at least, but is not limited to, 12 months from the date of approval of these financial statements. The directors have a reasonable expectation that despite the current economic uncertainty the company has adequate resources to continue in operational existence for the foreseeable future. The financial statements have been prepared on the going concern basis, notwithstanding net current liabilities of 1.1 million, which the directors believe to be appropriate for the following reasons: EBITDA is profitable (earnings before goodwill amortisation, depreciation and exceptional items) and this is forecast to continue in The Group has a positive cash balance at 31 December 2013 of 21.4 million. The directors forecast positive cash flows for 12 months from the date of signing these accounts. The business acquired Host Europe Solutions GmbH (formerly Telefonica Germany Online Services GmbH) and Domain Factory GmbH during the year. These acquisitions are expected to provide a number of growth opportunities for the Group. In assessing whether the going concern basis is appropriate, the directors take into account all 38 HOST EUROPE GROUP ANNUAL REVIEW

39 At the date of approval of these financial statements the Directors believe that the Group will continue to operate successfully for the foreseeable future and be able to meet its liabilities as and when they fall due and that the Group will continue to comfortably meet its banking covenants. Turnover Turnover comprises the value of web hosting and network services provided, and internet domain names issued, net of value added tax. Fees for web hosting and network services are deferred and recognised evenly over the period of the contract. Income from the issue of domain names is recognised in full on registration of the domain names. Non-recurring and other items Non-recurring and other items are material items of income or expense that are disclosed separately due to their nature or amount as defined by the debt agreement. Goodwill Goodwill arising on the acquisition of a business is the difference between the fair value of the consideration paid and the aggregate fair value of the assets and liabilities acquired. Goodwill is capitalised and amortised on a straight- line basis over 10 years, which is the directors estimate of the useful economic life. Intangible assets customer lists Customer lists are included at cost and depreciated in equal annual instalments over a period of four years which is their estimated useful economic life. Provision is made for any impairment. Investments Fixed asset investments are shown at cost less provision for impairment. They are disclosed and described separately in the accounts where it is necessary to do so to provide further understanding of the financial performance of the Group. HOST EUROPE GROUP ANNUAL REVIEW 39

40 HOST EUROPE GROUP ANNUAL REVIEW Notes to the financial statements 18 July to 31 December Accounting policies - continued Tangible fixed assets Tangible fixed assets are stated at cost or valuation, net of depreciation and any provision for impairment. Depreciation is provided on all tangible fixed assets, other than freehold land, at rates calculated to write off the cost or valuation, less estimated residual value, of each asset on a straight-line basis over its expected useful life, as follows: Freehold buildings 20 to 25 years Leasehold improvements shorter of the lease term or useful economic life Network infrastructure Plant and Machinery Office equipment 2 to 10 years 2 to 10 years 3 to 7 years Residual value is calculated on prices prevailing at the date of acquisition or revaluation. Taxation Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. DeferredTaxation Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Group s taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses on tax assessments in periods different from those in which they are recognised in the financial statements A net deferred tax asset is regarded as recoverable and therefore recognised only to the extent that, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is not recognised when fixed assets are revalued unless by the balance sheet date there is a binding agreement to sell the revalued assets and the gain or loss expected to arise on sale has been recognised in the financial statements. Neither is deferred tax recognised when fixed assets are sold as it is more likely than not that the taxable gain will be rolled over, being charged to tax only if and when the replacement assets are sold. 40 HOST EUROPE GROUP ANNUAL REVIEW