F-1 1 df1.htm FORM F-1 Form F-1
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As filed with the Securities and Exchange Commission on January 12, 2011

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

InterXion Holding N.V.

(Exact name of Registrant as specified in its charter)

 

 

Not Applicable

(Translation of Registrant’s name into English)

 

The Netherlands   4813   Not Applicable

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

Tupolevlaan 24

1119 NX Schiphol-Rijk

The Netherlands

+31 20 880 7600

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

CT Corporation System

111 Eighth Avenue

New York, New York 10011

United States

(212) 894-8940

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

With copies to:

 

Jeffrey C. Cohen   David Beveridge
Scott I. Sonnenblick   Michael Schiavone
Linklaters LLP   Shearman & Sterling LLP
1345 Avenue of the Americas   599 Lexington Avenue
New York, N.Y. 10105   New York, N.Y. 10022
Phone: (212) 903-9000   Phone: (212) 848-4000
Fax: (212) 903-9100   Fax: (212) 848-7179

 

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title Of Each Class Of

Securities To Be Registered

  Proposed Maximum
Aggregate Offering
Price(1)
  Amount Of
Registration Fee

Ordinary shares, with a nominal value of €0.10 each

  $325,000,000   $37,733
 
 
(1) Estimated solely for the purposes of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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EXPLANATORY NOTE

This registration statement contains two forms of prospectus: one to be used in connection with an initial public offering by InterXion Holding N.V. of ordinary shares to new investors (the “IPO Prospectus”) and one to be used in connection with an offering by InterXion Holding N.V. of ordinary shares to holders of 2002 Series A Preference Shares in respect of the liquidation price of the 2002 Series A Preference Shares (the “Preferred Shares Liquidation Price Prospectus”) pursuant to the terms of the 2002 Series A Preference Shares.

The form of the IPO Prospectus immediately follows this note. Following the IPO Prospectus are alternate sections for the Preferred Shares Liquidation Price Prospectus: the front and back cover pages; “Summary—The Offering;” “Use of Proceeds;” “Capitalization;” “Principal Shareholders” (replacing the “Principal and Selling Shareholders” section in the IPO Prospectus); “Plan of Distribution” (replacing the “Underwriting” section in the IPO Prospectus); and “Legal Matters.”


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED JANUARY 12, 2011

 

PRELIMINARY PROSPECTUS    CONFIDENTIAL

LOGO

18,550,000 Ordinary Shares

InterXion Holding N.V.

(a limited liability company incorporated under the laws of The Netherlands)

$             per Ordinary Share

This is the initial public offering of our ordinary shares. We are selling 16,250,000 ordinary shares and the selling shareholders named in this prospectus are selling 2,300,000 ordinary shares. We will not receive any proceeds from the sale of the ordinary shares by the selling shareholders. We currently expect the initial public offering price to be between $11.00 and $13.00 per ordinary share.

The selling shareholders have granted the underwriters an option to purchase up to 2,782,500 additional ordinary shares to cover over-allotments.

We have applied to list our ordinary shares on the New York Stock Exchange under the symbol “INXN.”

 

 

Investing in our ordinary shares involves risks. See “Risk Factors” beginning on page 12.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

     Per
Ordinary
Share
     Total  

Public Offering Price

     

Underwriting Discount

     

Proceeds to InterXion Holding N.V. (before expenses)

     

Proceeds to the selling shareholders (before expenses)

     

The underwriters expect to deliver the ordinary shares to purchasers on or about                     , 2011 through the book-entry facilities of The Depository Trust Company.

 

 

 

BofA Merrill Lynch   Citi   Barclays Capital

Jefferies                    Credit Suisse                   RBC Capital Markets                   Piper Jaffray

Oppenheimer & Co.       Evercore Partners       Guggenheim Securities, LLC     ABN AMRO

 

 

The date of this prospectus is                     , 2011


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LOGO


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We and the selling shareholders have not, and the underwriters have not, authorized anyone to provide you with any information different from that contained in this Prospectus. We and the selling shareholders do not, and the underwriters do not, take any responsibility for, and can provide no assurances as to, the reliability of any information that others may provide you. We and the selling shareholders are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information contained in this prospectus (the “Prospectus”) is accurate only as of the date on the front cover of the Prospectus or other date stated in the Prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

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      Page  

Summary

     1   

Risk Factors

     12   

Forward-Looking Statements

     29   

Market, Economic and Industry Data

     30   

Presentation of Financial and Other Information

     31   

Exchange Rate Information

     33   

Use of Proceeds

     34   

Capitalization

     35   

Dilution

     37   

Dividend Policy

     39   

Selected Financial Data

     40   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     42   

Industry Overview

     63   
      Page  

Business

     68   

Management

     78   

Principal and Selling Shareholders

     86   

Related Party Transactions

     90   

Description of Capital Stock

     93   

Description of Certain Indebtedness

     105   

Shares Eligible for Future Sale

     118   

Taxation

     120   

Underwriting

     126   

Expenses of This Offering

     133   

Enforceability of Civil Liabilities

     134   

Legal Matters

     135   

Experts

     136   

Where You Can Find More Information

     137   

Index to Financial Statements

     F-1   

 

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SUMMARY

This summary highlights selected information about us and the ordinary shares and should be read as an introduction to the more detailed information appearing elsewhere in this Prospectus. This summary does not contain all the information you should consider before investing in the ordinary shares. You should read the entire Prospectus carefully for a more complete understanding of our business and this offering, including “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited consolidated financial information and related notes contained herein.

Solely for convenience, this Prospectus contains translation of certain euro amounts into U.S. dollars based on the noon buying rate of €1.00 to U.S. $1.3601 and €1.00 to U.S. $1.4332 in The City of New York for cable transfers of euro as certified for customs purposes by the Federal Reserve Bank of New York as of September 30, 2010 and December 31, 2009, respectively. These translation rates should not be construed as representations that the euro amounts have been, could have been or could be converted into U.S. dollars at that or any other rate. See “Exchange Rate Information.”

Overview

We are a leading provider of carrier-neutral colocation data center services in Europe. We support over 1,100 customers through 28 data centers in 11 countries enabling them to protect, connect, process and distribute their most valuable information. Within our data centers, we enable our customers to connect to a broad range of telecommunications carriers, Internet service providers and other customers. Our data centers act as content and connectivity hubs that facilitate the processing, storage, sharing and distribution of data, content, applications and media among carriers and customers, creating an environment that we refer to as a community of interest.

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

We are headquartered near Amsterdam, The Netherlands, and we operate in major metropolitan areas, including London, Frankfurt, Paris, Amsterdam and Madrid, the main data center markets in Europe. Our data centers are located in close proximity to the intersection of telecommunications fiber routes, and we house more than 350 carriers and Internet service providers and 18 European Internet exchanges. 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.

For the nine months ended September 30, 2010, our total revenue was €152.8 million, our operating profit was €34.3 million and our Adjusted EBITDA, a non-GAAP financial measure, was €57.8 million, compared to €126.6 million in revenue, €24.5 million in operating profit and €45.8 million in Adjusted EBITDA in the nine months ended September 30, 2009. Over 90% of our revenue is Recurring Revenue, and typically 60-70% of our new bookings in any given year are generated from existing customers. See “Presentation of Financial and Other Information—Additional Key Performance Indicators.”

For the year ended December 31, 2009, our total revenue was €171.7 million, our operating profit was €32.0 million and our Adjusted EBITDA was €62.7 million, compared to €138.2 million in revenue, €32.2 million in operating profit and €48.3 million in Adjusted EBITDA in the year ended December 31, 2008. See “Presentation of Financial and Other Information—Additional Key Performance Indicators.”

 

 

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For the years ended December 31, 2009, 2008 and 2007, our net income was €26.5 million, €37.4 million and €13.6 million, respectively.

Industry Overview

Growth in Internet traffic, cloud computing and the use of customer-facing hosted applications are driving significant demand for high quality carrier-neutral colocation data center services. This demand results from the need for either more space or more power, or both. According to the Cisco Visual Networking Index, Global IP traffic is expected to grow at a compound annual growth rate of 34% from 2009 to 2014. This growth is driven by, among other factors, decreased cost of Internet access, increased broadband penetration, increased usage of high-bandwidth content, increased number of wireless access points and growing availability of Internet and network based applications.

Increased Internet traffic drives demand for data center services as customers need a secure environment in which to locate additional processing, networking and computer equipment, such as servers, switches, routers and storage equipment, to support this traffic. In addition, the continued growth in adoption of unified communications, videoconferencing, as well as telepresence, will continue to drive the need for hosted applications with high connectivity requirements.

Significant barriers to entry exist in the carrier-neutral colocation market, including the scarcity of adequate locations, the cost and requirements of data center development, the time and resources required to develop communities of interest, the difficulty of establishing a reputable brand, associated track record and the inherently high switching costs for customers and carriers.

International Data Corporation, or IDC, projects the market for carrier-neutral colocation data center services in the United Kingdom, France, Germany and The Netherlands to grow from €922 million in 2009 to €2.245 billion in 2014, a compound annual growth rate of 19%. According to Tier1 Research, the shortfall in supply versus demand for data center capacity in Europe will continue for the next three years.

Pricing is determined by a number of factors, including the availability of data center capacity, the type and quality of space required (from standard cabinet space to customized suites), power requirements, the prevailing market spot price of data center capacity, the length of contract term, data center location, proximity and the reputation of the data center provider.

Competitive Strengths

Leading European Carrier-Neutral Colocation Data Center Services Provider with Broad, Strategic Footprint

We are a leading carrier-neutral colocation data center services provider in Europe based on our geographic footprint, high level of connectivity and established brand. Through our 28 data centers in 11 countries, we operate more data centers in more countries than any other data center provider in Europe. Our data centers are located near key business hubs and in close proximity to the interconnection points of telecommunications fiber routes and power sources, which enables us to provide our customers with high levels of connectivity and the requisite power to meet their needs.

Strong, High Value Communities of Interest

Our carrier-neutral colocation data center model, which houses 18 European Internet exchanges, together with more than 350 carriers and Internet service providers, creates critical exchange points for Internet and data traffic. These exchange points attract enterprises, media and content providers, IT services providers and other

 

 

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groups wanting to access these diverse networks and other enterprises in a single location versus connecting these parties in multiple locations. This high level of connectivity fosters the development of value-added communities of interest within our customer segments. These communities of interest then attract additional carriers and customers which makes them increasingly more valuable.

Superior Levels of Connectivity

Our data centers provide our customers with connectivity to more than 350 individual carriers and Internet service providers as well as 18 European Internet exchanges. We believe this level of connectivity is unmatched by our competitors and attracts customers to our data centers. Our high level of connectivity enables customers to select the most cost-effective, reliable and convenient carriers at each data center and to migrate efficiently between carriers, thereby lowering their telecommunications costs and reducing latency.

Uniform, High Quality Data Centers and Customer Service

We design, build and operate each of our data centers according to uniform designs, processes and standards, which results in the construction and operation of high quality data centers. Having grown organically rather than through acquisitions, the uniformity of our data centers satisfies an important requirement for customers who seek consistency across multiple locations. This consistency also allows us to reduce cost, complexity and the risks associated with building and operating multiple data centers. All of our data centers are accredited as compliant with the Information Security Management Systems Standard ISO 27001. Through our European customer service center and strong country teams, we are able to deliver uniform quality and service to our customers, including consistent account and service management, reporting and billing. We also have local service delivery and assurance teams with strong in country management to ensure local knowledge and responsiveness. Our best-in-class customer service drives customer loyalty and contributes to our low customer churn rate.

Strong Value Proposition for Our Customers

Our carrier-neutral colocation service is a compelling value proposition versus building in-house, or outsourcing to a carrier-operated data center. Our customers save significant costs of building and maintaining a data center as well as the telecommunication costs required to access multiple networks and other participants in the communities of interest. Our carrier-neutral proposition also provides greater flexibility for enterprises to expand to meet their data center needs and deliver better performance as a result of lower network latency and excellent customer service.

Attractive Financial Model

Our recurring revenue model and largely fixed cost base provide us with significant visibility into future financial performance. In the last several years, our Recurring Revenue has consistently been over 90% of our total revenue. Our long-term contracts and high renewal rates further contribute to our revenue visibility. The terms of our initial customer contracts are typically three to five years and have automatic, one-year renewals. Our cost base consists primarily of personnel, power and property. While our personnel and property costs are largely fixed, our contracts provide us with the ability to adjust customer pricing for power in order to recover any increases in power costs. Our recurring revenue model provides significant predictability of future revenue, and our largely fixed cost base produces strong operating leverage. We enjoy long-standing relationships with our customers and have high customer retention, as evidenced by our low Average Monthly Churn rate, which was 0.6% in the nine months ended September 30, 2010. Although we generally expect our costs of sales and general and administrative costs to grow over time, we expect these costs to decrease as a percentage of revenue.

 

 

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Strategy

Target New Customers in High Growth Segments to Further Develop our Communities of Interest

We will continue to target new customers in high growth market segments, including financial services, cloud and managed services providers, digital media and carriers. Winning new customers in these target markets enables us to expand existing, and build new, high value communities of interest within our data centers. Communities of interest are particularly important to customers in each of these market segments. For example, customers in the digital media segment benefit from the close proximity to content delivery network providers and Internet exchanges in order to rapidly deliver content to consumers. We expect the high value and reduced cost benefits of our communities of interest to continue to attract new customers, which will lead to decreased customer acquisition costs for us.

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 approximately 70% 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 also will 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 the appropriate Internet exchange. Our carrier sales and business development team will continue to work with our existing carriers and Internet service providers, and target new carriers and Internet service providers, to maximize our share of their data center spend, and to achieve the highest level of connectivity in each of our data centers.

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 operates 24 hours a day, 365 days a year, providing continual monitoring and troubleshooting and giving our customers one call access to full, multilingual technical support, thereby reducing our customers’ internal support costs. In addition, we will continue to develop our customer tools, which include an online customer portal to provide our customers with real-time access to information. We will continue to invest in our local service delivery and assurance teams, which provide flexibility and responsiveness to customer needs.

Disciplined Expansion and Conservative Financial Management

We plan to invest in our data center capacity, while maintaining our disciplined investment approach and prudent financial policy. We will continue to determine the size of our expansions based on selling patterns, pipeline and trends in existing demand as well as working with our customers to identify future capacity requirements. We only begin new expansions once we have identified customers and we have the capital to fully fund the build out. Our expansions are done in phases in order to manage the timing and scale of our capital expenditure obligations, reduce risk and improve our return on capital. Finally, we will continue to manage our capital deployment and financial management decisions based on adherence to our target internal rate of return on new expansions and target leverage ratios.

 

 

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Summary Risk Factors

Investing in our ordinary shares involves a high degree of risk. You should consider carefully the risks and uncertainties summarized below, the risks described under “Risk Factors,” the other information contained in this Prospectus and our consolidated financial statements and the related notes included elsewhere herein before you decide whether to invest in our ordinary shares.

 

   

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.

 

   

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

 

   

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.

 

   

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.

 

   

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

 

   

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

 

   

We depend on the ongoing service of our personnel and 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.

 

   

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.

 

   

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

 

   

There has been no public market for our ordinary shares prior to this offering, and you may not be able to resell our shares at or above the price you paid, or at all.

 

   

The market price for our ordinary shares may be volatile.

 

   

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

 

   

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

 

   

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.

 

   

The interests of our principal shareholders may be inconsistent with your interests.

 

 

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Corporate Information

We were incorporated on April 6, 1998 as a private company with limited liability (besloten venootschap met beperkte aansprakelijkheid, or B.V.) under the laws of The Netherlands. On January 11, 2000, we were converted from a B.V. to a limited liability company (naamloze venootschap, or N.V.) under the laws of The Netherlands.

Our corporate seat is in Amsterdam, The Netherlands. We are registered with the Trade Register of the Chamber of Commerce in Amsterdam under number 33301892. Our executive offices are located at Tupolevlaan 24, 1119 NX Schiphol-Rijk, The Netherlands. Our telephone number is +31 20 880 7600. Our website address is www.interxion.com. Information included or referred to on, or otherwise accessible through, our website is not intended to form a part of or be incorporated by reference into this Prospectus.

 

 

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The Offering

 

Offering Price Per Ordinary Share:

We currently estimate the initial public offering price will be between U.S. $11.00 and U.S. $13.00.

 

Ordinary Shares Offered by Us:

16,250,000 ordinary shares.

 

Ordinary Shares Offered by the Selling Shareholders:

2,300,000 ordinary shares.

 

Ordinary Shares Outstanding Immediately After This Offering:

64,988,477 ordinary shares.

The number of ordinary shares to be outstanding after this offering is based upon the number of shares outstanding as of September 30, 2010. Except as otherwise indicated, all information in this Prospectus assumes:

 

   

a five-to-one reverse stock split that is expected to occur on or before the closing of this offering and the related issuance of a certain number of ordinary shares to ensure that each shareholder holds a number of shares divisible by five, as required for the five-to-one reverse stock split. All shares numbers referred to as post five-to-one reverse stock split are approximate numbers;

 

   

the automatic one-to-one conversion of all of our 2002 Series A preference shares (the “Preferred Shares”) into ordinary shares prior to the closing of this offering (as of September 30, 2010 there were 174,039,207 Preferred Shares outstanding). For these purposes it is assumed that after giving effect to the reverse stock split and the related issuance of ordinary shares referred to above, the automatic one-for-one conversion would result in 34,807,842 ordinary shares. See “Capitalization”;

 

   

the issuance of 3,754,606 ordinary shares offered to holders of Preferred Shares, which is the maximum number of ordinary shares to which holders of our Preferred Shares are entitled in lieu of cash for such Preferred Shares (the “Preferred Shares Liquidation Price Offering”), based on the midpoint of the estimated range of the initial public offering price and an assumed exchange rate of €1.00 to U.S. $1.2944, representing the exchange rate in effect on January 7, 2011;

 

   

no issue of any of the 4,128,486 ordinary shares (as of January 7, 2011) issuable upon the exercise of options outstanding under our 2008 equity incentive plan at a weighted average exercise price of €3.13 per share, assuming the exercise by the selling shareholders of options to acquire 604,790 ordinary shares in connection with the sale of such shares in this offering, or 4,733,276 ordinary shares without such exercise, in each case after giving effect to the five-to-one reverse stock split referred to above. If the reverse stock split did not occur, these ordinary shares would be 20,642,428 after giving effect to the exercise of options described above and 23,666,380 without giving effect to the exercise of such options;

 

   

no issue of any of the 873,371 additional ordinary shares (as of January 7, 2011) reserved for issuance under our 2008 equity incentive plan or 4,400,000 additional ordinary shares to be reserved for issuance under our 2011 equity incentive plan (after giving effect to the five-to-one reverse stock split referred to above). These figures would be 4,366,851 and 22,000,000 if the reverse stock split did not occur; and

 

 

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no exercise by the underwriters of their over-allotment option.

 

Option to Purchase Additional Ordinary Shares:

The selling shareholders have granted the underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase up to an aggregate of 2,782,500 additional ordinary shares.

 

Concurrent Preferred Shares Liquidation Price Offering:

Concurrently with this offering, we are offering ordinary shares directly to holders of our Preferred Shares in respect of the liquidation price of their Preferred Shares, based on the initial public offering price.

Pursuant to the fifth amended and restated shareholders agreement dated as of December 24, 2009, Preferred Share holders are entitled to a €0.20 liquidation price per Preferred Share which they may elect to receive in cash or in ordinary shares. If a holder elects to receive payment in ordinary shares, such holder will receive approximately 0.11 ordinary shares in respect of each Preferred Share, assuming an offering price of U.S.$12.00 per ordinary share, the midpoint of the estimated range of the initial public offering price, and an exchange rate of €1.00 to U.S.$1.2944, representing the exchange rate in effect on January 7, 2011.

We will not receive any proceeds from the concurrent Preferred Shares Liquidation Price Offering.

 

Use of Proceeds:

We estimate that we will receive net proceeds from this offering of approximately U.S. $176.6 million, assuming an initial public offering price of U.S. $12.00 per ordinary share, being the midpoint of the estimated range of the initial public offering price, after deducting underwriting discounts and estimated aggregate offering expenses payable by us.

We intend to use the net proceeds from this offering primarily for general corporate purposes, including, without limitation, capital expenditures, including the construction of new data centers.

We will not receive any proceeds from the sale of ordinary shares offered by the selling shareholders. The selling shareholders include certain members of our senior management.

See “Use of Proceeds” for additional information.

 

Risk Factors:

See “Risk Factors” and other information included in this Prospectus for a discussion of the risks you should carefully consider before deciding to invest in our ordinary shares.

 

Listing:

We have applied to list the ordinary shares on the New York Stock Exchange, or NYSE, under the symbol “INXN.”

 

Payment and Settlement

The ordinary shares are expected to be delivered against payment on                     , 2011. They will be deposited with a custodian for, and registered in the name of a nominee of, The Depository Trust Company, or DTC, in New York, New York. Initially, beneficial interests in the ordinary shares will be shown on, and transfer of these beneficial interests, will be effected through, records maintained by DTC and its direct and indirect participants.

 

 

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Summary Financial Information

The following summary income statement, cash flow statement and other financial data for the years ended December 31, 2009, 2008 and 2007 and balance sheet data as of December 31, 2009 have been derived from our audited consolidated financial statements, which are included elsewhere in this Prospectus. The following summary income statement, cash flow statement and other financial data for the nine months ended September 30, 2010 and 2009 and balance sheet data as of September 30, 2010 have been derived from our unaudited consolidated interim financial statements included elsewhere in this Prospectus, which have been prepared on a basis substantially consistent with our annual audited consolidated financial statements. Our audited consolidated financial statements have been prepared and presented in accordance with IFRS as issued by the International Accounting Standards Board and have been audited by KPMG Accountants N.V., an independent registered public accounting firm.

You should read the summary financial information in conjunction with our consolidated financial statements and related notes, “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Prospectus. Our historical results do not necessarily indicate our expected results for any future periods.

 

    Nine months ended September 30,     Year ended
December 31,
    Year ended December 31,  
    2010(1)         2010             2009         2009(1)     2009     2008     2007(2)(3)  
    (U.S. $’000,
except per
share
amounts)
    (€’000, except per share
amounts)
    (U.S. $’000,
except per
share
amounts)
    (€’000, except per share
amounts)
 

Income statement data

             

Revenue

    207,856        152,824        126,611        246,035        171,668        138,180        100,450   

Cost of sales

    (92,306     (67,867     (58,163     (112,575     (78,548     (63,069     (51,998
                                                       

Gross profit

    115,550        84,957        68,448        133,460        93,120        75,111        48,452   

Other income

    399        293        629        1,069        746        2,291        988   

Sales and marketing costs

    (15,317     (11,262     (8,439     (16,128     (11,253     (9,862     (7,297

General and administrative costs

    (54,019     (39,717     (36,180     (72,560     (50,628     (35,352     (34,837
                                                       

Operating profit

    46,612        34,271        24,458        45,841        31,985        32,188        7,306   

Net finance expense

    (31,719     (23,321     (4,387     (8,955     (6,248     (3,713     (4,126
                                                       

Profit before taxation

    14,893        10,950        20,071        36,886        25,737        28,475        3,180   

Income tax benefit (expense)

    (7,864     (5,782     (4,642     1,025        715        8,899        10,405   
                                                       

Net income

    7,029        5,168        15,429        37,911        26,452        37,374        13,585   
                                                       

Basic earnings per share

    0.03        0.02        0.07        0.17        0.12        0.17        0.06   
                                                       

Cash flow statement data

             

Net cash flows from operating activities

    65,976        48,508        37,293        73,635        51,378        35,991 (4)      24,756   

Net cash flows from investing activities

    (109,708     (80,662     (75,987     (144,680     (100,949     (92,252     (49,548

Net cash flows from financing activities

    41,630        30,608        20,510        28,326        19,764        82,057        45,419   

Capital expenditures(5)

    (107,602     (79,113     (74,986     (143,290     (99,979     (91,123     (48,838

 

 

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     As of
September 30,
2010(1)
     As of
September 30,
2010
     As of
December 31,
2009(1)
     As of
December 31,
2009
 
     (U.S. $’000)      (€’000)      (U.S. $’000)      (€’000)  

Balance sheet data

           

Trade and other current assets

     78,653         57,829         79,700         55,610   

Cash and cash equivalents(6)

     41,608         30,592         45,867         32,003   
                                   

Current assets

     120,261         88,421         125,567         87,613   

Non-current assets

     511,727         376,242         459,207         320,407   
                                   

Total assets

     631,988         464,663         584,774         408,020   
                                   

Shareholders’ equity

     194,900         143,298         192,589         134,377   

Current liabilities

     139,430         102,515         173,265         120,894   

Non-current liabilities

     297,658         218,850         218,920         152,749   
                                   

Total liabilities

     437,088         321,365         392,185         273,643   

Total liabilities and shareholders’ equity

     631,988         464,663         584,774         408,020   
                                   

 

    Nine months ended September 30,     Year ended
December 31,
    Year ended December 31,  
    2010(1)     2010     2009     2009(1)     2009     2008     2007(2)(3)  
    (U.S. $’000)     (€’000)     (U.S. $’000)     (€’000)  

Other financial data

             

Operating profit

    46,612        34,271        24,458        45,841        31,985        32,188        7,306   

Depreciation, amortization and impairments

    30,579        22,483        15,195        31,473        21,960        15,083        11,657   
                                                       

EBITDA

    77,191        56,754        39,653        77,314        53,945        47,271        18,963   

Share-based payments

    1,454        1,069        605        1,362        950        1,660        1,399   

Exceptional expenses

             

Increase/(decrease) in provision for onerous lease contracts(a)

    399        293        1,371        5,379        3,753        1,611        8,139   

Abandoned transaction costs

    —          —          4,841        6,938        4,841        —          —     

Personnel costs

    —          —          —          —          —          —          1,454   

Exceptional income

    (399     (293     (629     (1,069     (746     (2,291     (988
                                                       

Adjusted EBITDA

    78,645        57,823        45,841        89,924        62,743        48,251        28,967   
                                                       

Adjusted EBITDA margin(7)

    38     38     36     37     37     35     29

 

Notes:

 

(1) The “Income statement data,” “Cash flow statement data” and “Other financial data” for the nine months ended September 30, 2010 and the year ended December 31, 2009, as well as the “Balance sheet data” as of September 30, 2010 and December 31, 2009 have been translated into U.S. dollars for your convenience based on the noon buying rate of €1.00 to U.S. $1.3601 and €1.00 to U.S. $1.4332 in The City of New York for cable transfers of euro as certified for customs purposes by the Federal Reserve Bank of New York as of September 30, 2010 and December 31, 2009, respectively. See “Exchange Rate Information” for additional information.
(2) In fiscal year 2008, income not related to our core activities was reclassified to the line item “Other income.” Fiscal year 2007 figures have been adjusted to reflect the same reclassification.
(3)

In fiscal year 2007, the useful economic lives of certain data center assets were increased from 10 to 15 years, in accordance with industry practice. This change of accounting estimate was applied from January 1, 2007. This extension in the useful economic lives of certain data center assets resulted in an estimated

 

 

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decrease in depreciation of €3.6 million during the fiscal year 2007. Additionally, fiscal year 2007 figures have been adjusted to reflect the impairment of €1,885,000 in the “Depreciation, amortization and impairments” line item instead of in the “Exceptional general and administrative costs” line item.

(4) The 2008 net cash flows from operating activities include a reclassification for foreign exchange results on working capital balances.
(5) Capital expenditures represent payments to acquire tangible fixed assets as recorded on our consolidated statement of cash flows as “Purchase of property, plant and equipment.”
(6) Cash and cash equivalents includes €4.4 million and €3.9 million as of September 30, 2010 and December 31, 2009, respectively, which is restricted and held as collateral to support the issuance of bank guarantees on behalf of a number of subsidiary companies.
(7) EBITDA is defined as operating profit plus depreciation, amortization and impairment of assets. We define Adjusted EBITDA as EBITDA adjusted to exclude share-based payments and exceptional and non-recurring items and include share of profits (losses) of non-group companies. Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of revenue. We present EBITDA, Adjusted EBITDA and Adjusted EBITDA margin as additional information because we understand that they are measures used by certain investors and because they are used in our financial covenants in our €50 million revolving credit facility and €260 million 9.50% Senior Secured Notes due 2017. However, other companies may present EBITDA, Adjusted EBITDA and Adjusted EBITDA margin differently than we do. EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are not measures of financial performance under IFRS and should not be considered as an alternative to operating profit or as a measure of liquidity or an alternative to net income as indicators of our operating performance or any other measure of performance derived in accordance with IFRS.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—EBITDA and Adjusted EBITDA” for a more detailed description.

 

(8) “Increase (decrease) in provision for onerous lease contracts” does not reflect the deduction of income from subleases on unused data center sites. The income from subleases is presented as “Exceptional income.”

 

 

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RISK FACTORS

An investment in the ordinary shares involves a high degree of risk. In addition to the other information contained in this Prospectus, you should carefully consider the following risk factors before purchasing the ordinary shares. If any of the possible events described below occurs, our business, financial condition, results of operations or prospects could be adversely affected. If that happens the value of the ordinary shares may decline and you could lose all or part of your investment.

The risks and uncertainties below are those known to us and that we currently believe may materially affect us.

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 operating expenses primarily consist of personnel, power and property costs. Personnel and property costs cannot be easily reduced in the short term. Therefore, we are unlikely to be able to reduce significantly our expenses in response to a slowdown in demand for our services or any decrease in revenue. The terms of our leases with landlords for facilities that serve as data centers are typically for 10 to 15 years (excluding our extension options) and do not provide us with an early termination right, while our colocation contracts with customers are initially typically for only three to five years. Fifty-three percent of our Monthly Recurring Revenue for the nine months ended September 30, 2010 was generated by contracts with terms of one year or less remaining. Our personnel costs are fixed due to our contracts with our employees having set notice periods and local law limitations in relation to the termination of employment contracts. In respect of our power costs, there is a minimum level of power required to keep our data centers running irrespective of the number of customers using them so our power costs may exceed the amount of revenue derived from power. We could have higher than expected levels of unused capacity in our data centers if, among other things:

 

   

our existing customers contracts are not renewed and such customers are not replaced by new customers;

 

   

internet and telecommunications equipment becomes smaller and more compact in the future;

 

   

there is an unexpected slowdown in demand for our services; or

 

   

we are unable to terminate or amend our leases when we have underutilized space at a data center.

If we have higher than expected levels of unused space at a data center at any given time, we may be required to operate a data center at a loss for a period of time. If we have higher than expected levels of unused capacity in our data centers and we are unable to reduce our expenses accordingly, our business, financial condition and results of operations would be materially adversely affected.

Our inability to utilize the capacity of newly planned 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.

Historically, we have made significant investments in our property, plant and equipment in order to expand our data center footprint and total Equipped Space as we have grown our business. In the year ended December 31, 2009, we invested €100.0 million in property, plant and equipment and have invested €79.1 million in the first nine months of 2010. As of September 30, 2010, we were committed to an additional €18.6 million in capital commitments that we expect to be fully deployed during the remainder of 2010.

We expect to continue to invest as we expand our data center footprint and increase our Equipped Space based on demand in our target markets. We expect our investment in property, plant and equipment in 2010 to be

 

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comparable to our 2009 investment, subject to continued customer demand. Our total annual investment in property, plant and equipment includes maintenance and replacement capital expenditures. Although in any one year the amount of maintenance and replacement capital expenditures may vary, we expect that long term such expenses will be between 6% and 8% of total revenue.

We typically lease space for a data center and begin building it out before we have entered into agreements with customers to cover the capacity of the data center. In some cases, we enter into lease agreements for data centers or begin expansions at our existing data centers without any pre-existing customer commitments to use the additional space that will be created. If we open a new data center or complete an expansion at an existing data center, we will be required to pay substantial up-front and ongoing costs associated with that data center, including leasehold improvements, basic overhead costs and rental payments regardless of whether or not we have any agreements with customers to fill the space.

As a result of our expansion plans, we will incur capital expenditures, and as a result, higher depreciation, and other operating expenses that will negatively impact our cash flow and profitability unless and until these new and expanded data centers generate enough revenue to exceed their operating costs and related capital expenditures.

We incurred substantial losses during the period of 2001 to 2003 as a result of high churn and other factors. There can be no guarantee that we will be able to sustain or increase our profitability if our planned expansion is not successful or if there is not sufficient customer demand in the future to realize expected returns on these investments. Any such development would have a material adverse effect on our business, financial condition and results of operations.

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

Our ability to meet the growing needs of our existing customers and to attract new customers depends on our ability to add capacity by expanding existing data centers or by locating and securing suitable sites for additional data centers that meet our specifications, such as proximity to numerous network service providers, access to a significant supply of electrical power and the ability to sustain heavy floor loading. We have reached high utilization levels at some of our data centers and therefore any increase in these locations would need to be accomplished through the lease of additional property that satisfies our requirements. Property meeting our specifications may be scarce in our target markets. If we are unable to identify and enter into leases on commercially acceptable terms on a timely basis for any reason including due to competition from other companies seeking similar sites who may have greater financial resources than us, or are unable to expand our space in our current data centers, our rate of growth may be substantially impaired. Please see “Industry Overview—Barriers to Entry—Scarcity of Adequate Locations.”

Our capital expenditures, together with ongoing operating expenses and obligations to service our debt, will be a drain on our cash flow and may decrease our cash balances. The capital markets in the recent past have been and may again become limited for external financing opportunities. Additional debt or equity financing, especially in the current credit-constrained climate, may not be available when needed or, if available, may not be available on satisfactory terms. Our inability to obtain needed debt and/or equity financing or to generate sufficient cash from operations may require us to prioritize projects or curtail capital expenditures which could adversely affect our results of operations.

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

We do not own the property on which our data centers are located and instead lease all of our data center space. We generally enter leases for initial periods of 10 to 15 years (excluding renewal options). The majority of

 

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our leases are subject to an annual inflation-linked increase in rent and, on renewal (or earlier in some cases), the rent we pay may be reset to the current market rate. There is, therefore, a risk that there will be significant rent increases when the rent is reviewed. Our leases in France, Ireland, Belgium and the United Kingdom do not contain contractual options to renew or extend the lease, and we have exhausted or may in the future exhaust such options in other leases. With respect to our leases in France, certain landlords may terminate our leases following the expiration of the original lease period (being 12 years from the commencement date), and the other leases in France may be terminated by the landlords at the end of each three year period upon giving six months prior notice in the event the landlord wishes to carry out construction works to the building. The non-renewal of leases for our existing data center locations, or the renewal of such leases on less favorable terms, is a potentially significant risk to our ongoing operations. We would incur significant costs if we were forced to vacate one of our data centers due to the high costs of relocating our own and our customers’ equipment, installing the necessary infrastructure in a new data center and, as required by most of our leases, reinstating the vacated data center to its original state. In addition, if we were forced to vacate a data center, we could lose customers that chose our services based on location. If we fail to renew any of our leases, or the renewal of any of our leases is on less favorable terms and we fail to increase revenues sufficiently to offset the higher rental costs, this could have a material adverse effect on our business, financial condition and results of operations.

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

Our leases generally do not give us the right to terminate without penalty. Accordingly, we may incur costs under leases of data center space that is not or no longer is Revenue Generating Space. Some of our leases do not give us the right to sublet, and even if we have that right we may not be able to sublet the space on favorable terms or at all. We have incurred moderate costs in relation to such onerous lease contracts in recent years.

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

As we attempt to grow our business, substantial management effort and financial resources are employed by us in fitting out new, and upgrading existing, data centers. In addition, we periodically upgrade and replace certain equipment at our data centers. We may experience unforeseen delays and expenses in connection with a particular client project or data center build-out. In addition, unexpected technological changes could affect customer requirements and we may not have built such requirements into our data centers and may not have budgeted for the financial resources necessary to build out or redesign the space to meet such new requirements. Furthermore, the redesign of existing space is difficult to implement in practice as it normally requires moving existing customers. Although we have budgeted for expected build-out and equipment expenses, additional expenses in the event of unforeseen delays, cost overruns, unanticipated expenses, regulatory changes, unexpected technological changes and increases in the price of equipment may negatively affect our business, financial condition and results of operations.

No assurance can be given that we will complete the build-out of new data centers or expansions of existing data centers within the proposed timeframe and cost parameters or at all. Any such failure could have a material adverse effect on our business, financial condition and results of operations.

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

Our market is highly competitive. Most companies operate their own data centers and in many cases continue to invest in data center capacity, although there is a trend towards outsourcing. We compete against other carrier-neutral colocation data center service providers, such as Equinix, Telecity and Telehouse. We also compete with other types of data centers, including carrier-operated colocation, wholesale and IT outsourcers and managed services provider data centers. The cost, operational risk and inconvenience involved in relocating a customer’s networking and computing equipment to another data center are significant and have the effect of protecting a competitor’s data center from significant levels of customer churn.

 

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Further, the growth of the European data center market has encouraged new, larger companies to consider entering the market, in particular those from the United States who are active in this sector. This growth and other factors have also led to increasing alliances and consolidation among existing competitors, such as the announced acquisition of Switch & Data by Equinix. Many of these companies may have significantly greater financial, marketing and other resources than we do. Some of our competitors may be willing to, and due to greater financial resources, may be better able to adopt aggressive pricing policies, including the provision of discounted data center services as an encouragement for customers to utilize their other services. Certain of our competitors may also provide our target customers with additional benefits, including bundled communications services, and may do so in a manner that is more attractive to potential customers than obtaining space in our data centers.

While not currently a direct competitive threat to us, wholesale providers of data center space might change their business plan to compete with us directly or open new data centers, thus making large amounts of capacity available at a single point in time and facilitating the entry into the market or expansion of our direct competitors. Wholesale providers of data center space may compete with us for the acquisition of new sites, thereby increasing the average rental prices for suitable sites.

In addition, corporations that have already invested substantial resources in in-house data center operations may be reluctant to outsource these services to a third party, or may choose to acquire space within a wholesale provider’s data center, which would allow them to manage the equipment themselves. If existing customers were to conclude that they could provide the same service in-house at a lower cost, with greater reliability, with increased security or for other reasons, they might move such services in-house and we would lose customers and business.

We may also see increased competition for data center space and customers from wholesale data center providers, such as large real estate companies. Rather than leasing available space to large single tenants, real estate companies, including certain of our landlords, may decide to convert the space instead to smaller square foot units designed for multi-tenant colocation use. In addition to the risk of losing customers to wholesale data center providers, this could also reduce the amount of space available to us for expansion in the future. As a result of such competition, we could suffer from downward pricing pressure and the loss of customers (and potential customers), which would have a material adverse effect on our business, financial condition and results of operations.

Please see “Industry Overview—Types of Data Centers” and “Business—Competition.”

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

A customer’s decision to take space in one of our data centers typically involves a significant commitment of resources by us and by potential customers, who often require internal approvals. In addition, some customers will be reluctant to commit to locating in our data centers until they are confident that the data center has adequate available carrier connections and network density. As a result, we may have a long sales cycle lasting anywhere from three months for smaller customers to periods in excess of one year for some of our larger customers. Furthermore, we may expend significant time and resources in pursuing a particular sale or customer that does not result in revenue.

The current slowdown in global economies and their delayed recovery may further impact this long sales cycle by making it extremely difficult for customers to accurately forecast and plan future business activities. This could cause customers to slow spending, or delay decision-making, on our services, which would delay and lengthen our sales cycle.

Delays due to the length of our sales cycle may have a material adverse effect on our business, financial condition and results of operations.

 

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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.

The operation of each of our data centers requires an extremely large amount of power and we are among the largest power consumers in certain cities in which we operate data centers. We cannot be certain that there will be adequate power in all of the locations in which we operate, or intend to open additional data centers. We attempt to limit exposure to system downtime caused by power outages by using back-up generators and uninterrupted power supply systems, or UPS systems; however, we may not be able to limit our exposure entirely even with these protections in place. We also cannot guarantee that the generators will always provide sufficient power or restore power in time to avoid loss of or damage to our customers’ and our equipment. Any loss of services or damage to equipment resulting from a temporary loss of or reduction in power at any of our data centers could harm our customers, reduce customers’ confidence in our services, impair our ability to attract new customers and retain existing customers, and result in us incurring financial obligations to our customers as they might be eligible for service credits pursuant to their service level agreements with us. Our customers may also seek damages from us.

In addition, we are susceptible to fluctuations in power costs in all of the locations in which we operate. Clients have two options with respect to power usage: either (i) to pay for power usage in “plugs” in advance (typically included in the total cabinet price), which are contractually defined amounts of power per month, for which the customer must pay in full, regardless of how much power is actually used; or (ii) to pay for their actual power usage in arrears on a metered basis. Approximately 60% of our customers by revenue pay for electricity on a metered basis while the remainder of our customers pay for power “plugs.” While we are contractually able to recover power cost increases from our customers, some portion of the increased costs may not be recovered or recovered in a delayed fashion based on commercial reasons at the discretion of local management and as a result, may have a negative impact on our results of operations.

Although we have not experienced any power outages that have had a material impact on our financial condition in the past, power outages or increases in the cost of power to us could have a material adverse effect on our business, financial condition and results of operations.

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.

In each of our markets, we rely on third parties to provide a sufficient amount of power for current and future customers. Power and cooling requirements are generally growing on a per customer basis. Some of our customers are increasing and may continue to increase their use of high-density electrical power equipment, such as blade servers, which can significantly increase the demand for power per customer and cooling requirements for our data centers. Future demand for electrical power and cooling may exceed the designed electrical power and cooling infrastructure in our data centers. As the electrical power infrastructure is typically one of the most important limiting factors in our data centers, our ability to utilize available space fully may be limited. This, as well as any inability to secure sufficient power resources from third-party providers, could have a negative impact on the effective available capacity of a given data center and limit our ability to grow our business.

The ability to increase the power capacity or power infrastructure of a data center, should we decide to, is dependent on several factors including, but not limited to, the local utility’s ability and willingness to provide additional power, the length of time required to provide such power and/or whether it is feasible to upgrade the electrical infrastructure and cooling systems of a data center to deliver additional power to customers.

The availability of sufficient power may also pose a risk to the successful development of future data centers. In cities where we intend to open new data centers, we may face delays in obtaining sufficient power to operate our data centers. Our ability to secure adequate power sources will depend on several factors, including whether the local power supply is at or close to its limit, whether new connections for our data center would

 

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require the local power company to install a new substation or feeder and whether new connections for our data center would increase the overall risks of blackouts or power outages in a given geographic area.

If we are unable to utilize fully the physical space available within our data centers or successfully develop additional data centers or expand existing data centers due to restrictions on available electrical power or cooling, we may be unable to accept new customers or increase the services provided to existing customers, which may have a material adverse effect on our business, results of operations and financial condition.

A significant percentage of our Monthly Recurring Revenue is generated by contracts with terms of one year or less remaining. If such 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.

The majority of our customer contracts are entered into on a fixed-term basis for periods from three to five years, which, unless terminated in advance, are automatically renewed for subsequent one-year periods. Please see “Business—Customer Contracts.” For the nine months ended September 30, 2010, 53% of our Monthly Recurring Revenue was generated by contracts with terms of one year or less remaining. Consequently, a large part of our customer base could either terminate their contracts with us at relatively short notice, or seek to re-negotiate the pricing of such contracts downwards, which, if either were to occur, would have a material adverse effect on our business, financial condition and results of operations.

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

As at September 30, 2010, we had €35.6 million of recognized and €11.7 million of unrecognized, deferred tax assets. We cannot assure you that we will generate sufficient profit in the relevant jurisdictions to utilize these deferred tax assets fully. In addition, applicable law could change in one or more jurisdictions in which we have deferred tax assets, rendering such assets unusable. Either such event would cause us to pay taxes in greater amounts than would otherwise occur, which may have a material adverse effect on our results of operations.

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.

Our operating results have fluctuated in the past and may continue to fluctuate in the future, due to a variety of factors, which include:

 

   

demand for our services;

 

   

competition from other data center operators;

 

   

the cost and availability of power;

 

   

the introduction of new services by us and/or our competitors;

 

   

data center expansion by us and/or our competitors;

 

   

changes in our pricing policies and those of our competitors;

 

   

a change in our customer retention rates;

 

   

economic conditions affecting the Internet, telecommunications and e-commerce industries; and

 

   

changes in general economic conditions.

Any of the foregoing factors, or other factors discussed elsewhere in this Prospectus, could have a material adverse effect on our business, results of operations and financial condition. Although we have experienced

 

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growth in revenues during the past three financial years, this growth rate is not necessarily indicative of future operating results. In addition, a relatively large portion of our expenses cannot be reduced in the short-term, particularly personnel and property costs and part of our power costs, which means that our results of operations are particularly sensitive to fluctuations in revenues. As such, comparisons to prior reporting periods should not be relied upon as indications of our future performance. In addition, our operating results in one or more future periods may fail to meet the expectations of securities analysts or investors. If this happens, the market price of our ordinary shares may decline significantly.

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

We contract with third parties for the supply of equipment (including generators, UPS systems and cabinet equipment) on which we are dependent to operate our business. Poor performance by, or any inability of, our suppliers to provide necessary equipment, products and services could have a negative effect on our reputation and harm our business.

We depend on the ongoing 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.

Our success depends upon our ability to attract, retain and motivate highly-skilled employees, including the data center personnel who are integral to the establishment and running of our data centers, as well as sales and marketing personnel who play a large role in attracting and retaining customers. Due to several factors, including the rapid growth of the Internet, there is aggressive competition for experienced data center employees. We compete intensely with other companies to recruit and hire from this limited pool. In addition, the training of new employees requires a large amount of our time and resources. If we cannot attract, train and retain qualified personnel, we may be unable to expand our business in line with our strategy, compete for new customers or retain existing customers, which could cause our business, financial condition and results of operations to suffer.

Our future performance also depends to a significant degree upon the continued contributions of our senior management team. The loss of any member of our senior management team could significantly harm us. To the extent that the services of members of our senior management team would be unavailable to us for any reason, we would be required to hire other personnel to manage and operate our company. There can be no assurance that we would be able to locate or employ such personnel on acceptable terms or on a timely basis.

Our failure to maintain competitive compensation packages, including equity incentives, may be disruptive to our business. If one or more of our key personnel resigns from our company to join or form a competitor, the loss of such personnel and any resulting loss of existing or potential customers to any such competitor could harm our business, financial condition and results of operations. In addition, we may be unable to prevent the unauthorized disclosure or use of our technical knowledge, practices or procedures by departed personnel.

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

Our business depends on providing customers with highly reliable and secure services. A number of factors may disrupt our ability to provide services to our customers, including:

 

   

human error;

 

   

power loss;

 

   

physical or electronic security breaches;

 

   

terrorist acts;

 

   

interruptions to the fiber network;

 

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hardware and software defects;

 

   

fire, earthquake, flood and other natural disasters;

 

   

improper maintenance by our landlords; and

 

   

sabotage and vandalism.

Disruptions at one or more of our data centers, whether or not within our control, could result in service interruptions or significant equipment damage, leading to significant costs and revenue reductions. Please see “—Risks Related to our Industry—Terrorist activity throughout the world and military action to counter terrorism could adversely impact our business.”

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 may incur substantial indebtedness in the future, which could have important consequences. For example, it could:

 

   

make it more difficult for us to satisfy our debt obligations;

 

   

restrict us from making strategic acquisitions;

 

   

limit our flexibility in planning for, or reacting to, changes in our business and future business opportunities, thereby placing us at a competitive disadvantage if our competitors are not as highly leveraged;

 

   

increase our vulnerability to general adverse economic and industry conditions; or

 

   

require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness if we do not maintain specified financial ratios, thereby reducing the availability of our cash flow.

If we increase our indebtedness by borrowing under our revolving credit facility or incur other new indebtedness, the risks described above would increase.

Our insurance may not be adequate to cover all losses.

The insurance we maintain covers material damage to property, business interruption and third-party liability. This insurance contains limitations on the total coverage for damage due to catastrophic events, such as flooding or terrorism. In addition, there is an overall cap on our general insurance coverage of €34 million in any one year. There is, therefore, a risk that if one or more data centers were damaged, the total amount of the loss would not be recoverable by us. As we have multiple data centers in close proximity to each other located in Amsterdam, Frankfurt, Paris and Dublin, this increases the chance of us suffering uninsured losses.

Also, our insurance policies include customary exclusions, deductibles and other conditions that could limit our ability to recover losses. In addition, some of our policies are subject to limitations involving co-payments and policy limits that may not be sufficient to cover losses. If we experience a loss that is uninsured or that exceeds policy limits, or if customers consider that there is a significant risk that such an event will occur, this may negatively affect our reputation, business, financial condition and results of operations.

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 have service level agreements with substantially all of our customers in which we provide various guarantees regarding our level of service. Our inability to provide services consistent with these guarantees may

 

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lead to large losses for our customers, who consequently may be entitled to service credits for their accounts or to terminate their relationship with us. We have issued service credits to customers in the past due to our failure to meet service level commitments, as was the case in connection with an outage in some cabinets in one of our Paris data centers in 2009, and we may do so in the future. We cannot be sure that our customers will accept these service credits as compensation in the future. Our failure or inability to meet a customer’s expectations or any deficiency in the services we provide to customers could result in a claim against us for substantial damages. Provisions contained in our agreements with customers attempting to limit damages, including provisions to limit liability for damages, may not be enforceable in all instances or may otherwise fail to protect us for liability damages.

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.

One of our key service offerings is our high level of physical premises security. Many of our customers entrust their key strategic IT services and applications to us due, in part, to the level of security we offer. A party who is able to breach our security could physically damage our and our customers’ equipment and/or misappropriate either our proprietary information or the information of our customers or cause interruptions or malfunctions in our operations.

There can be no assurance that the security of any of our data centers will not be breached or the equipment and information of our customers put at risk. Any security breach could have a serious effect on our reputation and could prevent new customers from choosing our services and lead to customers terminating their contracts early and seeking to recover losses suffered, which could have a material adverse effect on our business, financial condition and results of operations. We may incur significant additional costs to protect against physical premises security breaches or to alleviate problems caused by such breaches.

We face risks relating to foreign currency exchange rate fluctuations.

Our reporting currency for purposes of our financial statements is the euro. However, we also incur revenues and operating costs in non-euro denominated currencies, such as British pounds, Swiss francs, Danish kroner and Swedish krona. We recognize foreign currency gains or losses arising from our operations in the period incurred. As a result, currency fluctuations between the euro and the non-euro currencies in which we do business will cause us to incur foreign currency translation gains and losses. We cannot predict the effects of exchange rate fluctuations upon our future operating results because of the number of currencies involved, the variability of currency exposure and the potential volatility of currency exchange rates. We do not currently engage in foreign exchange hedging transactions to manage the risk of our foreign currency exposure.

The slowdown in global economies and their delayed recovery may have an impact on our business and financial condition in ways that we currently cannot predict.

The slowdown and delayed recovery in the global financial markets could continue to have an adverse effect on our business and our financial condition. If the market conditions continue to remain weak or uncertain, some of our customers may have difficulty paying us and we may experience increased churn in our customer base. Our sales cycle could also continue to be lengthened as customers slow spending, or delay decision-making, on our services, which could adversely affect our revenue growth. Finally, we could also experience pricing pressure as a result of economic conditions if our competitors lower prices and attempt to lure away our customers.

Additionally, our ability to access the capital markets may be severely restricted at a time when we would like, or need, to do so, which could have an impact on our flexibility to pursue additional expansion opportunities and maintain our desired level of revenue growth in the future.

 

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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.

Between 2001 and 2004, the European data center industry suffered from overcapacity due to difficult telecommunications and technology market conditions when the value of many new Internet-based companies fell after a period of significant growth. During the period of growth, many customers contracted to use more space than they needed and in the downturn in the market that followed, the number of Internet-related business failures increased significantly, resulting in high levels of customer churn due to the termination or non-renewal of contracts.

A substantial increase in the supply of new data center capacity in the European data center market and/or a general decrease in demand, or in the rate of increase in demand, for data center services could have an adverse impact on industry pricing and profit margins. If there is not sufficient customer demand for data center services, our business, financial condition and operating results would be adversely affected.

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

The Internet and telecommunications industries are characterized by rapidly changing technology, evolving industry standards and changing customer needs. Accordingly, our future success will depend, in part, on our ability to meet the challenge of these changes. Among the most important challenges that we may face are the need to: continue to develop our strategic and technical expertise, influence and respond to emerging industry standards and other technological changes, enhance our current services and develop new services that meet changing customer needs.

All of these challenges must be met in a timely and cost-effective manner. Some of our competitors may have greater financial resources, which would allow them to react better or more quickly to changes than we may be able to. We may not effectively meet these challenges as rapidly as our competitors or at all and our failure to do so could harm our business.

Terrorist activity throughout the world and military action to counter terrorism could adversely impact our business.

Due to the high volume of important data that passes through data centers, there is a real risk that terrorists seeking to damage financial and technological infrastructure view data centers generally, and those in concentrated areas specifically, as potential targets. These factors may increase our costs due to the need to provide enhanced security, which would have a material adverse effect on our business, financial condition and results of operations if we were unable to pass such costs on to our customers. These circumstances may also adversely affect the ability of companies, including ourselves, to raise capital. We may not have adequate property and liability insurance to cover terrorist attacks.

In addition, we depend heavily on the physical infrastructure (particularly as it relates to power) that exists in the markets in which we operate. Any damage to such infrastructure, particularly in the major European markets such as Amsterdam, Frankfurt, London, Madrid and Paris, where we derive a substantial amount of our revenue and which are likely to be more prone to terrorist activities, may materially and adversely affect our business.

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

The presence of diverse telecommunications carriers’ fiber networks in our data centers is critical to our ability to retain and attract new customers. We are not a telecommunications carrier and as such we rely on third

 

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parties to provide our non-carrier customers with carrier services. We cannot assure you that the carriers operating within our data centers will not cease to do so. For example, as a result of strategic decisions or consolidations, some carriers may decide to downsize or terminate connectivity within our data centers, which could have an adverse effect on our business, financial condition and results of operations.

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

We may face potential direct and indirect liability for claims of defamation, negligence, copyright, patent or trademark infringement and other claims, as well as reputational damage, based on the nature and content of the materials disseminated from our data centers, including on the grounds of allegations of the illegality of certain activities carried out by customers through their equipment located in our data centers. For example, lawsuits may be brought against us claiming that content distributed by our customers may be regulated or banned. Our general liability insurance may not cover any such claim or may not be adequate to protect us against all liability that may be imposed. In addition, on a limited number of occasions in the past, businesses, organizations and individuals have sent unsolicited commercial e-mails (“spam”), which may be viewed as offensive by recipients, from servers hosted at our data centers to a number of people, typically to advertise products or services. We have in the past received, and may in the future receive, letters from recipients of information transmitted by our customers objecting to spam. Although our contracts with our customers prohibit them from spamming, there can be no assurance that customers will not engage in this practice, which could subject us to claims for damages, damage our reputation and have a material adverse effect on our business.

Risks Related to Regulation

Laws and government regulations governing 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.

Laws and governmental regulations governing Internet-related services, related communications services and information technology and electronic commerce continue to evolve. This is true across the various European countries in which we operate. In particular, the laws regarding privacy and those regarding gambling and other activities that certain countries deem illegal are continuing to evolve.

Changes in laws or regulations (or the interpretation of such laws or regulations) or national or EU policy affecting our activities and/or those of our customers and competitors, including regulation of prices and interconnection arrangements, regulation of access arrangements to types of infrastructure, regulation of privacy requirements through the protection of personal data and regulation of activity considered illegal through rules affecting data center and managed service providers could materially adversely affect our results by decreasing revenue, increasing costs or impairing our ability to offer services.

The industry in which we operate is 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.

We are subject to various environmental and health and safety laws and regulations, including those relating to the generation, storage, handling and disposal of hazardous substances and technological equipment, the maintenance of warehouse facilities and the generation and use of electricity. Certain of these laws and regulations are capable of imposing liability for the entire cost of the investigation and remediation of contaminated sites, without regard to fault or the lawfulness of the disposal activity, on former owners and operators of real property and persons who have disposed of or released hazardous substances at any location. Compliance with these laws and regulations could impose substantial ongoing compliance costs and operating restrictions on us.

 

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Hazardous substances or regulated materials of which we are not aware may be present at data centers leased and operated by us. If any such contaminants are discovered at our data centers, we may be responsible under applicable laws, regulations or leases for any required removal or clean-up or other action at substantial cost.

Our facilities contain tanks and other containers for the storage of diesel fuel and significant quantities of lead acid batteries to provide back-up power. We cannot guarantee that our environmental compliance program will be able to prevent leaks or spills in these or other technical installations.

In addition, as consumers of substantial amounts of electricity, we may be affected by the new UK Carbon Reduction Commitment Energy Efficiency Scheme, or the Scheme. The CRC Energy Efficiency Scheme Order 2010 entered into force on March 22, 2010 introducing a mandatory cap and trade scheme from April 1, 2010 applying to organizations, including our own, whose mandatory half hourly metered electricity consumption is greater than 6,000 MWh in the qualification period (which for the first phase of the CRC is calendar year 2008). Potential impacts on our data centers in the UK include the costs associated with improving energy efficiency and the administrative costs of participating in the Scheme. We will be required to purchase emissions allowances from the UK Government to cover our direct and indirect emissions in April of each year of the Scheme beginning in April 2011 (as the first year of the Scheme is a reporting year only). The revenue generated by the sale/auction of allowances is then recycled back to participants based on their percentage of emissions plus or minus a bonus/penalty based on their performance under the Scheme relative to other Scheme participants (as set out in the CRC league table). The cost of the Scheme depends on our ability to implement energy efficiency improvements during the term of the Scheme. The cost could increase in the later years of the Scheme, as allowances will be auctioned after the initial three-year introductory phase (as opposed to sold at a fixed price of £12/tonne), the rate of the bonus/penalty payments will increase from +/- 10% to +/-50% from the first to the fifth year of the Scheme, and the technical opportunities to improve energy efficiency may become more limited and expensive once the most cost effective improvements have already been made.

Our data centers may also be adversely affected by any future application of additional regulation relating to energy usage, for example seeking to reduce the power consumption of companies and fees or levies in this regard (including the EU Energy End-Use Efficiency and Energy Services Directive (Directive 2006/32/EC)). It is possible that the resulting legislation will mean that service providers that consume energy, such as us, may incur increased energy costs, and/or caps on energy use. In addition, further to the Copenhagen Accord in respect of international climate change negotiations agreed at the UN Climate Change Summit in December 2009, the European Union has announced its commitment to reduce the greenhouse gas emissions across the European Union by 20% compared to 1990 levels (rising to 30% if other developed countries commit to comparable emission reduction targets and developing countries contribute adequately according to their responsibilities and respective capabilities). It is expected that this commitment may give rise to future domestic legislation relating to energy efficiency across the jurisdictions in which we have data centers and this may affect our business.

Non-compliance with, or liabilities under, existing or future environmental or health and safety laws and regulations, including failure to hold requisite permits, or the adoption of more stringent requirements in the future, could result in fines, penalties, third-party claims and other costs that could have a material adverse effect on us.

Risks Related to the Offering

Because the initial public offering price is substantially higher than our net tangible book value per ordinary share, you will incur immediate and substantial dilution.

The initial public offering price per ordinary share is substantially higher than the net tangible book value per ordinary share prior to the offering. Accordingly, if you purchase our ordinary shares in this offering, you will incur immediate dilution of approximately U.S. $7.34 in the net tangible book value per ordinary share from the price you pay for our ordinary shares, representing the difference between:

 

   

the assumed initial public offering price of U.S.$12.00 per ordinary share (the midpoint of the estimated initial public offering price range set forth on the front cover of this Prospectus), and

 

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the pro forma as adjusted net tangible book value per ordinary share of U.S.$4.66 as of September 30, 2010.

You may find additional information in the section entitled “Dilution” in this Prospectus. If we issue additional shares in the future, you may experience further dilution. In addition, you may experience further dilution to the extent that ordinary shares are issued upon the exercise of share options. All of the ordinary shares issuable upon the exercise of our outstanding share options will be issued at a purchase price on a per share basis that is less than the initial public offering price per share in this offering.

There has been no public market for our ordinary shares prior to this offering, and you may not be able to resell our shares at or above the price you paid, or at all.

Prior to this initial public offering, there has been no public market for our ordinary shares. Our ordinary shares are expected to be approved for listing on the NYSE. If an active trading market for our ordinary shares does not develop after this offering, the market price and liquidity of our ordinary shares may be materially and adversely affected. The initial public offering price for our ordinary shares is determined by negotiations between us and the underwriters and may bear no relationship to the market price for our ordinary shares after this initial public offering. We cannot assure you that an active trading market for our ordinary shares will develop or that the market price of our ordinary shares will not decline below the initial public offering price.

The market price for our ordinary shares may be volatile.

The market price for our shares is likely to be highly volatile and subject to wide fluctuations in response to factors including, but not limited to, the following:

 

   

announcements of new products and services by us or our competitors;

 

   

technological breakthroughs in the data center, networking or computing industries;

 

   

news regarding any gain or loss of customers by us;

 

   

news regarding recruitment or loss of key personnel by us or our competitors;

 

   

announcements of competitive developments, acquisitions or strategic alliances in our industry;

 

   

changes in the general condition of the global economy and financial markets;

 

   

general market conditions or other developments affecting us or our industry;

 

   

the operating and stock price performance of other companies, other industries and other events or factors beyond our control;

 

   

cost and availability of power and cooling capacity;

 

   

cost and availability of additional space inventory either through lease or acquisition in our target markets;

 

   

regulatory developments in our target markets affecting us, our customers or our competitors;

 

   

changes in demand for interconnection and colocation products and services in general or at our facilities in particular;

 

   

actual or anticipated fluctuations in our quarterly results of operations;

 

   

changes in financial projections or estimates about our financial or operational performance by securities research analysts;

 

   

changes in the economic performance or market valuations of other data center companies;

 

   

release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares; and

 

   

sales or perceived sales of additional ordinary shares.

 

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In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also have a material adverse effect on the market price of our ordinary shares.

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

If our existing shareholders sell, or are perceived as intending to sell, substantial amounts of our ordinary shares, including those issued upon the exercise of our outstanding share options, following this offering, the market price of our ordinary shares could fall. Such sales, or perceived potential sales, by our existing shareholders might make it more difficult for us to issue new equity or equity-related securities in the future at a time and price we deem appropriate. The ordinary shares offered in this offering will be eligible for immediate resale in the public market without restrictions. Shares held by our existing shareholders may also be sold in the public market in the future if registered under the Securities Act of 1933, as amended (the “Securities Act”), or if such shares qualify for an exemption from registration, including by reason of Rules 144 or 701 under the Securities Act, and subject to the 150-day lock-up period described below. Additionally, we intend to register all of our ordinary shares that we may issue under our employee stock ownership plans. Once we register those shares, they can be freely sold in the public market upon issuance, unless pursuant to their terms these stock awards have transfer restrictions attached to them. In connection with this offering, we have agreed with the underwriters not to sell or transfer any ordinary shares or securities convertible into, exchangeable for, exercisable for or repayable with ordinary shares, for 150 days after the date of this Prospectus without first obtaining the written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc. and Barclays Capital Inc. Our executive officers and directors and our other existing security holders and option holders have agreed with the underwriters not to sell or transfer any ordinary shares or securities convertible into, exchangeable for, exercisable for or repayable with ordinary shares, for 150 days after the date of this Prospectus without first obtaining the written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Citigroup Global Markets Inc. If any existing shareholder or shareholders sell a substantial amount of shares after the expiration of the lock-up period, the prevailing market price for our shares could be adversely affected. See “Underwriting” and “Shares Eligible for Future Sale” for additional information regarding resale restrictions.

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

Holders of our ordinary shares will generally have a preferential subscription right, or pre-emptive right, to subscribe on a pro rata basis for issuances of ordinary shares or the granting of rights to subscribe for ordinary shares, unless explicitly provided otherwise in a resolution by our general meeting of shareholders, or, if so designated by our general meeting of shareholders, by our board of directors. In a general meeting of our shareholders to be held prior to the completion of this offering, a proposal will be submitted to designate our board of directors as the corporate body with the power to limit or exclude pre-emptive rights in respect of any issue and/or grant rights to subscribe for ordinary shares. Such designation will be limited to our authorized share capital from time to time and will be effective for a period of five years. As a result, we may issue additional shares for future acquisitions or other purposes while excluding any pre-emptive rights. If we issue additional shares without pre-emptive rights, your ownership interests in our company would be diluted and this in turn could have a material adverse effect on the price of our shares.

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

We believe that our current cash, anticipated cash flow from operations and proceeds from our high yield note issuance will be sufficient to meet our anticipated cash needs for the next 12 months. We may, however,

 

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require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or utilize our existing or obtain a new credit facility. The sale of additional equity securities could result in additional dilution to our shareholders. The incurrence of indebtedness would limit our ability to pay dividends or require us to seek consents for the payment of dividends, increase our vulnerability to general adverse economic and industry conditions, limit our ability to pursue our business strategies, require us to dedicate a substantial portion of our cash flow from operations to service our debt, thereby reducing the availability of our cash flow to fund capital expenditure, working capital requirements and other general corporate needs, and limit our flexibility in planning for, or reacting to, changes in our business and our industry. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

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

We have never declared or paid any dividends on our ordinary shares and currently do not plan to declare dividends on our ordinary shares in the foreseeable future. If we were to choose to declare dividends in the future, the payment of cash dividends on our shares is restricted under the terms of the agreements governing our indebtedness. In addition, because we are a holding company, our ability to pay cash dividends on our ordinary shares may be limited by restrictions on our ability to obtain sufficient funds through dividends from subsidiaries, including restrictions under the terms of the agreements governing our and our subsidiaries’ indebtedness. In that regard, our wholly-owned subsidiaries are limited in their ability to pay dividends or otherwise make distributions to us. Under Dutch law, we may only pay dividends out of profits as shown in our adopted annual accounts. We will only be able to declare and pay dividends to the extent our equity exceeds the sum of the paid and called up portion of our ordinary share capital and the reserves that must be maintained in accordance with provisions of Dutch law and our articles of association. Our board of directors will have the discretion to determine to what extent profits shall be retained by way of a reserve. The remaining profits will be at the disposal of our general meeting of shareholders for distribution of a dividend or to be added to the reserves or for such other purposes as our general meeting of shareholders decides. Our board of directors, in determining to what extent profits shall be retained by way of a reserve, will consider our ability to declare and pay dividends in light of our future operations and earnings, capital expenditure requirements, general financial conditions, legal and contractual restrictions and other factors that it may deem relevant. You should refer to the “Dividend Policy” section in this Prospectus for additional information regarding our current dividend policy.

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.

Our corporate affairs are governed by our articles of association and by the laws governing companies incorporated in The Netherlands. The rights of our shareholders and the responsibilities of members of our board of directors under Dutch law may not be as clearly established as under the laws of some U.S. jurisdictions. In the performance of its duties, our board of directors will be required by Dutch law to consider the interests of our company, our shareholders, our employees and other stakeholders in all cases with reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder. We anticipate that all of our shareholder meetings will take place in The Netherlands.

In addition, the rights of holders of ordinary shares and many of the rights of shareholders as they relate to, for example, the exercise of shareholder rights, are governed by Dutch law and our articles of association and differ from the rights of shareholders under U.S. law. For example, Dutch law does not grant appraisal rights to a company’s shareholders who wish to challenge the consideration to be paid upon a merger or consolidation of the company. See “Description of Capital Stock.”

 

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The provisions of Dutch corporate law and our articles of association have the effect of concentrating control over certain corporate decisions and transactions in the hands of our board of directors. As a result, holders of our shares may have more difficulty in protecting their interests in the face of actions by members of our board of directors than if we were incorporated in the United States. See “Description of Capital Stock.”

The interests of our principal shareholders may be inconsistent with your interests.

Following this offering, private equity investment funds affiliated with Baker Capital will indirectly own 47.5%, on a fully diluted basis, of our equity. Upon completion of this offering, we will also enter into a shareholders agreement with affiliates of Baker Capital. For so long as Baker Capital or its affiliates continue to be the owner of shares representing more than 25% of our outstanding ordinary shares, Baker Capital will have the right to designate for nomination a majority of the members of our board of directors, including the right to nominate the chairman of our board of directors. Please see “Related Party Transactions—Shareholders Agreement with Baker Capital.” As a result, these shareholders have, and will continue to have, directly or indirectly, the power, among other things, to affect our legal and capital structure and our day-to-day operations, as well as the ability to elect and change our management and to approve other changes to our operation. The interests of Baker Capital and its affiliates could conflict with your interests, particularly if we encounter financial difficulties or are unable to pay our debts when due. Affiliates of Baker Capital also have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investments, although such transactions might involve risks to you as a holder of ordinary shares. In addition, Baker Capital or its affiliates may, in the future, own businesses that directly compete with ours or do business with us. The concentration of ownership may further have the effect of delaying, preventing or deterring a change of control of our company, could deprive our shareholders of an opportunity to receive a premium for their ordinary shares as part of a sale of our company and might ultimately affect the market price of our ordinary shares.

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

We intend to comply with the corporate governance rules of the NYSE. However, as a foreign private issuer, we are permitted by the listing requirements of the NYSE to rely on home country governance requirements and certain exemptions thereunder rather than relying on the corporate governance requirements of the NYSE. For an overview of our corporate governance principles, see “Management—Corporate Governance.” Accordingly, you may not have the same protections afforded to stockholders of companies that are not foreign private issuers.

You may be unable to enforce judgments obtained in U.S. courts against us.

We are incorporated under the laws of The Netherlands, and all or a substantial portion of our assets are located outside of the United States and certain of our directors and officers and certain other persons named in this Prospectus are, and will continue to be, non-residents of the United States. As a result, although we have appointed an agent for service of process in the United States, it may be difficult or impossible for United States investors to effect service of process within the United States upon us or our non-U.S. resident directors and officers or to enforce in the United States any judgment against us or them including for civil liabilities under the United States securities laws. Therefore, any judgment obtained in any United States federal or state court against us may have to be enforced in the courts of The Netherlands, or such other foreign jurisdiction, as applicable. Because there is no treaty or other applicable convention between the United States and The Netherlands with respect to legal judgments, a judgment rendered by any United States federal or state court will not be enforced by the courts of The Netherlands unless the underlying claim is relitigated before a Dutch court. Under current practice, however, a Dutch court will generally grant the same judgment without a review of the merits of the underlying claim (i) if that judgment resulted from legal proceedings compatible with Dutch notions of due process, (ii) if that judgment does not contravene public policy of The Netherlands and (iii) if the jurisdiction of

 

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the United States federal or state court has been based on grounds that are internationally acceptable. Investors should not assume, however, that the courts of The Netherlands, or such other foreign jurisdiction, would enforce judgments of United States courts obtained against us predicated upon the civil liability provisions of the United States securities laws or that such courts would enforce, in original actions, liabilities against us predicated solely upon such laws. See “Enforceability of Civil Liabilities.”

We have broad discretion over the use of proceeds we receive in this offering and may not apply the proceeds in ways that increase the value of your investment.

We intend to use the net proceeds from this offering primarily for general corporate purposes, including without limitation, capital expenditures relating to the expansion of existing data centers and the construction of new data centers. Our management will have broad discretion in the application of these net proceeds and, as a result, you will have to rely upon the judgment of our management with respect to the use of these proceeds, with only limited information concerning management’s specific intentions. Our management may spend a portion or all of these net proceeds from this offering in ways that our shareholders may not desire or that may not yield a favorable return. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or in assets that lose value. See “Use of Proceeds.”

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

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We will incur costs associated with our public company reporting requirements. In addition, the Sarbanes-Oxley Act and related rules implemented by the U.S. Securities and Exchange Commission (the “SEC”) and the NYSE have imposed increased regulation and required enhanced corporate governance practices for public companies. Our efforts to comply with evolving laws, regulations and standards in this regard are likely to result in increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities. We also expect these new rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified candidates to serve on our board of directors or as executive officers.

 

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FORWARD-LOOKING STATEMENTS

This Prospectus includes forward-looking statements. All statements other than statements of historical fact included in this Prospectus 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, are forward-looking statements. 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 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 Prospectus 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 with respect to 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, such estimates may prove to be incorrect. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from these expressed or implied by these forward-looking statements. These factors include, among other things:

 

   

operating expenses cannot be easily reduced in the short term;

 

   

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

 

   

significant competition;

 

   

cost and supply of electrical power;

 

   

data center industry over-capacity; and

 

   

performance under service level agreements.

These risks and others described under “Risk Factors” are not exhaustive. Other sections of this Prospectus describe additional factors that could adversely affect our business, financial condition or results of operations. We urge you to read the sections of this Prospectus entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” “Industry Overview” and “Business” for a more complete discussion of the factors that could affect our future performance and the industry in which we operate. Additionally, new risk factors can 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 Prospectus are based on information available to us on the date of this Prospectus. 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 persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this Prospectus.

 

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MARKET, ECONOMIC AND INDUSTRY DATA

Information regarding markets, market size, market share, market position, growth rates and other industry data pertaining to our business contained in this Prospectus consists of estimates based on data and reports compiled by professional organizations and analysts, on data from other external sources, and on our knowledge of our sales and markets. In many cases, there is no readily available external information (whether from trade associations, government bodies or other organizations) to validate market-related analyses and estimates, requiring us to rely on internally developed estimates. While we have compiled, extracted and reproduced market or other industry data from external sources which we believe to be reliable, including third parties or industry or general publications, neither we nor the underwriters have independently verified that data. Similarly, our internal estimates have not been verified by any independent sources.

 

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Presentation of Financial Information

Unless otherwise indicated, the financial information in this Prospectus has been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board. The significant IFRS accounting policies applied to our financial information in this Prospectus have been applied consistently.

Financial Information

The financial information included in “Financial Statements” is covered by the auditors’ report included therein which was prepared in accordance with standards issued by the Public Company Accounting Oversight Board (United States).

EBITDA and Adjusted EBITDA

In this Prospectus we refer to our EBITDA and Adjusted EBITDA. We define EBITDA as operating profit plus depreciation, amortization and impairment of assets. We define Adjusted EBITDA as EBITDA adjusted to exclude share-based payments and exceptional and non-recurring items and include share of profits (losses) of non-group companies. For a reconciliation of EBITDA and Adjusted EBITDA to operating profit/(loss), see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—EBITDA and Adjusted EBITDA.” EBITDA, Adjusted EBITDA and other key performance indicators may not be indicative of our historical results of operations, nor are they meant to be predictive of future results.

Additional Key Performance Indicators

In addition to EBITDA and Adjusted EBITDA, our management also uses the following key performance indicators as measures to evaluate our performance:

 

   

Equipped Space: the amount of data center space that, on the relevant date, is equipped and either sold or could be sold, without making any additional investments to common infrastructure. Equipped Space at a particular data center may decrease if either (a) the power requirements of customers at such data center change so that all or a portion of the remaining space can no longer be sold as the space does not have enough power and/or common infrastructure to support it without further investment or (b) if the design and layout of a data center changes to meet among others, fire regulations or customer requirements, and necessitates the introduction of common space which cannot be sold to individual customers, such as corridors;

 

   

Utilization Rate: on the relevant date, Revenue Generating Space as a percentage of Equipped Space; Revenue Generating Space is defined as the amount of Equipped Space that is billed on the relevant date. Some Equipped Space is not fully utilized due to customers’ specific requirements regarding the layout of their equipment. In practice, therefore, Utilization Rate does not reach 100%;

 

   

Recurring Revenue Percentage: Recurring Revenue during the relevant period as a percentage of total revenue in the same period. Recurring Revenue comprises revenue that is incurred monthly from colocation 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. Rents received for the sublease of unused sites are excluded. Monthly Recurring Revenue is the contracted Recurring Revenue over a full month excluding power usage revenues, amortized set-up fees and the sub-leasing of office space; and

 

   

Average Monthly Churn: the simple average of the Churn Percentage in each month of the relevant period. Churn Percentage in a month is the contracted Monthly Recurring Revenue which came to an end during the month as a percentage of the total contracted Monthly Recurring Revenue at the beginning of the month.

 

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EBITDA, Adjusted EBITDA, Recurring Revenue and Average Monthly Churn are all non-GAAP measures. Together with the other key performance indicators listed above, they serve as additional indicators of our operating performance and are not required by, or presented in accordance with, IFRS. They are not intended as a replacement for, or alternatives to, measures such as cash flows from operating activities and operating profit as defined and required under IFRS. We believe that EBITDA, Adjusted EBITDA and our other key performance indicators are measures commonly used by analysts, investors and peers in our industry. Accordingly, we have disclosed this information to permit a more complete analysis of our operating performance. EBITDA, Adjusted EBITDA and our other key performance indicators, as we calculate them, may not be comparable to similarly titled measures reported by other companies. For a reconciliation of EBITDA and Adjusted EBITDA to operating profit/(loss), see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—EBITDA and Adjusted EBITDA.” EBITDA, Adjusted EBITDA and our other key performance indicators listed above may not be indicative of our historical results of operations, nor are they meant to be predictive of future results.

Currency Presentation and Convenience Translations

Unless otherwise indicated, all references in this Prospectus to “euro” or “€” are to the currency introduced at the start of the third stage of the European Economic and Monetary Union pursuant to the Treaty establishing the European Community, as amended. All references to “dollars,” “$,” “U.S. $” or “U.S. dollars” are to the lawful currency of the United States. We prepare our financial statements in euro.

Solely for convenience, this Prospectus contains translation of certain euro amounts into U.S. dollars based on the noon buying rate of €1.00 to U.S. $1.3601 and €1.00 to U.S. $1.4332 in The City of New York for cable transfers of euro as certified for customs purposes by the Federal Reserve Bank of New York as of September 30, 2010 and December 31, 2009, respectively. These translation rates should not be construed as representations that the euro amounts have been, could have been or could be converted into U.S. dollars at that or any other rate. See “Exchange Rate Information.”

Metric Convenience Conversion

This Prospectus contains certain metric measurements and for your convenience, we provide the conversion of metric units into U.S. customary units. The standard conversion relevant for this Prospectus is approximately 1 meter = 3.281 feet or 1 square meter = 10.764 square feet.

Rounding

Certain financial data in this Prospectus, including financial, statistical and operating information have been subject to rounding adjustment. Accordingly, in certain instances, the sum of the numbers in a column or a row in tables contained in this Prospectus may not conform exactly to the total figure given for that column or row. Percentages in tables have been rounded and accordingly may not add up to 100%.

No Incorporation of Website Information

The contents of our website do not form part of this Prospectus.

 

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EXCHANGE RATE INFORMATION

We publish our financial statements in euro. The conversion of euro into U.S. dollars in this Prospectus is solely for the convenience of readers. Exchange rates of euro into U.S. dollars are based on the noon buying rate in The City of New York for cable transfers of euro as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise noted, all translations from euro to U.S. dollars and from U.S. dollars to euro in this Prospectus were made at a rate of €1.00 to U.S. $1.3601, the noon buying rate in effect as of September 30, 2010. We make no representation that any euro or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or euro, as the case may be, at any particular rate, the rates stated below, or at all.

The following table sets forth information concerning exchange rates between the euro and the U.S. dollar for the periods indicated.

 

     Low      High  
     (U.S. $ per €1.00)  

Month ended:

     

July 31, 2010

     1.2464         1.3069   

August 31, 2010

     1.2652         1.3282   

September 30, 2010

     1.2708         1.3638   

October 31, 2010

     1.3688         1.4066   

November 30, 2010

     1.3036         1.4224   

December 31, 2010

     1.3089         1.3395   

January (through January 7)

     1.2944         1.3371   

 

     Average  for
Period(1)
 
     (U.S. $ per
€1.00)
 

Year ended December 31,:

  

2005

     1.2400   

2006

     1.2661   

2007

     1.3797   

2008

     1.4695   

2009

     1.3955   

2010

     1.3211   

 

Source: Federal Reserve Bank of New York

Note:

 

(1) Annual averages are calculated from month-end rates. Monthly averages are calculated using the average of the daily rates during the relevant period.

On January 7, 2011, the noon buying rate was €1.00 to U.S. $1.2944.

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately U.S. $176.6 million, assuming an initial public offering price of U.S. $12.00 per ordinary share, being the midpoint of the estimated range of the initial public offering price after deducting underwriting discounts and estimated aggregate offering expenses payable by us. A U.S. $1.00 increase (decrease) in the assumed public offering price of U.S. $12.00 per ordinary share would increase (decrease) the net proceeds to us from this offering by U.S. $15.3 million, after deducting underwriting discounts and estimated aggregate offering expenses payable by us and assuming no other change to the number of ordinary shares offered by us as set forth on the cover page of this Prospectus. We will not receive any proceeds from the sale of ordinary shares being offered by the selling shareholders, which includes members of our senior management (including any ordinary shares sold by the selling shareholders pursuant to the underwriters’ option to purchase additional ordinary shares), although we will receive the exercise price in respect of any options to purchase ordinary shares that are exercised by selling shareholders in connection with this offering.

We intend to use the net proceeds from this offering primarily for general corporate purposes, including, without limitation, capital expenditures relating to expansion of existing data centers and construction of new data centers.

 

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CAPITALIZATION

The following table sets forth on a consolidated basis, our cash and cash equivalents and our capitalization as of September 30, 2010:

 

   

on an actual basis;

 

   

on an adjusted basis to give effect to the November 2010 offering of €60 million 9.50% Senior Secured Notes due 2017 (the “Additional Notes”); and

 

   

on an adjusted basis to give effect to:

 

   

the offering of the Additional Notes;

 

   

the sale of 16,250,000 ordinary shares by us in this offering at an assumed initial public offering price of U.S. $12.00 per ordinary share, the midpoint of the range set forth on the cover page of this Prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us;

 

   

a five-to-one reverse stock split that is expected to occur on or before the closing of this offering and assuming no related issuance of ordinary shares to ensure that each shareholder holds a number of shares divisible by five, as required for the five-to-one reverse stock split, which will be effected by way of an amendment of our articles of association (see “Description of Capital Stock—Articles of Association and Dutch law”);

 

   

the automatic one-to-one conversion of 174,039,207 Preferred Shares into ordinary shares prior to the closing of this offering, which will be effected by way of an amendment of our articles of association (see “Description of Capital Stock—Articles of Association and Dutch Law”). For these purposes it is assumed that after giving effect to the reverse stock split and the related issuance of ordinary shares referred to above, the automatic one-for-one conversion would result in 34,807,842 ordinary shares; and

 

   

the issuance of 3,754,606 ordinary shares by us in the Preferred Shares Liquidation Price Offering, for these purposes assumed to be the maximum number of ordinary shares to which holders of our Preferred Shares are entitled in the Preferred Shares Liquidation Price Offering, at an assumed initial public offering price of U.S. $12.00 per ordinary share, the midpoint of the range set forth on the cover page of this Prospectus, assuming an exchange rate of €1.00 to U.S. $1.2944 based on the noon buying rate in The City of New York for cable transfers of euro as certified for customs purposes by the Federal Reserve Bank of New York as of January 7, 2011.

You should read the following table in conjunction with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements and related notes included elsewhere in this Prospectus.

 

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     As of September 30, 2010  
     Actual     As Adjusted for
the offering of
the Additional
Notes
    As Further
Adjusted
 
           (€’000)        

Cash and cash equivalents

     30,592 (1)      92,712 (2)      224,546 (3) 
                        

Debt (including current portion)

      

Finance lease liabilities

     871        871        871   

9.50% Notes due 2017

     193,023 (4)      255,143 (5)      255,143 (5) 

Other loans

     4,538        4,538        4,538   
                        

Debt excluding revolving credit facility deferred financing costs(6)

     198,432        260,552        260,552   

Revolving credit facility deferred financing costs(6)

     (1,206     (1,206     (1,206
                        

Total debt

     197,226        259,346        259,346   

Shareholders’ equity

      

Share capital

     4,434        4,434        6,434   

Share premium(7)

     320,457        320,457        448,291   

Foreign currency translation reserve

     3,097        3,097        3,097   

Accumulated deficit(8)

     (184,690     (184,690     (184,690
                        

Total shareholders’ equity(8)

     143,298        143,298        273,132   

Total capitalization

     340,524        402,644        532,478   
                        

 

Notes:

 

(1) “Cash and cash equivalents” includes €4.4 million which is restricted and held as collateral to support the issuance of bank guarantees on behalf of a number of subsidiary companies. To the extent all holders of Preferred Shares elect payment in cash of the liquidation price of their Preferred Shares, “Cash and cash equivalents” as adjusted would be decreased by €34,807,842.
(2) As adjusted “Cash and cash equivalents” includes the net proceeds of the Additional Notes, after deducting underwriting discounts and commissions and our offering fees and expenses.
(3) As further adjusted “Cash and cash equivalents” includes the net proceeds of the Additional Notes and the net proceeds of this offering, after deducting underwriting discounts and commissions and our offering fees and expenses in excess of €2.0 million, which amount has been deducted and is reflected in Actual “Cash and cash equivalents” as of September 30, 2010.
(4) The net proceeds of the €200 million 9.50% Senior Secured Notes due 2017 (the “Original Notes”) are shown after deducting underwriting discounts and commissions and our offering fees and expenses.
(5) As adjusted and As further adjusted “9.50% Notes due 2017” includes the net proceeds of the Additional Notes, after deducting underwriting discounts and commissions and our offering fees and expenses.
(6) We reported deferred financing costs of €1.2 million in connection with entering into our revolving credit facility, which is currently undrawn.
(7) “Share premium” has been translated for convenience only based on the noon buying rate in The City of New York for cable transfers of euro as certified for customs purposes by the Federal Reserve Bank of New York as of September 30, 2010 for euro into U.S. dollars of €1.00 = U.S. $1.3601. See “Exchange Rate Information” for additional information.
(8) Adjustment represents the write-off of deferred financing fees and related refinancing premium in respect of our credit facilities that were refinanced with the proceeds of the Original Notes.

 

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DILUTION

If you invest in our ordinary shares you will be diluted to the extent of the difference between the public offering price per ordinary share and the net tangible book value per ordinary share immediately after the completion of this offering. Net tangible book value represents the amount of our total assets less our total liabilities, excluding net deferred tax assets, deferred finance costs and intangible assets, divided by, the total number of our ordinary and Preferred Shares outstanding at September 30, 2010.

At September 30, 2010, we had a net tangible book value of U.S. $127.3 million, corresponding to a net tangible book value of U.S. $0.57 per ordinary share (based on the noon buying rate in The City of New York for cable transfers of euro as certified for customs purposes by the Federal Reserve Bank of New York as of September 30, 2010 for euro into U.S. dollars of €1.00 = U.S. $1.3601).

After giving effect to (i) the issue and sale by us of ordinary shares offered by us in this offering, (ii) the automatic one-to-one conversion of Preferred Shares into ordinary shares, (iii) the five-to-one reverse stock split that is expected to occur on or before the closing of this offering and assuming no related issuance of ordinary shares to ensure that each shareholder holds a number of shares divisible by five, as required for the five-to-one reverse stock split, and (iv) the issue of 3,754,606 ordinary shares, which is the maximum number of ordinary shares to which holders of our Preferred Shares are entitled in the Preferred Shares Liquidation Price Offering, and assuming an offering price of U.S. $12.00 per ordinary share, the midpoint of the price range set forth on the cover page of this Prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value estimated at September 30, 2010 would have been approximately U.S. $303.9 million, representing U.S. $4.66 per ordinary share. See “Summary—The Offering.” This represents an immediate increase in net tangible book value of U.S. $1.79 per ordinary share to existing shareholders and an immediate dilution in net tangible book value of U.S. $7.34 per ordinary share to new investors purchasing shares in this offering. Dilution for this purpose represents the difference between the price per ordinary share paid by these purchasers and net tangible book value per ordinary share immediately after the completion of the offerings.

The following table illustrates this dilution to new investors purchasing ordinary shares in the global offering:

 

     As of September 30, 2010  
     Ordinary shares(1)  
     U.S. $  

Net tangible book value per share as of September 30, 2010

     2.87   

Increase in net tangible book value per share attributable to new investors

     1.79   

Pro forma net tangible book value per share after the offering

     4.66   

Dilution per share to new investors

     7.34   

Percentage of dilution in net tangible book value per share for new investors(2)

     61

 

(1) Translated for convenience only based on the noon buying rate in The City of New York for cable transfers of euro as certified for customs purposes by the Federal Reserve Bank of New York as of September 30, 2010 for euro into U.S. dollars of €1.00 = U.S. $1.3601. See “Exchange Rate Information” for additional information.
(2) Percentage of dilution for new investors is calculated by dividing the dilution in net tangible book value for new investors by the price of the offering.

Each U.S. $1.00 increase (decrease) in the offering price per ordinary share, would increase (decrease) the net tangible book value after this offering by U.S. $0.26 per ordinary share and the dilution to investors in the offering by U.S. $0.26 per ordinary share, assuming that the number of shares offered in the offering, as set forth on the cover page of this Prospectus, remains the same.

 

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The following table sets forth, as of September 30, 2010, on the same basis described above:

 

   

the total number of ordinary shares owned by existing shareholders and to be owned by new investors purchasing ordinary shares in this offering;

 

   

the total consideration paid by our existing shareholders and to be paid by new investors purchasing ordinary shares in this offering; and

 

   

the average price per ordinary share paid by existing shareholders and to be paid by new investors purchasing ordinary shares in this offering.

The table excludes the impact of the following items:

 

   

4,107,774 ordinary shares issuable upon the exercise of options outstanding under our 2008 equity incentive plan, as of September 30, 2010 (after giving effect to the five-to-one reverse stock split); and

 

   

897,721 additional ordinary shares reserved for issuance under our 2008 equity incentive plan, as of September 30, 2010 (after giving effect to the five-to-one reverse stock split).

 

     Ordinary  Shares
Purchased(1)
    Total Consideration     Average
Price Per
Ordinary

Share
 
     Number      Percent     Amount     Percent    

Existing shareholders

     48,738,477         75.0      $ 441,884,249 (2)      69.4      $ 9.07   

New shareholders

     16,250,000         25.0      $ 195,000,000        30.6      $ 12.00   
                                         

Total

     64,988,477         100   $ 636,884,249        100   $ 9.80   
                                         

 

(1) The number of ordinary shares disclosed for the existing shareholders includes (i) the automatic one-to-one conversion of Preferred Shares to ordinary shares, (ii) the five-to-one reverse stock split that is expected to occur on or before the closing of this offering and assuming no related issuance of ordinary shares to ensure that each shareholder holds a number of shares divisible by five, as required for the five-to-one reverse stock split, (iii) the issuance of 604,790 ordinary shares upon the assumed exercise of options in connection with this offering, and (iv) the issuance of 3,754,606 ordinary shares, the maximum number of ordinary shares to which holders of our Preferred Shares are entitled in the Preferred Shares Liquidation Price Offering based on the midpoint of the price range set forth on the cover page of this Prospectus and assuming an exchange rate of €1.00 to U.S. $1.2944 based on the noon buying rate in The City of New York for cable transfers of euro as certified for customs purposes by the Federal Reserve Bank of New York as of January 7, 2011. See “Summary—The Offering.”
(2) Total consideration paid by existing shareholders is based on share capital and share premium as of September 30, 2010, includes all share-based compensation through September 30, 2010 and is based on the noon buying rate in The City of New York for cable transfers of euro as certified for customs purposes by the Federal Reserve Bank of New York as of September 30, 2010 for euro into U.S. dollars of €1.00 = U.S. $1.3601.

 

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DIVIDEND POLICY

We have never declared or paid cash dividends on our ordinary shares. We currently intend to retain any future earnings to fund the development and growth of our business and we do not currently anticipate paying dividends on our ordinary shares. Our board of directors will have the discretion to determine to what extent profits shall be retained by way of a reserve. Our board of directors, in determining to what extent profits shall be retained by way of a reserve, will consider our ability to declare and pay dividends in light of our future operations and earnings, capital expenditure requirements, general financial conditions, legal and contractual restrictions and other factors that it may deem relevant. In addition, our outstanding €260 million 9.50% Senior Secured Notes due 2017 and our credit agreements limit our ability to pay dividends and we may in the future become subject to debt instruments or other agreements that further limit our ability to pay dividends. The remaining profits will be at the disposal of our general meeting of shareholders for distribution of a dividend or to be added to the reserves or for such other purposes as our general meeting of shareholders decides. To the extent we pay dividends in euro, the amount of U.S. dollars realized by shareholders will vary depending on the rate of exchange between U.S. dollars and euro. Shareholders will bear any costs related to the conversion of euro into U.S. dollars.

We are a holding company incorporated in The Netherlands. Under Dutch law, we may only pay dividends subject to our ability to service our debts as they fall due in the ordinary course of our business and subject to Dutch law and our articles of association. See “Description of Capital Stock—Dividends and Distributions.” We rely on dividends paid to us by our wholly-owned subsidiaries in the United Kingdom, France, Germany, Austria, The Netherlands, Ireland, Spain, Sweden, Switzerland, Belgium and Denmark to fund the payment of dividends, if any, to our shareholders.

 

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SELECTED FINANCIAL DATA

The following selected financial data as of and for the years ended December 31, 2009, 2008 and 2007 have been derived from our audited consolidated financial statements, which are included elsewhere in this Prospectus. The selected financial data as of and for the years ended December 31, 2006 and 2005 have been derived from our audited consolidated financial statements not included in this Prospectus. The following selected financial data for the nine months ended September 30, 2010 and 2009 and as of September 30, 2010 have been derived from our unaudited consolidated interim financial statements included elsewhere in this Prospectus, which have been prepared on a basis consistent with our annual audited consolidated financial statements. Our audited consolidated financial statements included in this Prospectus have been prepared and presented in accordance with IFRS as issued by the International Accounting Standards Board and have been audited by KPMG Accountants N.V., an independent registered public accounting firm.

You should read the selected financial data in conjunction with our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Prospectus. Our historical results do not necessarily indicate our expected results for any future periods.

 

    Nine months ended September 30,     Year
ended
December 31,
    Year ended December 31,  
         2010(1)             2010             2009         2009(1)     2009     2008     2007(2)(3)     2006(2)     2005(2)  
    (U.S.
$’000,
except per
share
amounts)
    (€’000, except per
share amounts)
    (U.S.
$’000,
except per
share
amounts)
    (€’000, except per share amounts)  

Income statement data

                 

Revenue

    207,856        152,824        126,611        246,035        171,668        138,180        100,450        74,142        57,971   

Cost of sales

    (92,306     (67,867     (58,163     (112,575     (78,548     (63,069     (51,998     (43,719     (35,965
                                                                       

Gross profit

    115,550        84,957        68,448        133,460        93,120        75,111        48,452        30,423        22,006   

Other income

    399        293        629        1,069        746        2,291        988        549        568   

Sales and marketing costs

    (15,317     (11,262     (8,439     (16,128     (11,253     (9,862     (7,297     (6,715     (4,610

General and administrative costs

    (54,020     (39,717     (36,180     (72,560     (50,628     (35,352     (34,837     (26,664     (12,918
                                                                       

Operating profit/(loss)

    46,612        34,271        24,458        45,841        31,985        32,188        7,306        (2,407     5,046   

Net finance expense

    (31,719     (23,321     (4,387     (8,955     (6,248     (3,713     (4,126     (697     (254
                                                                       

Profit/(loss) before taxation

    14,893        10,950        20,071        36,886        25,737        28,475        3,180        (3,104     4,792   

Income tax benefit (expense)

    (7,864     (5,782     (4,642     1,025        715        8,899        10,405        3,736        14,319   
                                                                       

Net income

    7,029        5,168        15,429        37,911        26,452        37,374        13,585        632        19,111   
                                                                       

Basic earnings per share

    0.03        0.02        0.07        0.17        0.12        0.17        0.06        0.00        0.11   
                                                                       

Cash flow statement data

                 

Net cash flows from operating activities

    65,976        48,508        37,293        73,635        51,378        35,991 (4)      24,756        14,797        7,787   

Net cash flows from investing activities

    (109,708     (80,662     (75,987     (144,680     (100,949     (92,252     (49,548     (19,726     (4,868

Net cash flows from financing activities

    41,630        30,608        20,510        28,326        19,764        82,057        45,419        9,485        150   

Capital expenditures(5)

    (107,602     (79,113     (74,986     (143,290     (99,979     (91,123     (48,838     (18,377     (4,868

 

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    Nine months ended September 30,     Year
ended
December 31,
    Year ended December 31,  
         2010(1)             2010         2009(1)     2009     2008     2007(2)(3)     2006(2)     2005(2)  
    (U.S.
$’000)
    (€’000)     (U.S.
$’000)
    (€’000)  

Balance sheet data

               

Trade and other current assets

    78,653        57,829        79,700        55,610        49,874        29,313        20,758        13,727   

Cash and cash equivalents(6)

    41,608        30,592        45,867        32,003        61,775        35,848        15,042        10,374   
                                                               

Current assets

    120,261        88,421        125,567        87,613        111,649        65,161        35,800        24,101   

Non-current assets(3)

    511,727        376,242        459,207        320,407        250,307        145,016        99,641        81,191   

Total assets

    631,988        464,663        584,774        408,020        361,956        210,177        135,441        105,292   
                                                               

Shareholders’ equity

    194,900        143,298        192,589        134,377        104,926        69,158        37,942        36,994   

Current liabilities

    139,430        102,515        173,265        120,894        122,322        74,271        58,463        38,090   

Non-current liabilities

    297,658        218,850        218,920        152,749        134,708        66,748        39,036        30,208   

Total liabilities

    437,088        321,365        392,185        273,643        257,030        141,019        97,499        68,298   
                                                               

Total liabilities and shareholders’ equity

    631,988        464,663        584,774        408,020        361,956        210,177        135,441        105,292   
                                                               

 

Notes:

 

(1) The “Income statement data,” “Cash flow statement data” and “Balance sheet data” as of and for the nine months ended September 30, 2010 and the year ended December 31, 2009 have been translated for convenience only based on the noon buying rate in The City of New York for cable transfers of euro as certified for customs purposes by the Federal Reserve Bank of New York as of September 30, 2010 and December 31, 2009 for euro into U.S. dollars of €1.00 = U.S. $1.3601 and €1.00 = U.S. $1.4332, respectively. See “Exchange Rate Information” for additional information.
(2) In fiscal year 2008, income not related to our core activities was reclassified to the line item “Other income.” Fiscal years 2007, 2006 and 2005 figures have been adjusted to reflect the same reclassification.
(3) In fiscal year 2007, the useful economic lives of certain data center assets were increased from 10 to 15 years. This change of accounting estimate was applied from January 1, 2007. This extension in the useful economic lives of certain data center assets resulted in an estimated decrease in depreciation of €3.6 million during the fiscal year 2007. Additionally, fiscal year 2007 figures have been adjusted to reflect the impairment of €1,885,000 in the “Depreciation, amortization and impairments” line item instead of in the “Exceptional general and administrative costs” line item.
(4) The 2008 “Net cash flows from operating activities” include a reclassification for foreign exchange results on working capital balances.
(5) Capital expenditures represent payments to acquire tangible fixed assets as recorded on our consolidated statement of cash flows as “Purchase of property, plant and equipment.”
(6) Cash and cash equivalents includes €4.4 million, €3.9 million, €3.9 million, €3.6 million and €3.4 million as of September 30, 2010, December 31, 2009, December 31, 2008, December 31, 2007 and December 31, 2006, respectively, which is restricted and held as collateral to support the issuance of bank guarantees on behalf of a number of subsidiary companies.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information should be read in conjunction with the consolidated financial statements and notes thereto and with the financial information presented in the section entitled “Selected Financial Data” included elsewhere in this Prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, the words “believes,” “anticipates,” “plans,” “expects,” “intends” and similar expressions are intended to identify forward-looking statements. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that might cause such a discrepancy include, but are not limited to, those discussed in “—Liquidity and Capital Resources” below and “Risk Factors” above. All forward-looking statements in this Prospectus are based on information available to us as of the date of this Prospectus and we assume no obligation to update any such forward-looking statements.

Overview

We are a leading carrier-neutral colocation data center services provider in Europe. Our core offering is carrier-neutral colocation services, which we sell to over 1,100 customers. Within our data centers, we enable our customers to connect to a broad range of telecommunications carriers, Internet service providers and other customers. Our data centers act as content and connectivity hubs that facilitate the processing, storage, sharing and distribution of data, content, applications and media among carriers and customers, creating an environment that we refer to as a community of interest.

Our core offering is carrier-neutral colocation services, which includes space, uninterrupted power and a secure environment in which to house our customers’ computing, network, storage and IT infrastructure. Our carrier-neutral colocation services enable our customers to reduce operational and capital expenses 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 connects, data backup and storage.

We are headquartered near Amsterdam, The Netherlands, and deliver our services through 28 data centers in 11 countries strategically located in major metropolitan areas, including London, Frankfurt, Paris, Amsterdam and Madrid, which are the main data center markets in Europe. Because our data centers are located in close proximity to the intersection of telecommunications fiber routes and power sources, we are able to provide our customers with high levels of connectivity and the requisite power to meet their needs.

Our data centers house connections to more than 350 carriers and Internet service providers and 18 European Internet exchanges, which allows our customers to lower their telecommunications costs and, by reducing latency, improve the response time of their applications. This connectivity to carriers and Internet service providers, and to other customers, fosters the development of value-added communities of interest, which are important to customers in each of our segments: network providers, managed services providers, enterprises, financial services and digital media. Development of our communities of interest generates network effects for our customers that enrich the value and attractiveness of the community to both existing and potential customers.

Growth in Internet traffic, cloud computing and the use of customer-facing hosted applications are driving significant demand for high quality carrier-neutral colocation data center services. This demand results from the need for either more space or more power, or both. These needs, in turn, are driven by, among other factors, decreased cost of Internet access, increased broadband penetration, increased usage of high-bandwidth content, increased number of wireless access points and growing availability of Internet and network based applications. If the global economy’s recovery stalls or is reversed, global IP traffic may grow at a lesser rate, which could lead to a slowdown in the increase in demand for our services.

 

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Our ability to meet the demand for high quality carrier-neutral colocation data center services depends on our ability to add capacity by expanding existing data centers or by locating and securing suitable sites for additional data centers that meet our specifications, such as proximity to numerous network service providers, access to a significant supply of electrical power and the ability to sustain heavy floor loading.

Our market is highly competitive. Most companies operate their own data centers and in many cases continue to invest in data center capacity, although there is a trend towards outsourcing. We compete against other carrier-neutral colocation data center service providers, such as Equinix, Telecity and Telehouse. We also compete with other types of data centers, including carrier-operated colocation, wholesale and IT outsourcers and managed services provider data centers. The cost, operational risk and inconvenience involved in relocating a customer’s networking and computing equipment to another data center are significant and have the effect of protecting a competitor’s data center from significant levels of customer churn.

Key Aspects of Our Financial Model

We offer carrier-neutral colocation services to our customers. Our revenues are mostly recurring in nature and in the last several years, Recurring Revenue has consistently represented over 90% of our total revenue. Our contracted Recurring Revenue model together with low levels of Average Monthly Churn provide significant predictability of future revenue.

Revenue

We enter into contracts with our customers for initial terms of generally three to five years, with annual price escalators and with automatic one-year renewals after the end of the initial term. Our customer contracts provide for a fixed monthly recurring fee for our colocation, managed services and, in the case of cabinets, fixed amounts of power pre-purchased at a fixed price. These fees are billed monthly, quarterly or bi-annually in advance, together with fees for other services such as the provision of metered power (based on a price per kilowatt hour actually consumed), billed monthly in arrears, or fees for services such as remote hands and eyes support, billed on an as-incurred basis.

The following table presents our future committed revenues expected to be generated from our fixed-term customer contracts as of December 31, 2009, 2008 and 2007.

 

     2009      2008      2007  
     (€’000)  

Within 1 year

     101,235         84,074         67,439   

Between 1 to 5 years

     96,392         90,204         81,142   

After 5 years

     16,093         7,553         9,590   
                          
     213,720         181,831         158,171   
                          

We recognize revenue when it is probable that future economic benefits will be realized and these benefits can be measured reliably. Revenues are measured at the fair value of the consideration received or receivable.

Revenues from contracts with multiple-element arrangements (e.g. installations and setup, equipment sales, data center and managed services) are recognized based on the residual value method, provided the delivered elements have value to customers on a stand-alone basis.

Colocation revenues are earned by providing data center services to customers at our data centers. Colocation revenues 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.

 

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Power revenues vary with the amount of power our customers use and are generally matched with corresponding power costs. At the start of the contract, we also bill our customers in advance a fee for the installation and set-up of their contracted space within our data centers. The revenue from this initial set-up fee is recognized over the term of the customer contract and also recorded as Recurring Revenue.

Other services revenue relates mainly to managed services and connectivity. Revenue from other services is recognized when the services are rendered.

Deferred revenues relating to invoicing in advance and initial set-up fees are carried on the balance sheet. Deferred revenues due to be recognized after more than one year are held in non-current liabilities.

Recurring Revenue comprises revenue that is incurred monthly from colocation 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. Rents received for the sublease of unused sites are excluded.

Costs

Our cost base consists primarily of personnel, power and property costs.

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 September 30, 2010 we employed 326 full-time employees: 182 in operations and support; 64 in sales and marketing; and 80 in general and administrative. A data center typically requires a fixed number of personnel to run, irrespective of customer utilization. Increases in operations and support personnel occur when we bring new data centers into service. Our approach is, where possible, to locate new data centers close to our existing data centers. In addition to other benefits of proximity, in some cases it also allows us to leverage existing personnel within a data center campus.

In 2008 and 2009, we invested resources in sales and marketing personnel to engage with our existing and potential customers on an industry basis. This has enabled us to establish closer relationships with our customers thereby allowing us to understand and anticipate their needs and to forecast demand and helping us plan the scope and timing of our expansion activities.

Our customers’ equipment consumes significant amounts of power and generates heat. In recent years the amount of power consumed by an individual piece of equipment, or power density, has increased as processing capacity has increased. In maintaining the correct ambient conditions for the equipment to operate most effectively, our cooling and air conditioning infrastructure also consume significant amounts of power. Our power costs are variable and directly dependent on the amount of power consumed by our customers’ equipment. Our power costs also increase as the Utilization Rate of a data center increases. Increases in power costs due to increased usage by our customers are generally matched by corresponding increases in power revenues.

The unit price we pay for our power also has an impact on our power costs. We generally enter into contracts with local utility companies to purchase power at fixed prices for periods of one or two years. Within substantially all of our customer contracts, we have the right to adjust at any time the price we charge for our power services to allow us to recover increases in the unit price we pay.

We do not own any data centers and instead lease all of our data center space. 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 of 10 to 15 years with tenant-only rights to extend the lease with multiple 5-year increments, or alternatively through tenant-only rights to terminate the lease in year 10 or year 15. Our leases generally have fixed annual rent increases over the full term of the lease.

 

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Larger increases in our property costs occur when we bring new data centers into service. Bringing new data centers into service also has the effect of temporarily reducing our overall Utilization Rate while the utilization of the new data center increases as we sell to customers.

In addition, we enter into annual maintenance contracts with our major plant and equipment suppliers. This cost increases as new maintenance contracts are entered into in support of new data center operations.

Operating Leverage

Due to the relatively fixed nature of our costs, we generally experience margin expansion as our Utilization Rate at existing data centers increases. Our margins and the rate of margin expansion will vary based upon the scope and scale of our capacity expansions, which affects our overall Utilization Rate.

Exceptional Items

We disclose exceptional items separately as “Other income” and “Exceptional expenses” to enable a better understanding of our financial performance.

Exceptional income and expense that we have disclosed separately in the last three annual financial periods have included abandoned transaction costs, net insurance compensation benefits from a large insurance claim and movements in the provision for onerous lease contracts. Onerous lease contracts are those in which we expect losses to be incurred in respect of unused data center sites over the term of the lease contract. Provisions for these leases are based upon the present value of the future contracted payout under these leases, and movements in the provision for onerous lease contracts are reflected on our income statement. These movements arise principally from changes in the underlying discount rate and are treated as exceptional items. We sublease portions of these unused sites to third parties and treat the income from these subleases as exceptional income.

The provision for onerous lease contracts principally relates to two unused data center sites in Germany, one in Munich terminating in March 2016 and one in Dusseldorf terminating in August 2016.

Net Finance Expense

Towards the end of 2006, we started an expansion program of our data centers based on customer demand. This expansion program, closely matched to both customer demand and available capital resources, has continued since that time. We do not commit to a phase of an expansion or construction of a data center unless we have cash and committed capital available to complete the phase. Since 2006, we have raised debt capital to fund our expansion program, and this has contributed to increases in our finance expense. During the period of construction of a data center, we capitalize the borrowing costs as part of the construction costs of the data center.

We fund the expansion programs within operating entities principally through intra-group loans and since 2008, exchange differences arising, if any, on net investments including receivables from or payable to a foreign operation, are recognized directly in the foreign currency translation reserve within equity in accordance with IAS 21. Prior to 2008, these exchange differences were recognized as net finance expense or income.

We discuss our capital expenditures and our capital expansion program below in “—Liquidity and Capital Resources.”

Income Tax Expense

Since inception we have generated significant tax loss carry forwards in all of our jurisdictions. In 2006, we became net income positive and began offsetting our tax loss carry forwards against taxable profits. We have recognized deferred tax assets, and will continue to recognize deferred tax assets progressively as our profitability increases. We expect to be able to continue to use our tax loss carry forwards to mitigate cash taxes going forward.

 

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Segment Reporting

We report our financials in two segments, which we have determined based on our management and internal reporting structure: the first being France, Germany, The Netherlands and UK and the second being the Rest of Europe, which comprises our operations in Austria, Belgium, Denmark, Ireland, Spain, Sweden and Switzerland. 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 are presented as “corporate and other” and comprise mainly general and administrative expenses, assets and liabilities associated with our headquarters operations, provisions for onerous contracts (relating to the discounted amount of future losses expected to be incurred in respect of unused data center sites over the term of the relevant leases, as further explained below) and revenue and expenses related to such onerous contracts, loans and borrowings and related expenses and income tax assets and liabilities. Segment capital expenditure is the total cost directly attributable to a segment incurred during the period to acquire property, plant and equipment.

Results of Operations

The following table presents our operating results for the nine months ended September 30, 2010 and 2009 and the years ended December 31, 2009, 2008 and 2007:

 

     Nine months ended September 30,     Year
ended
December 31,
    Year ended December 31,  
     2010(1)     2010     2009     2009(1)     2009     2008     2007(2)(3)  
     (U.S.
$’000,
except per
share
amounts)
    (€’000, except per share
amounts)
    (U.S.
$’000,
except per
share
amounts)
    (€’000, except per share
amounts)
 

Revenue

     207,856        152,824        126,611        246,035        171,668        138,180        100,450   

Cost of sales

     (92,306     (67,867     (58,163     (112,575     (78,548     (63,069     (51,998
                                                        

Gross profit

     115,550        84,957        68,448        133,460        93,120        75,111        48,452   

Other income

     399        293        629        1,069        746        2,291        988   

Sales and marketing costs

     (15,317     (11,262     (8,439     (16,128     (11,253     (9,862     (7,297

General and administrative costs

              

Depreciation, amortization and impairments

     (30,579     (22,483     (15,195     (31,473     (21,960     (15,083     (11,657

Exceptional expenses

     (399     (293     (6,212     (12,317     (8,594     (1,611     (9,593

Share-based payments

     (1,454     (1,069     (605     (1,362     (950     (1,660     (1,399

Other general and administrative costs

     (21,587     (15,872     (14,168     (27,408     (19,124     (16,998     (12,188
                                                        

General and administrative costs

     (54,020     (39,717     (36,180     (72,560     (50,628     (35,352     (34,837
                                                        

Operating profit

     46,612        34,271        24,458        45,841        31,985        32,188        7,306   

Net finance expense

     (31,719     (23,321     (4,387     (8,955     (6,248     (3,713     (4,126
                                                        

Profit before taxation

     14,893        10,950        20,071        36,886        25,737        28,475        3,180   

Income tax benefit (expense)

     (7,864     (5,782     (4,642     1,025        715        8,899        10,405   
                                                        

Net income

     7,029        5,168        15,429        37,911        26,452        37,374        13,585   
                                                        

Basic earnings per share

     0.03        0.02        0.07        0.17        0.12        0.17        0.06   
                                                        

Adjusted EBITDA(4)

     78,645        57,823        45,841        89,924        62,743        48,251        28,967   

 

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The following table presents our operating results as a percentage of revenues for the nine months ended September 30, 2010 and 2009 and the years ended December 31, 2009, 2008, and 2007:

 

     Nine months ended
September 30,
    Year ended December 31,  
     2010     2009     2009     2008     2007(2)(3)  

Revenue

     100     100     100     100     100

Cost of sales

     (44     (46     (46     (46     (52

Gross profit

     56        54        54        54        48   

Other income

     0        0        0        2        1   

Sales and marketing costs

     (7     (7     (7     (7     (7

General & administrative costs

          

Depreciation, amortization and impairments

     (15     (12     (13     (11     (12

Exceptional expenses

     0        (5     (5     (1     (10

Share-based payments

     (1     0        (1     (1     (1

Other general and administrative costs

     (10     (11     (11     (12     (12
                                        

General and administrative costs

     (26     (29     (29     (26     (35
                                        

Operating profit

     22        19        19        23        7   

Net finance expense

     (15     (3     (4     (3     (4
                                        

Profit before taxation

     7        16        15        21        3   

Income tax benefit (expense)

     (4     (4     0        6        10   
                                        

Net income

     3     12     15     27     14
                                        

Adjusted EBITDA margin(4)

     38     36     37     35     29

 

Notes:

 

(1) The operating results for the nine months ended September 30, 2010 and the year ended December 31, 2009 have been translated for convenience only based on the noon buying rate in The City of New York for cable transfers of euro as certified for customs purposes by the Federal Reserve Bank of New York as of September 30, 2010 and December 31, 2009 for euro into U.S. dollars of €1.00 = U.S. $1.3601 and €1.00 = U.S. $1.4332, respectively. See “Exchange Rate Information” for additional information.
(2) In fiscal year 2008, income not related to our core activities were reclassified to the line item “Other income.” Fiscal year 2007 figures have been adjusted to reflect the same reclassification.
(3) In fiscal year 2007, the useful economic lives of certain data center assets were increased from 10 to 15 years. This change of accounting estimate was applied from January 1, 2007. This extension in the useful economic lives of certain data center assets resulted in an estimated decrease in depreciation of €3.6 million during the fiscal year 2007. Additionally, fiscal year 2007 figures have been adjusted to reflect the impairment of €1,885,000 in the “Depreciation, amortization and impairments” line item instead of in the “Exceptional general and administrative costs” line item.
(4) EBITDA is defined as operating profit plus depreciation, amortization and impairment of assets. We define Adjusted EBITDA as EBITDA adjusted to exclude share-based payments and exceptional and non-recurring items and include share of profits (losses) of non-group companies. Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of revenue. We present EBITDA, Adjusted EBITDA and Adjusted EBITDA margin as additional information because we understand that they are measures used by certain investors and because they are used in our financial covenants in our €50 million revolving credit facility and €260 million 9.50% Senior Secured Notes due 2017. However, other companies may present EBITDA, Adjusted EBITDA and Adjusted EBITDA margin differently than we do. EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are not measures of financial performance under IFRS and should not be considered as an alternative to operating profit or as a measure of liquidity or an alternative to net income as indicators of our operating performance or any other measure of performance derived in accordance with IFRS. See “—EBITDA and Adjusted EBITDA” for a more detailed description.

 

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The following table presents a reconciliation of EBITDA and Adjusted EBITDA to operating profit according to our income statement, the most directly comparable IFRS performance measure, for the periods indicated:

 

     Nine months ended September 30,     Year
ended
December 31,
    Year ended December 31,  
     2010(1)     2010     2009     2009(1)*     2009     2008     2007(2)(3)*  
     (U.S. $’000)     (€’000)     (U.S. $’000)     (€’000)  

Other financial data

              

Operating profit

     46,612        34,271        24,458        45,841        31,985        32,188        7,306   

Depreciation, amortization and impairments

     30,579        22,483        15,195        31,473        21,960        15,083        11,657   
                                                        

EBITDA

     77,191        56,754        39,653        77,314        53,945        47,271        18,963   

Share-based payments

     1,454        1,069        605        1,362        950        1,660        1,399   

Exceptional expenses

              

Increase/(decrease) in provision for onerous lease contracts(a)

     399        293        1,371        5,379        3,753        1,611        8,139   

Abandoned transaction costs

     —          —          4,841        6,938        4,841        —          —     

Personnel costs

     —          —          —          —          —          —          1,454   

Exceptional income

     (399     (293     (629     (1,069     (746     (2,291     (988
                                                        

Adjusted EBITDA*

     78,645        57,823        45,841        89,924        62,743        48,251        28,967   
                                                        

 

Note:

 

 * References are to the footnotes above.
(a) “Increase (decrease) in provision for onerous lease contracts” does not reflect the deduction of income from subleases on unused data center sites.

The following table sets forth some of our key performance indicators as of the dates indicated:

 

     As of September 30,     As of December 31,  
     2010     2009     2009     2008     2007  

Equipped Space(1) (square meters)

     59,600        50,800        54,800        43,200        36,600   

Utilization Rate(2)

     71     72     70     77     74

 

Notes:

 

(1) Equipped Space is the amount of data center space that, on the date indicated, is equipped and either sold or could be sold, without making any additional investments to common infrastructure. Equipped Space at a particular data center may decrease if either (a) the power requirements of customers at such data center change so that all or a portion of the remaining space can no longer be sold as the space does not have enough power and/or common infrastructure to support it without further investment or (b) if the design and layout of a data center changes to meet among others, fire regulations or customer requirements, and necessitates the introduction of common space which cannot be sold to individual customers, such as corridors.
(2) Utilization Rate is, on the relevant date, Revenue Generating Space as a percentage of Equipped Space; some Equipped Space is not fully utilized due to customers’ specific requirements regarding the layout of their equipment. In practice, therefore, Utilization Rate may not reach 100%.

 

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Nine Months Ended September 30, 2010 and 2009

Revenue

Our revenue for the nine months ended September 30, 2010 and 2009 was as follows:

 

     Nine months ended September 30,      Change  
     2010      %      2009      %           %  
     (€’000, except percentages)  

Revenue

                 

Recurring revenue

     141,551         93         118,850         94         22,701         19   

Non-recurring revenue

     11,273         7         7,761         6         3,512         45   
                                                     
     152,824         100         126,611         100         26,213         21   
                                                     

Revenue increased to €152.8 million for the nine months ended September 30, 2010 from €126.6 million for the nine months ended September 30, 2009, an increase of 21%. Recurring revenue increased by 19% and non-recurring revenue increased by 45% from the nine months ended September 30, 2009 to the nine months ended September 30, 2010. The period over period growth in recurring revenue was primarily attributed to an increase of approximately 5,600 square meters in Revenue Generating Space as a result of sales to both existing and new customers in all of our regions. During the nine months ended September 30, 2010, we recorded approximately €4.1 million of revenue from our new data centers in Dublin and Frankfurt as well as expansions to existing data centers in Amsterdam, London and Zurich.

Cost of Sales

Cost of sales increased to €67.9 million for the nine months ended September 30, 2010 from €58.2 million for the nine months ended September 30, 2009, an increase of 17%. Cost of sales was 44% of revenue for the nine months ended September 30, 2010 and 46% of revenue for the nine months ended September 30, 2009.

The increase in cost of sales was due to increased costs associated with our overall revenue growth and data center expansion projects, including (i) an increase of €1.2 million in utility costs as a result of increased customer installations, (ii) €1.8 million in higher compensation costs, (iii) €2.3 million in external installation and service costs as a result of increased non-recurring revenue, and (iv) an increase of €2.7 million in property costs. Equipped Space increased by approximately 4,700 square meters during the nine months ended September 30, 2010 as a result of new data centers in Dublin and Frankfurt as well as expansions to existing data centers in Amsterdam, London and Zurich. We expect cost of sales as a percent of revenue to decrease as we increase utilization at our existing facilities. This decrease may be partially offset by the impact of lower utilization in new data centers we open as part of our data center expansion projects.

Sales and Marketing Costs

Our sales and marketing costs increased to €11.3 million for the nine months ended September 30, 2010 from €8.4 million for the nine months ended September 30, 2009, an increase of 33%. Sales and marketing costs were 7% of revenue for each of the nine months ended September 30, 2010 and September 30, 2009.

The increase in sales and marketing costs was primarily a result of increases in employee headcount and related expenses and continued investment in industry-focused customer development and acquisition approach activities. We generally expect sales and marketing costs to continue to increase as we invest in growth and as we further invest in our segmented marketing approach.

General and Administrative Costs

General and administrative costs consist of depreciation, amortization and impairments, exceptional expenses, share based payments and other general and administrative costs.

 

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Depreciation, Amortization and Impairments

Depreciation, amortization and impairments increased to €22.5 million for the nine months ended September 30, 2010 from €15.2 million for the nine months ended September 30, 2009, an increase of 48%. Depreciation, amortization and impairments was 15% of revenue for the nine months ended September 30, 2010 and 12% of revenue for the nine months ended September 30, 2009. This increase was due to new data centers and data center expansion and the related increase in depreciation and amortization.

Exceptional Expenses

Exceptional expenses comprise of significant items which are separately disclosed by virtue of their size, nature or incidence to enable a better understanding of our financial performance. In the nine months ended September 30, 2010, we recorded €0.3 million of exceptional expenses consisting solely of an increase in the provision we have made for our onerous leases. The increase in the provision for onerous lease contracts was related to two unused data center sites in Germany, one in Munich terminating in March 2016 and one in Dusseldorf terminating in August 2016.

In determining Adjusted EBITDA we also add back share-based payments. For the nine months ended September 30, 2010 we recorded share-based payments of €1.1 million as compared to €0.6 million for the nine months ended September 30, 2009.

Other General and Administrative Costs

Other general and administrative costs increased from €14.2 million for the nine month period ended September 30, 2009 to €15.9 million for the nine month period ended September 30, 2010, an increase of 12%. Other general and administrative costs were 11% of revenue for the nine month period ended September 30, 2009 and 10% of revenue for the nine month period ended September 30, 2010.

The increase in the other general and administrative costs was primarily due to higher compensation costs, including general salaries, bonuses and headcount growth and increased professional services costs for audit, legal and tax services.

Net Finance Expense

Net finance expense increased to €23.3 million for the nine months ended September 30, 2010 from €4.4 million for the nine months ended September 30, 2009. Net finance expense was 15% of revenue for the nine months ended September 30, 2010 and 3% of revenue for the nine months ended September 30, 2009. The increase in net finance expense for the nine months ended September 30, 2010 was due to a one-time finance expense of €10.2 million and higher interest expenses of €8.5 million associated with the Original Notes. The one-time finance expense was the result of expensing termination fees, the costs associated with unwinding interest rate hedges and the write-off of deferred financing fees related to our previous credit facilities.

During the nine months ended September 30, 2010 and 2009, we capitalized €1.8 million and €1.5 million, respectively, of interest relating to borrowing costs associated with construction in progress.

Other Income

Other income represents income that we do not consider part of our core business, including income from the sublease of parts of our onerous lease contracts. Other income decreased to €0.3 million for the nine months ended September 30, 2010 from €0.6 million for the nine months ended September 30, 2009.

Income Taxes

Income tax expense increased to €5.8 million for the nine months ended September 30, 2010 from €4.6 million for the nine months ended September 30, 2009. Income tax expense was 4% of revenue for the nine months ended September 30, 2010 and 4% of revenue for the nine months ended September 30, 2009.

 

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Our consolidated effective tax rate of 53% in respect of continuing operations for the nine months ended September 30, 2010 was affected by refinancing costs, incurred in the first quarter and treated as non-tax deductable. Our effective tax rate for the nine months ended September 30, 2009 was 23%.

We recorded current tax expenses of €1.5 million for the nine months ended September 30, 2010 and €0.4 million for the nine months ended September 30, 2009. We recorded deferred tax expenses of €4.2 million for the nine months ended September 30, 2010 and €4.2 million for the nine months ended September 30, 2009, arising primarily from the utilization of deferred tax assets on loss carry-forwards.

Years Ended December 31, 2009 and 2008

Revenue

Our revenue for the years ended December 31, 2009 and 2008 was as follows:

 

     Year ended December 31,      Change  
     2009      %      2008      %          %  
     (€’000, except percentages)  

Revenue

                

Recurring revenue

     161,314         94         127,307         92         34,007        27   

Non-recurring revenue

     10,354         6         10,873         8         (519     (5
                                                    
     171,668         100         138,180         100         33,488        24   
                                                    

Revenue increased to €171.7 million for the year ended December 31, 2009 from €138.2 million for the year ended December 31, 2008, an increase of 24%. Recurring revenue increased by 27% and non-recurring revenue decreased by 5% from the year ended December 31, 2008 to the year ended December 31, 2009. The period over period growth in recurring revenue was primarily the result of an increase of approximately 5,100 square meters in Revenue Generating Space as a result of sales to both existing and new customers in all of our regions. During the year ended December 31, 2009, we recorded approximately €5.1 million of revenue from our new data center in Paris as well as expansions to existing data centers in Brussels, Copenhagen, London, Madrid and Paris.

Cost of Sales

Cost of sales increased to €78.5 million for the year ended December 31, 2009 from €63.1 million for the year ended December 31, 2008, an increase of 24%. Cost of sales was 46% of revenue for each of years ended December 31, 2009 and 2008. The increase in cost of sales was due to increased costs associated with our overall revenue growth and data center expansion projects, including (i) an increase of €9.5 million in utility costs as a result of increased customer installations, (ii) €3.0 million in higher compensation costs and (iii) an increase of €1.9 million in property costs. Equipped Space increased by approximately 11,600 square meters during the year ended December 31, 2009 as a result of a new data center in Paris as well as expansions to existing data centers in Brussels, Copenhagen, London, Madrid and Paris. We expect cost of sales as a percent of revenue to decrease as we increase utilization at our existing facilities. This decrease may be partially offset by the impact of lower utilization in new data centers we open as part of our data center expansion projects.

Sales and Marketing Costs

Our sales and marketing costs increased to €11.3 million for the year ended December 31, 2009 from €9.9 million for the year ended December 31, 2008, an increase of 14%. Sales and marketing costs were 7% of revenue for each of the years ended December 31, 2009 and 2008.

The increase in sales and marketing costs was primarily a result of an increase of €1.0 million in compensation costs due to increases in employee headcount as we have continued to invest in our industry-focused customer development and acquisition approach.

 

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General and Administrative Costs

General and administrative costs consist of depreciation, amortization and impairments, exceptional expenses, share-based payments and other general and administrative costs.

Depreciation, Amortization and Impairments

Depreciation, amortization and impairments increased to €22.0 million for the year ended December 31, 2009 from €15.1 million for the year ended December 31, 2008, an increase of 46%. Depreciation, amortization and impairments was 13% of revenue for the year ended December 31, 2009 and 11% of revenue for the year ended December 31, 2008. This increase was due to new data centers and data center expansion and the related increase in depreciation and amortization.

Exceptional Expenses

Exceptional expenses comprise significant items which are separately disclosed by virtue of their size, nature or incidence to enable a better understanding of our financial performance. In the year ended December 31, 2009, we recorded €8.6 million of exceptional expenses comprising two items: (i) €4.8 million of legal, professional and other fees relating to an abandoned transaction and (ii) €3.8 million relating to an increase in the provision we have made for our onerous leases. The provision increased due to a reduction in the discount rate and increased costs associated with onerous leases relating to two unused data center sites in Germany, one in Munich terminating in March 2016 and one in Dusseldorf terminating in August 2016.

In determining Adjusted EBITDA we also add back share-based payments. For the year ended December 31, 2009 we recorded share-based payments of €1.0 million.

Other General and Administrative Costs

Other general and administrative costs increased to €19.1 million for the year ended December 31, 2009 from €17.0 million for the year ended December 31, 2008, an increase of 13%. Other general and administrative costs were 11% of revenue for the year ended December 31, 2009 and 12% of revenue for the year ended December 31, 2008. The increase in the other general and administrative costs was due to an increase of €1.9 million in compensation costs resulting from headcount growth.

Going forward, we expect our general and administrative costs to increase as we continue to scale our operations to support our growth; however, as a percentage of revenue, we expect them to decrease.

Net Finance Expense

Net finance expense for the year ended December 31, 2009 primarily consists of a €6.2 million net interest expense. Net finance expense increased to €6.2 million for the year ended December 31, 2009 from €3.7 million for the year ended December 31, 2008, an increase of 68%. Net finance expense was 4% of revenue for the year ended December 31, 2009 and 3% of revenue for the year ended December 31, 2008. The increase in net finance expense for the year December 31, 2009 was due primarily to greater amounts drawn on our credit facilities.

During the years ended December 31, 2009 and 2008, we capitalized €2.0 million and €1.9 million, respectively, of finance expense to construction in progress.

Other Income

Other income represents income that we do not consider part of our core business, including income from the sublease of parts of our onerous lease contracts. Additionally, we reported a net insurance compensation benefit of €0.3 million for the year ended December 31, 2009 and €1.8 million for the year ended December 31, 2008 as a result of fire damage incurred in 2008.

 

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Income Taxes

Income tax benefit decreased to €0.7 million for the year ended December 31, 2009 from €8.9 million for the year ended December 31, 2008. Income tax benefit was 0% of revenue for the year ended December 31, 2009 and 6% of revenue for the year ended December 31, 2008.

We recorded current tax expenses of €0.7 million for the year ended December 31, 2009 and €0.3 million for the year ended December 31, 2008. We recorded deferred tax benefits of €1.4 million for the year ended December 31, 2009 and €9.2 million for the year ended December 31, 2008, arising primarily from the recognition of deferred tax assets on loss carry-forwards.

Years Ended December 31, 2008 and 2007

Revenue

Our revenue for the fiscal years ended December 31, 2008 and 2007 was as follows:

 

     Year ended December 31,      Change  
     2008      %      2007      %           %  
     (€’000, except percentages)  

Revenue

                 

Recurring revenue

     127,307         92         91,591         91         35,716         39   

Non-recurring revenue

     10,873         8         8,859         9         2,014         23   
                                                     
     138,180         100         100,450         100         37,730         38   
                                                     

Revenue increased to €138.2 million for the year ended December 31, 2008 from €100.5 million for the year ended December 31, 2007, an increase of 38%. Recurring revenue increased by 39% and non-recurring revenue increased by 23% from the year ended December 31, 2007 to the year ended December 31, 2008. The year on year growth in recurring revenue was primarily the result of an increase of approximately 6,100 square meters in sales of Revenue Generating Space to both existing and new customers in all of our regions. During the year ended December 31, 2008, we recorded approximately €12.2 million of revenue from our new data centers in Frankfurt and Amsterdam as well as expansions to existing data centers in Brussels, Copenhagen, Dusseldorf, London, Madrid, Vienna and Zurich.

Cost of Sales

Cost of sales increased to €63.1 million for the year ended December 31, 2008 from €52.0 million for the year ended December 31, 2007, an increase of 21%. Cost of sales was 46% of revenue for the year ended December 31, 2008 and 52% of revenue for the year ended December 31, 2007.

The increase in cost of sales was due to our overall revenue growth and data center expansion projects, including (i) an increase of €4.5 million in utility costs as a result of increased customer installations, (ii) €2.1 million in higher compensation costs and (iii) an increase of €1.2 million in property costs. Equipped Space increased by approximately 6,600 square meters during the year ended December 31, 2008 as a result of new data centers in Frankfurt and Amsterdam as well as expansions to existing data centers in Brussels, Copenhagen, Dusseldorf, London, Madrid, Vienna and Zurich.

Sales and Marketing Costs

Our sales and marketing costs increased to €9.9 million for the year ended December 31, 2008 from €7.3 million for the year ended December 31, 2007, an increase of 35%. Sales and marketing costs were 7% of revenue for each of the years ended December 31, 2008 and 2007.

The increase in sales and marketing costs was primarily a result of an increase of €1.6 million in compensation costs due to increases in employee headcount resulting from our launch in late 2007 of our industry-focused customer development and acquisition approach.

 

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General and Administrative Costs

General and administrative costs consist of depreciation, amortization and impairments, exceptional expenses, share-based payments and other general and administrative costs.

Depreciation, Amortization and Impairments

Depreciation, amortization and impairments increased to €15.1 million for the year ended December 31, 2008 from €11.7 million for the year ended December 31, 2007, an increase of 29%. The increase was due to new data centers and data center expansions and the related increase in depreciation and amortization. Depreciation, amortization and impairments was 11% of revenue for the year ended December 31, 2008 and 12% of revenue for the year ended December 31, 2007. The extension in the economic lifetime of certain data center assets in 2007 resulted in an estimated decrease in depreciation of €3.6 million for the year ended December 31, 2007.

Exceptional Expenses

Exceptional expenses comprise significant items which are separately disclosed by virtue of their size, nature or incidence to enable a better understanding of our financial performance. In the year ended December 31, 2008, we recorded €1.6 million of exceptional expenses relating to an increase in our provision for onerous leases. The provision increased primarily due to a reduction in the discount rate. In the year ended December 31, 2007, we recorded €9.6 million of exceptional expenses comprising two items: (i) €1.5 million of exceptional and one-off personnel costs which were incurred in changing both our CEO and CFO and (ii) €8.1 million relating to an increase in our provision for onerous leases. Following a detailed review of our onerous leases, we reduced the estimated benefit of the future sublease income of our unused sites and as a result increased our provision.

In determining Adjusted EBITDA we also add back share-based payments. For the years ended December 31, 2008 and December 31, 2007 we recorded share-based payments of €1.7 million and of €1.4 million, respectively.

Other General and Administrative Costs

Other general and administrative costs increased to €17.0 million for the year ended December 31, 2008 from €12.2 million for the year ended December 31, 2007, an increase of 39%. Other general and administrative costs were 12% of revenue for each of the years ended December 31, 2008 and 2007.

The increase in the other general and administrative costs was due to an increase of €3.5 million in compensation costs resulting from headcount growth and an increase of €0.5 million in professional services costs for audit, legal and tax services.

Net Finance Expense

Net finance expense decreased to €3.7 million for the year ended December 31, 2008 from €4.1 million for the year ended December 31, 2007, a decrease of 10%. Net finance expense was 3% of revenue for the year ended December 31, 2008 and 4% of revenue for the year ended December 31, 2007. The decrease in net finance expense for the year ended December 31, 2008 was due primarily to a reduction in foreign currency losses from €2.2 million in the year ended December 31, 2007 to a nominal gain in the year ended December 31, 2008.

The decrease in net finance expense was partially offset by an increase in finance expense resulting from greater amounts drawn on our credit facilities. Finance expense was €4.9 million for the year ended December 31, 2008 as compared to €4.5 million for the year ended December 31, 2007. Finance expense for the year ended December 31, 2008 primarily consists of interest expense on bank and other loans. During the years ended December 31, 2008 and 2007, we capitalized €1.9 million and €0.7 million, respectively, of finance expense to data center construction in progress.

 

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Other Income

We reported a net insurance compensation benefit of €1.8 million for the year ended December 31, 2008, all of which was reported in the last quarter of 2008, as a result of fire damage to our Copenhagen data center. This benefit represents the difference between the net book value and replacement value of the equipment damaged. As of December 31, 2007 we reported €0.5 million of income as a result of the release of certain loan repayment obligations.

Income Taxes

Income tax expense decreased to a net income tax benefit of €8.9 million for the year ended December 31, 2008 from a net income tax benefit of €10.4 million for the year ended December 31, 2007, a decrease of 14%. Income tax benefit was 6% of revenue for the year ended December 31, 2008 and 10% of revenue for the year ended December 31, 2007.

We recorded current tax expenses of €0.3 million in each of the years ended December 31, 2008 and 2007 and deferred tax benefits of €9.2 million and €10.7 million, in the years ended December 31, 2008 and 2007, respectively, arising primarily from the recognition of deferred tax assets on loss carry-forwards.

Liquidity and Capital Resources

As of December 31, 2009, our total indebtedness consisted of (i) €152.5 million (aggregate principal amount) incurred under our previously existing €180 million secured credit facilities with a syndicate of banks and (ii) other debt and finance lease obligations totaling €6.2 million.

In February 2010, we issued €200 million 9.50% Senior Secured Notes due 2017 (the “Original Notes”), which are guaranteed by some of our subsidiaries. We used a portion of the proceeds of the notes offering to repay all amounts outstanding under our €180 million bank credit facilities. We also entered into a new €60 million revolving credit facility with a syndicate of banks. The revolving credit facility is currently undrawn and we have reduced the amount available for drawing to €50 million. See “Description of Certain Indebtedness—Revolving Credit Facility—Financial Covenants” and “—9.50% Senior Secured Notes due 2017—Covenants.”

In November 2010, we issued €60 million 9.50% Senior Secured Notes due 2017 as additional notes (the “Additional Notes”) under the indenture pursuant to which we issued the Original Notes.

As of September 30, 2010, our total indebtedness consisted of (i) €200 million of our 9.50% Senior Secured Notes due 2017 of which we used €159.0 million of the proceeds to repay all amounts outstanding under our €180 million bank credit facilities and (ii) other debt and finance lease obligations totaling €5.4 million.

Historically, we have made significant investments in our property, plant and equipment in order to expand our data center footprint and total Equipped Space as we have grown our business. In the year ended December 31, 2009, we invested €100.0 million in property, plant and equipment. In the nine months ended September 30, 2010, we invested €79.1 million in property, plant and equipment of which €74.3 million was attributed to expansion capital expenditures and the remainder to ongoing capital expenditures. As of September 30, 2010, we were committed to €18.6 million in capital commitments that we expect to be substantially deployed during the remainder of 2010.

We expect to continue to invest as we expand our data center footprint and increase our Equipped Space based on demand in our target markets. We expect our 2010 investment in property, plant and equipment in 2010 to be comparable to our 2009 investment, subject to continued customer demand. Our total annual investment in property, plant and equipment includes maintenance and replacement capital expenditures. Although in any one year the amount of maintenance and replacement capital expenditures may vary, we expect that long-term such expenses will be between 6% and 8% of total revenue.

 

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As of September 30, 2010, we had €30.6 million of cash and cash equivalents of which €4.4 million was restricted cash, mostly denominated in euro. As of December 31, 2009, we had €32.0 million of cash and cash equivalents of which €3.9 million was restricted cash, mostly denominated in euro. Our primary source of cash is from our financing activities and customer collections.

Sources and Uses of Cash

 

     Nine months ended
September 30,
    Year ended December 31,  
     2010     2009     2009     2008     2007  
     (€’000)  

Net cash provided by operating activities

     48,508        37,293        51,378        35,991        24,756   

Net cash used in investing activities

     (80,662     (75,987     (100,949     (92,252     (49,548

Net cash provided by financing activities

     30,608        20,510        19,764        82,057        45,419   

Operating Activities

The increase in net cash flows from operating activities in the nine months ended September 30, 2010 was primarily due to improved operating performance of the company and an increase in movements in trade and other receivables as compared to the nine months ended September 30, 2009. The increase in net cash flows from operating activities in the year ended December 31, 2009 was primarily due to improved operating results as discussed above, strong collections of accounts receivable and management of vendor payments. The increase in net cash flows from operating activities in the year ended December 31, 2008 over the year ended December 31, 2007 was primarily due to improved operating results as discussed above, strong collections of accounts receivable and management of vendor payments. We expect that we will continue to generate cash from our operating activities during the remainder of 2010 and in 2011.

Investing Activities

The increase in net cash used in investing activities in the nine month period ended September 30, 2010 was primarily due to capital expenditures in the expansion of existing or construction of new data centers. The increase in net cash used in investing activities in the year ended December 31, 2009 was primarily due to capital expenditures in the expansion of existing or construction of new data centers. The increase in net cash used in investing activities in the years ended December 31, 2008 and 2007 was also primarily due to capital expenditures in the expansion of existing data centers or construction of new data centers. We expect that our net cash used in investing activities will be comparable to our 2009 investment, subject to continued customer demand.

Financing Activities

Net cash flows from financing activities during the nine month period ended September 30, 2010 was primarily the result of €190.8 million in gross proceeds from the issuance of the Original Notes (and after deducting deferred financing fees related to the Revolving Credit Facility), which was partly offset by repayment of our previously outstanding credit facility and associated costs and fees. Net cash flows from financing activities during the nine month period ended September 30, 2009 was primarily the result of €22.2 million in gross proceeds from our existing credit facilities.

Net cash flows from financing activities during the year ended December 31, 2009 was primarily the result of €22.2 million in gross proceeds drawn under our prior credit facilities. Net cash flows from financing activities during the year ended December 31, 2008 was primarily due to loan drawdowns for ongoing expansion projects. Net cash flows from financing activities during 2007 were primarily due to loan drawdowns for ongoing expansion projects.

 

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EBITDA and Adjusted EBITDA

EBITDA for the nine months ended September 30, 2010 was €56.8 million, as against €39.7 million for the nine months ended September 30, 2009, representing 37% and 31% of revenue, respectively. Adjusted EBITDA for the nine months ended September 30, 2010 was €57.8 million, as against €45.8 million for the nine months ended September 30, 2009, representing 38% and 36% of revenue, respectively.

EBITDA for the year ended December 31, 2009 was €53.9 million, €47.3 million for the year ended December 31, 2008, and €19.0 million for the year ended December 31, 2007, representing 31%, 34% and 19% of revenue, respectively. Adjusted EBITDA for the year ended December 31, 2009 was €62.7 million, €48.3 million for the year ended December 31, 2008 and €29.0 million for the year ended December 31, 2007, representing 37%, 35% and 29% of revenue, respectively.

We present EBITDA and Adjusted EBITDA as additional information because we understand that they are measures used by certain investors and because they are used in our financial covenants in our €50 million revolving credit facility and €260 million 9.50% Senior Secured Notes due 2017. See “Description of Certain Indebtedness—Revolving Credit Facility—Financial Covenants” and “—9.50% Senior Secured Notes due 2017—Covenants.”

Failure to comply with the financial covenants in our €50 million revolving credit facility would result in an event of default, which may cause all amounts outstanding under the facility to become immediately due and payable. Acceleration of such outstanding amounts under the facility may lead to an event of default under the indenture governing our €260 million 9.50% Senior Secured Notes. Failure to satisfy the financial covenants in the indenture would result in our inability to incur additional debt under certain circumstances.

EBITDA is defined as operating profit plus depreciation, amortization and impairment of assets. We define Adjusted EBITDA as EBITDA adjusted to exclude share-based payments and exceptional and non-recurring items and include share of profits (losses) of non-group companies. However, other companies may present EBITDA and Adjusted EBITDA differently than we do. EBITDA and Adjusted EBITDA are not measures of financial performance under IFRS and should not be considered as an alternative to operating profit or as a measure of liquidity or an alternative to net income as indicators of our operating performance or any other measure of performance derived in accordance with IFRS.

The following table presents a reconciliation of EBITDA and Adjusted EBITDA to operating profit according to our income statement, for the periods indicated:

 

     Nine months ended
September 30,
    Year ended December 31,  
     2010     2009     2009     2008     2007  
     (€’000)     (€’000)  

Operating profit

     34,271        24,458        31,985        32,188        7,306   

Depreciation, amortization and impairments

     22,483        15,195        21,960        15,083        11,657   
                                        

EBITDA

     56,754        39,653        53,945        47,271        18,963   

Share-based payments

     1,069        605        950        1,660        1,399   

Exceptional expenses

          

Increase/(decrease) in provision for onerous lease contracts(1)

     293        1,371        3,753        1,611        8,139   

Abandoned transaction costs

     —          4,841        4,841        —          —     

Personnel costs

     —          —          —          —          1,454   

Exceptional income(2)

     (293     (1,371     (746     (2,291     (988
                                        

Adjusted EBITDA

     57,823        45,841        62,743        48,251        28,967   
                                        

 

Notes:

 

(1) “Increase in provision for onerous lease contracts” does not reflect the deduction of income from subleases on unused data center sites.

 

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(2) Exceptional income is reported within “Other income.” Exceptional expenses comprise significant items which are separately disclosed by virtue of their size, nature or incidence to enable a better understanding of our financial performance. Other income represents income that we do not consider part of our core business including income from the sublease of parts of our onerous lease contracts.

Contractual Obligations and Off-Balance Sheet Arrangements

We lease a majority of our data centers and certain equipment under non-cancellable lease agreements. The following represents our debt maturities, financings, leases and other contractual commitments as of September 30, 2010:

 

    Three
months
of 2010
    2011-2014     2015 and
thereafter
    Total  
    (€’000)  

Credit facilities(1)

    562        2,371        201,605        204,538   

Financial leases

    118        753        —          871   

Operating leases in relation to onerous lease contracts

    770        12,316        4,423        17,509   

Operating leases

    4,589        74,415        127,501        206,506   

Other contractual commitments

    5,575        22,400        —          27,975   

Capital commitments

    18,610        —          —          18,610   

 

Note:

 

(1) Our prior credit facilities were repaid in February 2010 and replaced with a new €60 million revolving credit facility, which is currently undrawn and which we amended and reduced to €50 million in November 2010. This new credit facility terminates on January 31, 2013. In November 2010, we issued €60 million 9.50% Senior Secured Notes due 2017 guaranteed by certain of our subsidiaries.

In connection with 13 of our data center leases, we entered into 15 irrevocable bank guarantees totaling €4.4 million with Fortis Bank Nederland (now ABN AMRO), La Caixa and Sparkasse. These bank guarantees were provided in lieu of cash deposits and automatically renew in successive one-year periods until the final lease expiration date. The bank guarantees are cash collateralized and the collateral is reflected as restricted cash on our balance sheet. These contingent commitments are not reflected in the table above.

Primarily as a result of our various data center expansion projects, as of September 30, 2010, we were contractually committed for €18.6 million of unaccrued capital expenditures, primarily for data center equipment not yet delivered and labor not yet provided, in connection with the work necessary to complete construction and open these data centers prior to making them available to customers for installation. This amount, which is expected to be paid during the remainder of 2010 and 2011, is reflected in the table above as “Capital commitments.”

We have other non-capital purchase commitments in place as of September 30, 2010, such as commitments to purchase power in select locations, primarily in Germany through the remainder of 2010, 2011 and 2012 and other open purchase orders, which contractually bind us for goods or services to be delivered or provided during the remainder of 2010 and beyond. Such other purchase commitments as of September 30, 2010, which total €28.0 million, are also reflected in the table above as “Other contractual commitments.”

In addition, although we are not contractually obligated to do so, we expect to incur additional capital expenditures consistent with our various data center expansion projects during the remainder of 2010 in order to complete the work needed to open these data centers. These non-contractual capital expenditures are not reflected in the table above. Please see “Business—Strategy—Disciplined Expansion and Conservative Financial Management.”

 

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Critical Accounting Estimates

Basis of Measurement

We present our financial statements in thousand of euro. They are prepared under the historical cost convention except for certain financial instruments. The financial statements are presented on the going-concern basis. Our functional currency is the euro.

The accounting policies set out below have been applied consistently by us and our wholly-owned subsidiaries and to all periods presented in these consolidated financial statements.

Use of Estimates and Judgments

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. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

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

Estimated remaining useful lives and residual values 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 our best estimates of future prices, output and costs and is therefore subjective.

Costs of Site Restoration

Liabilities in respect of obligations to restore premises to their original condition are estimated at the commencement of the lease. The actual cost of these may be different depending upon whether the Group renews the lease.

Provision for Onerous Lease Contracts

Provision is made for 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 have been sublet or partly sublet, management has taken account of the contracted rental income to be received over the minimum sublease term in arriving at the amount of future losses. Currently, the provision for onerous lease contracts principally relates to two unused data center sites in Germany, one in Munich terminating in March 2016 and one in Dusseldorf terminating in August 2016.

Deferred Taxation

Provision is made for deferred taxation 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 upon local financial performance in each tax jurisdiction.

 

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Fair Value of Option Grants

From time to time, we grant stock options to our employees. We obtained retrospective valuations from independent and unrelated valuation specialists to assist us in estimating the fair values of the ordinary shares underlying our options.

The independent valuation specialist retained during all of 2007 and part of 2008 employed the discounted cash flow method using assumptions for our growth rate, tax rate and exit multiple. The assumptions used were as follows:

 

   

the illiquidity discount rate was an assumed 20%, which was based on market studies on public to private discount rates;

 

   

the control premium discount rate was an assumed 5% and also derived from market studies;

 

   

the weighted average cost of capital was 14%;

 

   

the terminal growth rate was 3%; and

 

   

the normalized tax rate was 30%.

The independent valuation specialist retained beginning in mid-2008 employed the guideline company method, which uses market-based multiples as the base for valuation. These multiples are adjusted for the illiquidity of our ordinary shares, certain control aspects of our ordinary shares and a liquidation preference attached to outstanding preferred share capital. We replaced the discounted cash flow method with the guideline company method in response to the Dutch tax authority’s preference for a more transparent and external metric-based valuation method.

In order to develop market-based multiples, we and the independent valuation specialist referred to four publicly-traded companies that we and the specialist agreed were comparable peers that operate in industries similar to our own. An average implied EBITDA multiple (enterprise value/EBITDA) was calculated among the guideline companies. This multiple was then used to determine our enterprise value.

Once our enterprise value was determined, under both the discounted cash flow method and the guideline company method, adjustments were made for net debt, including the liquidation of all Preferred Shares pursuant to the Preferred Share Liquidation Price Offering and onerous lease contracts, to determine our equity value. This equity value was then divided by the total number of outstanding ordinary shares, assuming that all Preferred Shares are converted into ordinary shares and all options are exercised. This per share figure was then discounted, as noted above, to account for the illiquidity of the share value, control premium and liquidation preferences.

We believe that the overall approach is consistent with the principles and guidance set forth in IFRS 2.

All fair market valuations of the ordinary shares were made by us with reliance in part on the findings of the independent valuation specialists and such valuations progressively increased throughout the fiscal year 2009. As of our last option grant on September 17, 2010, the fair value of our underlying ordinary shares was estimated to be €2.42. The estimated public offering price for our ordinary shares is approximately $12.00 per share, the midpoint of the preliminary range of $11.00 to $13.00.

The estimated fair value of the ordinary shares was based in part on the following EBITDA multiples:

 

Valuation Date

   EBITDA
Multiple
 

March 31, 2009

     10.44   

June 30, 2009

     11.94   

September 30, 2009

     11.48   

December 31, 2009

     13.02   

May 31, 2010

     13.25   

June 30, 2010

     13.68   

September 30, 2010

     14.40   

 

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The increase in share price valuation during the year ended December 31, 2009 was caused by 1) an increase in the share prices of the publicly-traded companies used as guideline companies in determining the EBITDA multiple and 2) the financial performance of both ourselves as well as these guideline companies.

The difference in the estimated fair value of the underlying ordinary shares and the estimated public offering price is attributable to discounts in the estimated fair value for illiquidity of the unlisted ordinary shares and increased market demand and positive financial performance since the last valuation.

The following table outlines the option grants and related valuations during the 12 months ended September 30, 2010, which is the date of the most recent balance sheet included in this Prospectus. The table below does not reflect the five-to-one reverse stock split, which is expected to occur on or before the closing of this offering.

 

Grant Date

   Number of
options
     Option
Exercise
Price(s)
     Estimated
Fair Value
of Ordinary
shares on
Grant Date
     Intrinsic Value per
Option on Grant Date
 
     (in euro)  

October 1, 2009

     60,000         1.00         1.72         0.72   

December 15, 2009

     500,000         1.00         1.72         0.72   

February 10, 2010

     1,190,000         1.00         2.04         1.04   

July 14, 2010

     340,000         1.30         2.33         1.03   

September 17, 2010

     300,000         1.30         2.42         1.12   

September 17, 2010

     20,000         1.50         2.42         0.92   

Recent Accounting Pronouncements

The following new standards, amendments to standards and interpretations set out below have been issued but are not effective for the financial year ending December 31, 2009 and have not been applied in preparing the financial statements for the years ended December 31, 2009, 2008 and 2007:

 

   

IFRS 3R, “Business combinations”

 

   

IFRS 2, “Share-based payment;” group cash-settled share-based payment transactions;

 

   

IFRS 5, “Non-current assets held for sale and discontinued operations;”

 

   

IAS 39, “Financial Instruments: Recognition and Measurement” (April 2009 revisions);

 

   

IFRS 9, “Financial Instruments;”

 

   

IFRIC 9, “Reassessment of Embedded Derivatives;”

 

   

IFRIC 17, “Distributions of Non-Cash Assets to Owners,” effective annual periods beginning on or after July 1, 2009; and

 

   

IFRIC 19, “Extinguishing financial liabilities with equity instruments,” effective annual periods beginning on or after July 1, 2010.

These new standards and interpretations, with the exception of IFRIC 19, are mandatory for our 2010 financial statements. Following an internal review it is not anticipated that the adoption of these standards and interpretations will have a material financial impact on the financial statements in the period of initial application and the subsequent reporting periods. See “Financial Statements—Notes to the 2009 Consolidated Financial Statements.”

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

Under our credit facilities, interest is based on a floating rate index. The interest expense on the remainder of our outstanding indebtedness is based on a fixed rate.

 

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Foreign Exchange Risk

Our reporting currency for purposes of our financial statements is the euro. However, we also incur revenue and operating costs in non-euro denominated currencies, such as British pounds, Swiss francs, Danish kroner and Swedish krona. We recognize foreign currency gains or losses arising from our operations in the period incurred. As a result, currency fluctuations between the euro and the non-euro currencies in which we do business will cause us to incur foreign currency translation gains and losses. We cannot predict the effects of exchange rate fluctuations upon our future operating results because of the number of currencies involved, the variability of currency exposure and the potential volatility of currency exchange rates. We have determined that the impact of a near-term 10% appreciation or depreciation of non-euro denominated currencies relative to the euro would not have a significant effect on our financial position, results of operations, or cash flows.

We do not maintain any derivative instruments to mitigate the exposure to translation and transaction risk. Our foreign exchange transaction gains and losses are included in our results of operations and were not material for all periods presented. We do not currently engage in foreign exchange hedging transactions to manage the risk of our foreign currency exposure.

Commodity Price Risk

We are a significant user of electricity and have exposure to increases in electricity prices. In recent years, we have seen significant increases in electricity prices. We use independent consultants to monitor price changes in electricity and negotiate fixed-price term agreements with the power supply companies where possible.

Approximately 60% of our customers by revenue pay for electricity on a metered basis while the remainder of our customers pay for power “plugs.” While we are contractually able to recover power cost increases from our customers, some portion of the increased costs may not be recovered. In addition, some portion of the increased costs may be recovered in a delayed fashion based on commercial reasons at the discretion of local management.

 

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INDUSTRY OVERVIEW

Data centers are highly specialized facilities that house critical network, storage and information technology equipment and act as content and connectivity hubs to facilitate the processing, storage, sharing and distribution of data, content, applications and media. The networking and computing equipment housed in data centers includes servers, switches, storage devices, routers and fiber optic transmission gear. This equipment has specific power, cooling, connectivity and security requirements that are fulfilled by these specialized facilities.

A data center generally consists of space for cabinets that house IT equipment, uninterruptible power supply systems, including backup generators and batteries, cooling equipment, fire suppression systems, security, staging areas and office space. The space in a data center can be divided into cages within a room or entirely separate suites. The equipment housed in a data center consumes significant power, generates substantial heat and is particularly sensitive to power fluctuations as well as changes in temperature and humidity. As a result, control of the data center environment by means of uninterrupted power, ventilation, air conditioning, heating, fire suppression and monitoring is critical. Data centers also often have raised flooring to accommodate air circulation, cooling ducts and vents and power cabling, as well as ceiling mounted cable trays for additional wiring and overhead fire suppression systems. Due to the critical nature of the customer equipment it houses and the data it stores and processes, a data center requires continuous operations and high levels of physical security, which can include measures such as biometric access control within security zones, reinforced weight bearing floors, and redundant or backup power supplies.

Whereas data centers were historically utilized primarily for space, and acted essentially as warehouses for data storage, data centers today are increasingly used for data processing in support of hosting applications that require network connectivity. Data centers that provide access to connectivity with multiple carriers can improve application resilience and reliability, together with network latency, or distance related delays, for customers. Carriers and customers use these data centers that provide access to multiple carriers for interconnection and trading of network services and to access potential customers, creating an environment that we refer to as a community of interest.

History of the European Data Center Industry

Between 1998 and 2001, data center operators in Europe invested heavily in building new facilities to meet the growing demand of emerging Internet-based businesses. Demand for carrier-neutral colocation data centers was driven primarily by carriers and Internet service providers, purchasing data center space to support anticipated demand, as opposed to actual demand.

Between 2001 and 2004, the industry suffered from overcapacity as demand from emerging Internet-based businesses did not materialize as expected. During this period, there was limited, if any, new network neutral colocation data center capacity built and the industry rationalized and consolidated existing capacity.

The data center services industry has matured significantly since 2001. The customer base has expanded from primarily emerging Internet companies and carriers to an increasingly wide variety of established businesses seeking to house their IT and telecommunications infrastructure and gain access to multiple carriers. These businesses increasingly utilize data centers not only as sites for data storage but also as computing centers to process data and operate customer-facing applications. This diverse and established customer base has driven significant demand for carrier-neutral data center services.

The data centers themselves have likewise experienced a fundamental shift. Since the late 1990s, a growing portion of the data center industry has evolved from providing services for equipment mainly designed for warehousing data to a place where real-time data gathering and data processing takes place. The growing sophistication and adoption of Internet-based applications such as cloud computing, or software-as-a-service, have been important contributors to this trend. The software complexity of these Internet-enabled or web-facing

 

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applications requires ever greater processing power in order to operate at speeds that provide response times that are acceptable to end users (whether people or machines). Today, this processing power is delivered by servers that reside in temperature controlled data centers with clean and uninterrupted power and network connectivity. Robust and redundant network connectivity is essential in order to ensure that the application and critical information in the data center can be delivered reliably and promptly to end users.

Types of Data Centers

There are five primary types of data centers: in-house, IT outsourcers and managed services provider, wholesale, carrier-operated and carrier-neutral colocation.

In-House Data Centers

Many companies own and operate some or all of their own data centers. According to IDC, as of March 2009, in-house data centers represent 88% of capacity in Europe. We expect the rate of outsourcing in Europe to increase due to the adoption of new technology and services. Companies may select in-house data centers for regulatory, or other industry specific reasons, or because they have significant scale such that it is more cost effective. In-house data centers often lack the flexibility, sufficient power, or benefit of access to multiple carriers, making them less suited to customer facing applications. Companies that own and operate their own data centers include Dell, Wal-Mart and FedEx.

IT Outsourcers and Managed Services Provider Data Centers

In general, IT outsourcers and managed service providers do not sell colocation space as a stand-alone offering, but include access to data center services as part of a managed service offering or customer solution. Unlike wholesale or colocation providers, IT outsourcers and managed services providers typically own and manage the servers, and utilize the equipment that is housed in the data center. IT outsourcers and managed services providers in Europe include HP, IBM, Logica, Rackspace, Sungard and Terremark.

Wholesale Data Centers

Wholesale data center providers are typically real estate companies that offer customers access to a large building shell with basic cooling and power infrastructure. Such data centers generally have fewer connectivity options, and lower customer density, and are therefore less likely to benefit from communities of interest. Wholesale data centers provide relatively few services in addition to basic cooling and power. Examples of wholesale data center providers include Digital Realty Trust, Dupont Fabros Technology and Global Switch.

Carrier-Operated Data Centers

Carrier-operated data centers offer colocation services, typically requiring customers to use their networks or allow interconnection with only a limited number of other carriers. Carrier-operated data centers do not offer their customers the cost efficiencies associated with access to multiple carriers. Carriers that operate their own data centers in Europe include AT&T, BT, Cable & Wireless, Colt Telecom, Savvis and Verizon.

Carrier-Neutral Colocation Data Centers

Carrier-neutral colocation data centers are not owned by carriers and enable customers to connect to multiple carriers. Carrier-neutral colocation providers allow customers to select the most cost-effective, reliable and convenient carriers and to migrate effectively among carriers. Carriers and colocation customers use these data centers for interconnection and trading of content and services and to access potential customers, creating a community of interest.

 

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Carrier-neutral colocation data centers offer high network resilience delivered by multiple providers and close proximity to application users. This offers customers an environment well-suited for the deployment of network-centric applications, such as software-as-a-service, or SaaS, and cloud-based applications that are accessed over a network. Carrier-neutral colocation data centers offer space, power, cooling, and connectivity and often offer complementary services, such as network monitoring, remote monitoring of customer equipment, cross connects, security, on-site engineering, technical support and storage backup. Carrier-neutral colocation data center providers in Europe include Equinix, InterXion, Telecity, and Telehouse.

Shift to Outsourcing

As data centers have shifted from mere warehouses for data storage to more advanced facilities requiring network connectivity and greater power, the market has shifted from in-house data centers to outsourced data centers as a result of the complexity and high cost of building, maintaining and operating these more advanced data center facilities. Building and fitting out a data center takes significant time and requires a large upfront investment in equipment and materials, which many companies are not willing or able to make. Outsourced data centers allow customers to convert fixed costs into variable costs, based on space, power use and the use of ancillary services. The growing focus on mission critical applications, business continuity, disaster recovery planning and increased regulatory requirements is also driving businesses to process and store more information in secure, off-site facilities.

The choice between in-house and carrier-neutral data centers is dependent upon the specific application and performance levels required by the user. In-house data centers will continue to be a solution for non-real-time back office applications, whereas real-time applications, like cloud computing services, by contrast, increasingly require the services offered by carrier-neutral data centers.

Demand Drivers for Data Centers

Growth in Internet traffic, cloud computing and the use of customer-facing hosted applications are driving significant demand for high quality carrier-neutral colocation data center services. This demand results from the need for either more space or more power, or both. According to the Cisco Visual Networking Index, Global IP traffic is expected to grow at a compound annual growth rate of 34% from 2009 to 2014. This growth is driven by, among other factors, decreased cost of Internet access, increased broadband penetration, increased usage of high-bandwidth content, increased number of wireless access points and growing availability of Internet and network based applications.

Increased Internet traffic drives demand for data center services as customers need a secure environment in which to locate additional processing, networking and computer equipment, such as servers, switches, routers and storage equipment, to support this traffic. In addition the continued growth in adoption of unified communications, videoconferencing, as well as telepresence, will continue to drive the need for hosted applications with high connectivity requirements.

Cloud computing services, which are applications delivered over networks, are also driving significant demand for data center services. According to IDC, the market for IT cloud services is expected to grow from $16.5 billion in 2009 to $55.5 billion in 2014, representing a 27.4% compound annual growth rate. Cloud applications require stable, scalable platforms in multiple geographies on which to operate and low latency access to end users. Because these requirements have become increasingly difficult and complex for in-house data center solutions to provide, we believe they will continue to drive demand for outsourced data centers, particularly carrier-neutral data centers on account of the network connectivity that they provide.

IDC projects the market for carrier-neutral colocation data center services in the United Kingdom, France, Germany and The Netherlands to grow from €922 million in 2009 to €2.245 billion in 2014, a compound annual growth rate of 19%.

 

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Supply Considerations

During the period 2001 to 2004, there was limited, if any, new carrier-neutral colocation data center capacity built and the industry rationalized and consolidated existing capacity. This combined with the growing demand for data center capacity, has led to a significant supply/demand imbalance. A number of factors contribute to the difficulty of bringing new capacity online. New data centers require significant upfront capital expenditures for which financing can be difficult to obtain. Carrier-neutral colocation data centers also require locations with adequate power, connectivity and proximity to major metropolitan areas, which are in limited supply in Europe. Data center construction requires extensive planning, and also adherence to local regulatory procedures and requirements, which can be difficult to navigate without knowledge of local governments, and attainment of permits, which can be difficult to attain. Data center development and construction is also particularly time consuming and can take from 12 to 24 months from planning to completion. Finally, power availability is now becoming a key limiting factor of supply within the data center industry. As new server speeds continue to increase, providing greater processing power, increased data center power and cooling capabilities are needed to run and cool these servers. Locations with adequate power are in limited supply in Europe.

According to Tier1 Research, the shortfall in supply versus demand for data center capacity in Europe will continue for the next three years.

Barriers to Entry

Significant barriers to entry exist in the carrier-neutral colocation market, including the scarcity of adequate locations, the cost and requirements of data center development, the time and resources required to develop communities of interest, the difficulty of establishing a reputable brand, associated track record and the inherently high switching costs for customers and carriers.

Scarcity of Adequate Locations

Carrier-neutral colocation data centers are typically located in major metropolitan areas in close proximity to the intersection of the major fiber routes of carriers and Internet service providers. We believe such locations are in scarce supply in Europe. Once occupied, data center sites are typically subject to long leases, so existing sites infrequently become available. Furthermore, the introduction of more complex servers with higher power consumption, such as blade servers, has resulted in power availability becoming a key limitation in identifying suitable locations. A data center’s power requirements are substantial and supply is limited by availability at the local substation level.

Cost and Requirements of Data Center Development

Building a data center requires significant time, cost, technical expertise, regulatory compliance and attainment of permits. Attractive returns generally are not achievable until some time after the facility is completed, typically not until the data center is fully equipped with connectivity and utilized by customers.

Time and Resources Required to Develop Communities of Interest

The communities of interest generated by the carrier-neutral model are difficult and costly to replicate. Carriers are reluctant to invest resources to connect to data centers that lack existing customer and carrier presence. Conversely, customers do not realize the benefits or cost savings of access to communities of interest when moving to data centers that lack existing customer and carrier presence.

Difficulty of Establishing Reputable Brand

Existing data center providers have established brand names and reputations, which are difficult for new entrants to create. Without an established and strong brand, reputation and track record, it is difficult for a

 

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potential new competitor to attract carriers, which are needed to provide the connectivity to attract customers and create a valuable community of interest. Even if a data center provider is able to attract carriers, it is still difficult to entice high value customers to entrust their critical applications to the data center provider without an established track record.

High Switching Costs

Once a customer outsources its data center needs, it is difficult for that customer to change its data center provider. The cost, operational risk and inconvenience involved in relocating to another data center are significant. It is also costly, time consuming and complex for carriers to switch between data centers, as it typically requires the build-up of dual infrastructures running in parallel, the provision of several hundreds of circuits prior to connection of the new site to customers and the decommissioning of the existing site. In addition, carriers choose a data center in part based on their ability to interconnect easily with a large number of other carriers in the data center, which creates a network effect that deters carriers from switching data centers.

Pricing

Pricing is determined by a number of factors, including the availability of data center capacity, the type and quality of space required (from standard cabinet space to customized suites), power requirements, the prevailing market spot price of data center capacity, the length of contract term, data center location, proximity and the reputation of the data center provider.

Customer contracts for carrier-neutral colocation services typically range from one to ten years and include price escalators that adjust for inflation.

 

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BUSINESS

Overview

We are a leading provider of carrier-neutral colocation data center services in Europe. We support over 1,100 customers through 28 data centers in 11 countries enabling them to protect, connect, process and distribute their most valuable information. Within our data centers, we enable our customers to connect to a broad range of telecommunications carriers, Internet service providers and other customers. Our data centers act as content and connectivity hubs that facilitate the processing, storage, sharing and distribution of data, content, applications and media among carriers and customers, creating an environment that we refer to as a community of interest.

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

We are headquartered near Amsterdam, The Netherlands, and we operate in major metropolitan areas, including London, Frankfurt, Paris, Amsterdam and Madrid, the main data center markets in Europe. Our data centers are located in close proximity to the intersection of telecommunications fiber routes, and we house more than 350 carriers and Internet service providers and 18 European Internet exchanges. 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.

For the nine months ended September 30, 2010, our total revenue was €152.8 million, our operating profit was €34.3 million and our Adjusted EBITDA, a non-GAAP financial measure, was €57.8 million, compared to €126.6 million in revenue, €24.5 million in operating profit and €45.8 million in Adjusted EBITDA in the nine months ended September 30, 2009. Over 90% of our revenue is Recurring Revenue, and typically 60-70% of our new bookings in any given year are generated from existing customers. See “Presentation of Financial and Other Information—Additional Key Performance Indicators.”

For the year ended December 31, 2009, our total revenue was €171.7 million, our operating profit was €32.0 million and our Adjusted EBITDA was €62.7 million, compared to €138.2 million in revenue, €32.2 million in operating profit and €48.3 million in Adjusted EBITDA in the year ended December 31, 2008. See “Presentation of Financial and Other Information—Additional Key Performance Indicators.”

For the years ended December 31, 2009, 2008 and 2007, our net income was €26.5 million, €37.4 million and €13.6 million, respectively.

Competitive Strengths

Leading European Carrier-Neutral Colocation Data Center Services Provider with Broad, Strategic Footprint

We are a leading carrier-neutral colocation data center services provider in Europe based on our geographic footprint, high level of connectivity and established brand. Through our 28 data centers in 11 countries, we operate more data centers in more countries than any other data center provider in Europe. Our data centers are located near key business hubs and in close proximity to the interconnection points of telecommunications fiber routes and power sources, which enables us to provide our customers with high levels of connectivity and the requisite power to meet their needs.

Strong, High Value Communities of Interest

Our carrier-neutral colocation data center model, which houses 18 European Internet exchanges, together with more than 350 carriers and Internet service providers, creates critical exchange points for Internet and data

 

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traffic. These exchange points attract enterprises, media and content providers, IT services providers and other groups wanting to access these diverse networks and other enterprises in a single location versus connecting these parties in multiple locations. This high level of connectivity fosters the development of value-added communities of interest within our customer segments. These communities of interest then attract additional carriers and customers which makes them increasingly more valuable.

Superior Levels of Connectivity

Our data centers provide our customers with connectivity to more than 350 individual carriers and Internet service providers as well as 18 European Internet exchanges. We believe this level of connectivity is unmatched by our competitors and attracts customers to our data centers. Our high level of connectivity enables customers to select the most cost-effective, reliable and convenient carriers at each data center and to migrate efficiently between carriers, thereby lowering their telecommunications costs and reducing latency.

Uniform, High Quality Data Centers and Customer Service

We design, build and operate each of our data centers according to uniform designs, processes and standards, which results in the construction and operation of high quality data centers. Having grown organically rather than through acquisitions, the uniformity of our data centers satisfies an important requirement for customers who seek consistency across multiple locations. This consistency also allows us to reduce cost, complexity and the risks associated with building and operating multiple data centers. All of our data centers are accredited as compliant with the Information Security Management Systems Standard ISO 27001. Through our European customer service center and strong country teams, we are able to deliver uniform quality and service to our customers, including consistent account and service management, reporting and billing. We also have local service delivery and assurance teams with strong in country management to ensure local knowledge and responsiveness. Our best-in-class customer service drives customer loyalty and contributes to our low customer churn rate.

Strong Value Proposition for Our Customers

Our carrier-neutral colocation service is a compelling value proposition versus building in-house, or outsourcing to a carrier-operated data center. Our customers save significant costs of building and maintaining a data center as well as the telecommunication costs required to access multiple networks and other participants in the communities of interest. Our carrier-neutral proposition also provides greater flexibility for enterprises to expand to meet their data center needs and deliver better performance as a result of lower network latency and excellent customer service.

Attractive Financial Model

Our recurring revenue model and largely fixed cost base provide us with significant visibility into future financial performance. In the last several years, our Recurring Revenue has consistently been over 90% of our total revenue. Our long-term contracts and high renewal rates further contribute to our revenue visibility. The terms of our initial customer contracts are typically three to five years and have automatic, one-year renewals. Our cost base consists primarily of personnel, power and property. While our personnel and property costs are largely fixed, our contracts provide us with the ability to adjust customer pricing for power in order to recover any increases in power costs. Our recurring revenue model provides significant predictability of future revenue, and our largely fixed cost base produces strong operating leverage. We enjoy long-standing relationships with our customers and have high customer retention, as evidenced by our low Average Monthly Churn rate, which was 0.5% in the year ended December 31, 2009. Although we generally expect our costs of sales and general and administrative costs to grow over time, we expect these costs to decrease as a percentage of revenue.

 

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Strategy

Target New Customers in High Growth Segments to Further Develop our Communities of Interest

We will continue to target new customers in high growth market segments, including financial services, cloud and managed services providers, digital media and carriers. Winning new customers in these target markets enables us to expand existing, and build new, high value communities of interest within our data centers. Communities of interest are particularly important to customers in each of these market segments. For example, customers in the digital media segment benefit from the close proximity to content delivery network providers and Internet exchanges in order to rapidly deliver content to consumers. We expect the high value and reduced cost benefits of our communities of interest to continue to attract new customers, which will lead to decreased customer acquisition costs for us.

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 approximately 70% 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 also will 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 the appropriate Internet exchange. Our carrier sales and business development team will continue to work with our existing carriers and Internet service providers, and target new carriers and Internet service providers, to maximize our share of their data center spend, and to achieve the highest level of connectivity in each of our data centers.

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 operates 24 hours a day, 365 days a year, providing continual monitoring and troubleshooting and giving our customers one call access to full, multilingual technical support, thereby reducing our customers’ internal support costs. In addition, we will continue to develop our customer tools, which include an online customer portal to provide our customers with real-time access to information. We will continue to invest in our local service delivery and assurance teams, which provide flexibility and responsiveness to customer needs.

Disciplined Expansion and Conservative Financial Management

We plan to invest in our data center capacity, while maintaining our disciplined investment approach and prudent financial policy. We will continue to determine the size of our expansions based on selling patterns, pipeline and trends in existing demand as well as working with our customers to identify future capacity requirements. We only begin new expansions once we have identified customers and we have the capital to fully fund the build out. Our expansions are done in phases in order to manage the timing and scale of our capital expenditure obligations, reduce risk and improve our return on capital. Finally, we will continue to manage our capital deployment and financial management decisions based on adherence to our target internal rate of return on new expansions and target leverage ratios.

Our Services

We offer carrier-neutral colocation and managed services to our customers.

 

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Colocation

Our colocation services 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 colocation services are scalable, allowing our customers to upgrade space, connectivity and services as their requirements evolve. Our data centers employ a wide range of physical security features, including biometric scanners, man traps, smoke detection, fire suppression systems, and secure access. We provide colocation services including:

Space

Each of our data centers houses our customers’ IT infrastructure in a highly connected facility, designed and outfitted to ensure a high level of network reliability. This service provides space and power to our clients to deploy their own IT infrastructure. Customers can choose individual cabinets or a secure cage depending on their space and security requirements.

Power

Each of our data centers is equipped to offer our customers high power availability, including power backup in case of outage as the availability of power is essential to the operation of a data center. The vast majority of our data centers have redundant grid connections and all of our data centers have a power backup installation in case of outage. Generators in combination with uninterrupted power supply, or UPS, system, endeavor to ensure maximum availability. We provide a full range of output voltages and currents and we offer our customers a choice of guaranteed levels of availability between 99.9% and 99.999%.

Connectivity

We provide connectivity services that allow our customers to connect their IT infrastructure. These services offer connectivity with more than 350 telecommunications carriers and allow our customers to reduce costs while enhancing the reliability and performance associated with the exchange of Internet and other data traffic. Our connectivity options offer our customers a key strategic advantage by providing direct, high-speed connections to peers, partners, customers and some of the most important sources of IP data, content and distribution in the world.

Cross Connect

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

Availability Monitoring

We assist our customers in evaluating their Internet service providers. We inspect our customers’ Internet connections and notify customers of defects. Our technicians are available to make repairs as requested.

Managed Services

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

 

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Customers

We categorize our customers into five industry groups: digital media and distribution, enterprises, financial services, managed services providers and network providers. We have over 1,100 customers. The majority of our customers have contracts with us for a three to five year term. In the last several years, our existing customers have consistently provided over 90% of total revenues, while 70% of our new bookings were generated from existing customers.

In the nine months ended September 30, 2010, 34% of our Monthly Recurring Revenue came from our top 20 customers, 24% of our Monthly Recurring Revenue came from our top 10 customers and no single customer accounted for more than 5% of our Monthly Recurring Revenue.

The following table sets forth some of our representative customers by segment:

 

Digital Media and
Distribution

  

Enterprises

  

Financial Services

  

Managed Service
Providers

  

Network Providers

Akamai

Internap

Netlog

RTL Interactive

LBI Lost Boys

  

Sociedad Estatal Correos y Telegrafos, S.A.

Canon

Grupo Ferrovial

DSV

Fomento de Construcciones y Contratas, S.A.

  

LeasePlan Group

ABN Amro Bank N.V.
(as a successor to Fortis Bank (Nederland) N.V.)

Trading Technologies

Sungard

Fixnetix

  

Hewlett-Packard

IBM

Terremark

Siemens

ControlCircle

  

AT&T

British Telecom

Bouygues Telecom

Interoute Communications

Colt

In addition, we have proximity hosting relationships with exchanges, such as the London Stock Exchange for whom we act as an accredited provider.

Customer service is provided centrally via our European Customer Service Centre located in London. The European Customer Service Centre supports five European languages (Dutch, English, French, German and Spanish) and is run by technical support staff and operates 24 hours a day, 365 days a year, in order to provide rapid and cost-effective technical and business support to all of our clients. In addition to its service desk functions, the European Customer Service Centre monitors and manages the performance of our data centers and takes care of network monitoring and other network operations center functions. The European Customer Service Centre arranges, as necessary, local engineering support, rapid response (out of hours emergency assistance), “backup and restore” and other managed services. There is also a customer relationship management system in place to electronically log each issue that the European Customer Service Centre is requested to address to ensure efficient and timely support.

Customer Contracts

Our customers typically sign contracts for the provision of colocation space together with basic service level agreements that provide for support services and other managed services. Unless customers notify us of their intention to terminate 90 days in advance of the end of the contract period, contracts (a majority of which are for three to five years) typically renew perpetually and automatically for successive one year periods. However, where beneficial to us we will, prior to the expiry of a customer contract, seek to re-negotiate and re-sign with a customer (generally for a minimum one-year period). Our contracts generally allow us the option to increase prices in accordance with local price indices in each jurisdiction and we are able to adjust the amount charged for power at any time and as frequently as necessary during the life of the contract to account for any increases in power costs we are charged by our suppliers.

Contracts for colocation services are priced on the basis of a monthly recurring fee reflecting charges for space, power used in the common parts of the data center, power “plugs” and metered power usage, with related

 

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infrastructure and implementation costs included in an initial set-up fee. Clients have two options with respect to power usage: either (i) to pay for power usage in “plugs” in advance (typically included in the total cabinet price), which are contractually defined amounts of power per month, for which the customer must pay in full, regardless of how much power is actually used; or (ii) to pay for their actual power usage in arrears on a metered basis. The first option (power plugs) is usually sold in shared areas of our data centers where customers pay per cabinet. The second option (metered power usage) is usually sold to customers taking dedicated space such as a cage, suite or private room where they are charged on a per square meter basis.

As with colocation services, our managed services are typically contracted on the basis of an annual contract (or longer where appropriate) and the fee generally consists of monthly recurring charges and usage based charges as appropriate, and may also include an initial set-up fee. If managed services are ad hoc in nature, they are invoiced on completion of the service.

Each new customer contract we enter into provides that in the event of a power outage or other equivalent service level agreement breach (e.g. for crossing a temperature or humidity benchmark), the customer will receive a service credit in the form of a reduction in its next service fee payment, the credit being on a sliding scale to reflect the seriousness of the breach. Our customer contracts typically exclude liability for consequential or indirect loss suffered as a result of a service level agreement breach and for force majeure. Historically, our penalty payments under our service level agreements have been minimal.

Customer Accounts

Fees are typically invoiced quarterly in advance, with the exception of metered power usage which is invoiced monthly in arrears. On new contracts, we generally require deposits, which we are able to use to cover any non-payment of invoices. If accounts are not paid on time, we seek recovery through the court system.

Sales and Marketing

Our sales and marketing teams focus on proactively identifying customers who may be candidates to purchase additional space in existing and new data centers.

Sales

Our sales force markets our services to all customer segments and is organized by country. We sell our products and services through a direct sales force, Major Accounts Team and by attending tradeshows, networking events and industry seminars. Our direct sales force comprises 23 people across Europe while our Major Accounts Team focuses on maximizing revenues across our European footprint from our largest customers and on identifying and developing new major accounts.

Marketing

Our marketing organization is responsible for identifying target customer segments, development of the value proposition that will enable us to succeed in our chosen segments, building and communicating a distinct brand, driving qualified leads into the sales pipeline and ensuring strategic alignment with key partners. Our marketing team supports our strategic priorities through the following primary objectives:

Customer Segmentation

Identification of the high-growth customer segments that we wish to target and development of the value proposition to enable success in our chosen markets. Working with our sales team, our marketing organization is also responsible for business development of key accounts in each segment.

 

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Brand Management and Positioning

This includes brand identity unification, positioning at the corporate and country levels, the development of methodology, marketing assets and brand awareness programs for all of our business units.

Lead Generation

Utilizing online marketing, targeted advertising, direct marketing, event marketing and public relations programs and strategies to design and execute successful lead-generation campaigns leveraging telemarketing and direct sales to grow our pipeline and deliver our revenue goals.

Employees

As of September 30, 2010 we had a total of 326 employees (full time equivalents, excluding contractors and interim staff) of which 182 employees worked in operations and support, 64 employees worked in sales and marketing and 80 employees in general and administrative. Geographically, 238 of our employees were based in our country operations and 88 employees worked from our headquarters near Amsterdam and corporate offices in London as of September 30, 2010. We believe that relations with our employees are good. Except for collective rights granted by local law, none of our employees are subject to collective bargaining agreements.

Leases

Our leases typically have an initial term of between 10 and 15 years in length. Most of our leases have an option to extend for a minimum of five years except for our data centers in the United Kingdom, Ireland and Belgium, where there is no right to renew, and France where other provisions apply. The leases on three of our data centers, representing less than 15% of our data center space, will expire prior to 2018. We expect to be able to renew these leases at market rates.

Data Center Operations

We have 28 carrier-neutral data centers in 13 metropolitan areas in 11 countries, representing approximately 67,000 square meters of maximum equippable space (as of September 30, 2010). We lease all of our premises.

All of our data centers are located in Europe and all of our revenues are generated in Europe. For more information on the geographic breakdown of our revenues, see Note 5 of our 2009 consolidated financial statements, included elsewhere herein.

We select sites for our data centers based primarily on expected customer demand, availability of power and access to telecommunications fiber routes. Most of our data centers are stand-alone structures, close to power sub-stations and telecommunication networks in light industrial areas outside of city centers, rather than residential areas where more prohibitive environmental regulations exist. Data center design and development is a highly complex process. Data center construction requires extensive planning and must navigate regulatory procedures which can vary by jurisdiction. We have developed extensive technical experience in building data centers in Europe and we are well-positioned to bring new data centers to market rapidly to meet customer demand.

 

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The following table presents the key characteristics of our data centers.

 

Country

  

Location

  

Ready for service
Quarter

   Maximum
Equippable
Space as of
September 30,
2010
 
         Square Meters  

Austria

   Vienna    Third Quarter, 2000      5,100   

Belgium

   Brussels    Third Quarter, 2000      4,800   

Denmark

   Copenhagen    Third Quarter, 2000      3,500   

France

   Paris—1    First Quarter, 2000      1,400   

France

   Paris—2    Third Quarter, 2001      3,000   

France

   Paris—3    Third Quarter, 2007      2,000   

France

   Paris—4    Third Quarter, 2007      1,300   

France

   Paris—5    Fourth Quarter, 2009      4,100   

France

   Paris—6    Third Quarter, 2009      1,400   

Germany

   Dusseldorf    Second Quarter, 2000      2,800   

Germany

   Frankfurt—1    First Quarter, 1999      500   

Germany

   Frankfurt—2    Fourth Quarter, 1999      1,100   

Germany

   Frankfurt—3    First Quarter, 2000      2,100   

Germany

   Frankfurt—4    First Quarter, 2001      1,400   

Germany

   Frankfurt—5    Third Quarter, 2008      1,700   

Germany

   Frankfurt—6    Second Quarter, 2010      1,600   

Ireland

   Dublin—1    Second Quarter, 2001      1,100   

Ireland

   Dublin—2    First Quarter, 2010      1,700   

The Netherlands

   Amsterdam—1    First Quarter, 1998      600   

The Netherlands

   Amsterdam—2    First Quarter, 1999      700   

The Netherlands

   Amsterdam—3    Fourth Quarter, 1999      3,100   

The Netherlands

   Amsterdam—4*    Fourth Quarter, 2000      *   

The Netherlands

   Amsterdam—5    Fourth Quarter, 2008