2e2 2011 Annual Report

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2e2 Group LimitedAnnual Report and Accounts 2011


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6/444 2e2 Group Limited Annual Report and Accounts 2011

EquippingEmployees

Our propositions

Equipping EmployeesEmployees across all sectors are demanding the availability o

IT that allows or mobility and collaboration. With the growth o

Bring Your Own Technology; the landscape is becoming

more complex. Securely pushing out applications and data

to employees that are always on the move is a challenge to

many IT departments, and adopting a co-operative attitude

between IT and business needs is vital to the success o

any fexible working project.

Many customers have recognised that 2e2s proposition Equipping

Employees can help them as they look to address an increasingly

fexible workorce with more mobile devices, posing both a

technical challenge or IT sta and IT service delivery. Our EE

proposition supports and enables employees to work whenever,

wherever and on whatever they want People-Centric Computing

all within agreed corporate bounds o course.

Our consulting engagement Employee Migration Business

Evaluation & Roadmap (EMBER), considers employees,

user requirements, eective migration, solution adoption,

training and benets realisation, all aimed at capturing a serieso recommendations designed to deliver the required ROI

rom the implementation o a more fexible approach to

Equipping Employees.

When selecting an IT services partner,we were looking or credentials beyondthe ability to deliver a Microsot upgrade.2e2 successully demonstrated that it hadthe relevant previous experience indelivering major desktop projects to largeorganisations, combined with thenecessary knowledge o documentmanagement that is required to deliver anupgrade o this complexity and criticality.2e2 demonstrated solid understanding oour business processes and had the

programme management and technicalskills we required.

Ian Makey,

Head of IT & Technical Support,

Linklaters


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11/4492e2 Group Limited Annual Report and Accounts 2011

DATACENTRE

ENDUSER

APPLICATIONS> Optimisation and migration

> Architecture and design

> Automation and orchestration

> On-premise and cloud technology

> Application Architecture> Back oce services

> Contact centre and case management

> Information and document management

> Desktop migration and virtualisation

> Enterprise mobility and security

> Unied communications

> Collaboration

Our capabilities

Our CapabilitiesOur skills in delivering technology have allowed us to shape and

rene our key solution oerings. The key areas that our portolio

addresses and supports are:

The end user this could be the employee, the customer,

citizen or a patient.

The data centre infrastructure this includes migrations

and upgrades rom back oce systems to transition to the Cloud.

The entire information lifecycle this includes ensuringthat our customers can keep inormation in the right place,

access it rom wherever they need to, or the length o time they

need to keep it and to do this securely.

We provide a breadth o proessional services and programme

support skills to underpin everything rom successul project

delivery to end user adoption and to help our customers realise

ROI rom their ICT investments quickly.

From a single, discrete technology implementation to ull

outsourcing o ICT, 2e2 can help. Increasingly our customers are

asking 2e2 to deliver solutions and capabilities on-premise, in our

data centre or in the public cloud and ensure that regardless owhere the solution is implemented it integrates seamlessly with

other interdependent systems to support key business processes.

Our goal rom the start was to have our in-house inormationsystems resources ocused on the application layer. It is importantthat our sta are dedicated to adding business value, andimperative that end users have the systems and data they need.By outsourcing the management o our IT inrastructure to 2e2,

we are reducing management and operational costs, and arebetter able to concentrate on our core business.

Paul Bignell,Head of IS,

Tattershall Castle Group


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At 2e2, we believe that people are the ver y heart o our businessand the backbone to our long-term success. We acknowledge ourresponsibility to be a good corporate citizen and to make a positivedierence to the world in all our engagements with our customers,employees, suppliers, partners and the general public.

Through listening and responding to the needs and interestso our stakeholders, complying with local laws and regulations,demonstrating accountable, transparent and ethical businessstandards, mitigating risks to the environment, and protectinghuman rights, 2e2 is unswerving in its consideration o the

economic, social and environmental impacts o all its activities.2e2 is committed to the provision o high-quality responsible ITservices and secure communications solutions supported byintegrated quality, IT service, inormation security, health & saety,environmental, human resource and social accountabilitymanagement systems.

Our people

2e2 wholeheartedly supports the principles o mutual trust andrespect in the workplace, ostering an environment where healthand saety is paramount and diversity and inclusion are valued.We believe all sta are entitled to a sae working environment.2e2 operates a broad and comprehensive health and saetyprogramme across the business to ensure that risks are

identifed and mitigated. A recent independent health and saety,environmental and quality audit (Achilles UVDB Veriy CategoryB2 Assessment) has endorsed our management systems,demonstrating that we are ulflling our duty o care andproviding an appropriate environment.

The environment

2e2 takes its environmental responsibilities very seriously andactively manages, monitors and aims to continually reduce itsenergy consumption and environmental ootprint. 2e2 operates anISO14001/BS8555 Environmental Management System (EMS) thatallows us to monitor and manage our environmental impact andcontinually to improve our per ormance in related areas. We havenow completed the ull certifcation o BS EN ISO 14001:2004(Environmental Management Systems).

Within our EMS we operate in accordance with the GovernmentsCarbon Reduction Commitment scheme and aim to reduce ourenergy usage by a minimum o 10% in the year. To help manageand monitor this we have implemented an energy management

system that provides smart metering and analysis o our energyusage, allowing us to target specifc improvement measures togreatest eect.

Other aspects o the programme are ocused upon reducingwaste, increasing recycling, managing replacement cycles,supplier selection & vetting and ethical sourcing. 2e2senvironmental programmes are monitored and assessedby BSI who recorded no major non-conormities.

Quality of service

2e2 holds ISO/BSi triple certifcation or ISO 9001:2000 (QualityManagement System), ISO/IEC 27001:2005 (Inormation SecurityManagement System, and ISO/IEC 20000-1:2005 (IT ServiceManagement System.

To underpin our Quali ty o Service objectives, we operate andmaintain an Integrated Management System (IMS) embracing bestpractice IT industry standards. The IMS ensures that our servicesully meet or exceed the expectations o our customers throughservice excellence. The IMS provides an essential ramework operormance reviews which enables us to ensure that continualimprovement is a key process in all o our business activities.

Community involvement and supporting charitable

organisationsFor the ourth year, 2e2 has continued to support the Child BrainInjury Trust and the Research Institute or Movement Disorders Trust.We are delighted to continue to support these two worthy causes.

The Child Brain Injury Trust is a UK-wide charity o ering support,inormation and training to anyone aected by childhood acquiredbrain injury. More than 20,000 children will acquire a brain injuryeach year in the UK, resulting rom accidents, illnesses such asmeningitis or encephalitis, poisoning, strokes or tumours.

The Research Insti tute or Movement Disorders researchesmovement disorders. The Group is currently based in OxordBrookes Universitys Biomechanics and Human PerormanceLaboratories. They are currently providing rehabilitative care topatients suering rom: motor neuron disease, cerebral palsy, astroke, multiple sclerosis, paraplegia, tetraplegia, quadraplegia,Huntingtons chorea, trauma and amputations.

Corporate social responsibility


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Graham LoveChairman, 2e2 Holdings Ltd

Graham was ormerly Chie Executive o QinetiQ,

a position he held rom 2005 to 2009, havingjoined the Company in 2001. He is on the Boardo STEMNET (Science, Technology, Engineeringand Mathematics Network), the Advisory Boardo SEMTA (Sector Skills Council or Science,Engineering and Manuacturing Technologies)and is a Principal at the Cherto Group (astrategic advisory group ocused on security,intelligence and government services). Grahamis also chairman o Racing Green Cars, EversholtRail Group and LGC Science.

Graham will help 2e2 as it develops new servicesor its growing customer-base and continuesto provide innovative end-to-end IT solutions toboth public and private sectors.

Terry BurtChie Executive Ofcer

Terry is a qualifed accountant, and a ounder o2e2. Terry has over 30 years experience in theIT industry including running his own sotwarehouse. As COO o 4Front, Terry engineered thebuy-and-build strategy and grew the businessto $250m o revenues. He personally handled23 acquisitions and disposals and drove organicgrowth o over 20% per annum. He managedthe eventual sale o the business to NCR.

At NCR he was VP o customer services orEurope, Middle East & Arica (EMEA).

Mark McVeighChie Operating Ofcer

A 2e2 ounder, Mark has a well-establishedbackground in sales and business management.One o the early day senior managers o 4Front,Mark was responsible or the turnaround oseveral 4Front acquisitions into sustainableproft-generating businesses and was personallyresponsible or the Norsk Data turnaroundat 2e2. At NCR, Mark was VP o sales andmarketing or customer services across EMEA.

Mark is respsonsible or operations acrossthe Company.

Nick GrossmanBusiness Development Director

Nick has a background in IT services having

worked in the IT industry or 30 years. Hehas managed a number o customer serviceorganisations and occupied senior positionsin many o the 4Front turnaround transitionprojects. At NCR he was responsible orthe integration o 4Front and or a majorreorganisation and social plan in France. He wasalso responsible or M&A or customer servicesacross EMEA.

Nick is responsible or mergers & acquisitionsactivities within 2e2 and takes a lead role inintegration and strategic initiatives.

Simon BurtGroup Finance Ofcer & Company Secretary

Simon has 10 years experience in the seniorfnance role within technology and servicecompanies, both listed and private-equity backed.

This includes our years as Finance Director oAIM listed Epic Group plc. Simon brings a highstandard o control & proessionalism to thefnance unction. Simon qualifed as a Chartered

Accountant with KPMG.

John LovelandNon-Executive Director, 2e2 Holdings Ltd

Johns career spans 40 years in the IT industry.He joined ICL in 1964 and held various technicaland managerial positions. In 1982 he joined

Wang Computers (UK) Limited where he wasDirector o Customer Services, UK. In 1988 he

joined Nixdor Computers Limited which wasacquired by Siemens AG, and subsequently heldvarious senior positions within Siemens. In thelast ten years John has ocused on internationaloperations. His most recent appointments werePresident, Siemens Business Services, North

America and President, Siemens BusinessServices, APAC, Latin America and Arica. Johnretired rom Siemens on 31 March 2004.

John chairs the Remuneration Committee orthe Group.

Frdric ChauffierNon-Executive Director, 2e2 Holdings Ltd

Frdric is an experienced investor having led

or been involved in more than 25 leveragedbuyouts since 1991, in Switzerland, Italy,France and the UK, where he was mostrecently Managing Partner o Duke Street, themid-market investment frm. As a result hehas accumulated a wealth o experience asNon-executive Director or Chairman o quotedand private businesses in various Europeancountries. Frdric is a graduate o coleSuprieure des Sciences Commerciales inFrance and also Cornell University.

Matthew CollinsNon-Executive Director, 2e2 Holdings Ltd

Matthew Collins is a ounding partner oHutton Collins Partners, a specialist provider opreerred capital. The frm, which was oundedin 2002, manages three unds with aggregatecommitments o some 1.5bn rom a group oinstitutional investors including lending Banks,Insurance Companies, Pension Funds and Fundo Funds.

Prior to establishing Hutton Collins, Matthewheld a number o senior investment bankingpositions. In a 20-year career in the industryhe was a Director o Morgan Grenell & Co.Limited, Managing Director and Head oEuropean Leveraged Finance at Bankers TrustCo. and Managing Director and Global Head o

Leveraged Finance at Merrill Lynch.Matthew is a graduate o Cambridge University.


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The Directors present their report and nancial statements or theyear ended 31 December 2011.

Results and dividends

The Group operating prot or the year rom continuing businesses

and beore undamental restructuring costs amounted to 20.0m

(2010 Restated: 13.2m). The Directors do not recommend a nal

dividend (2010: nil).

Principal activity and review o the business

The principal activity o the Group is the delivery o outsourced

computer services ocusing on Unied Communications, Technology

Solutions, Proessional Consulting, Managed Services and Business

Applications Solutions. During the year the UK organisation was

re-aligned to an industry-aligned go-to-market structure. The services

o the Group are delivered to customers in the UK and Europe.

The Group continues to expand its activities through a combination

o organic growth and acquisitions, and to rationalise sub-optimal

operations through divestment or disposal.

The retained loss or the year ater taxation amounted to 8.4m

(2010 Restated: 9.1m).

As per last year, certain exceptional one-o costs, included

within operating prot, have been highlighted on the ace o the

prot and loss account to give a better understanding o the

underlying perormance o the Group. These costs amount to

6.9m (2010: 5.5m) and relate to the integration and restructuring

o the UK companies, and redundancy and restructuring costs in

the Netherlands.

During the year the Group disposed o two divisions o its Dutch

subsidiary or a cash consideration o 0.3m and the trade and

assets o Xayce Ltd or a cash consideration o 2.4m (see Note 24).

Key perormance indicators

The senior management o the Group ocuses on a number o key

perormance indicators. These include sales bookings and billings,

the value o contracted annuity revenues, gross margins, cash

conversion and sta utilisation. These, along with other measures,

are monitored regularly with explanations sought or variances against

expectations. Management has reviewed the key perormance

indicators during the year and is satised with the results.

Future developments

In the uture the Group will continue to investigate suitable acquisition

opportunities where it eels these will strengthen its oerings to

customers. The Group is also planning to continue the integration

activities in order to maximise the benets o the increasing scale

o the Group.

Directors reportRegistered No. 4826387

Principal risks and uncertaintiesDiscussed below are the Groups major business risks, together with

systems and initiatives in place to address them.

Market risk

The IT services market is subject to fuctuations o demand by

customers. These fuctuations are linked to the economic cycle and

changes in the spending patterns o customers. In addition, the

Group works with a number o key vendors and it is important to

maintain strong relationships and terms o business with these

partners. The Company manages its cost base tightly in order to

ensure that it is aligned to the level o demand.

Operational risk

This relates to the risk o nancial loss resulting rom internal processes,

people and systems. The Group manages this risk through appropriate

internal controls and proactive intervention, such as management

reporting systems, insurances, business interruption and disaster

recovery planning. During the year the Group updated its service

management tools and is in the process o updating its ERP systems.

Liquidity risk

This relates to the risk that the Group is unable to und its

requirements because o insucient banking acilities. The Group

manages liquidity risk via revolving credit acilities, long-term debt and

invoice actoring acilities. The Group maintains and reviews short-

term and long-term cash fow orecasts on a regular basis to identiy

ongoing cash requirements.

Interest rates

This relates to the risk o fuctuations in LIBOR, on which the interest

charges or the Groups bank acilities are based. The Group

manages interest rate risk by entering into interest rate hedging

agreements in relation to its bank borrowings.

Credit risk

This relates to the risk that one party to a nancial instrument will

cause a nancial loss or that other party by ailing to discharge an

obligation. Group policies are aimed at minimising such losses and

require that deerred terms are only granted to customers who

demonstrate an appropriate payment history and satisy credit -

worthiness procedures.

Foreign exchange riskA number o transactions are denominated in currencies other than

the unctional currency, which is sterling. There is a risk that the

exchange rate moves between the date o the transaction and the

date o settlement resulting in a nancial loss. To mitigate this risk,

material assets and liabilities not denominated in the unctional

currency are hedged by means o orward currency contracts.

Going concern

The Directors, ater making appropriate enquiries, have a reasonable

expectation that the Company has adequate resources to continue in

operational existence or the oreseeable uture. For this reason, the

Directors continue to adopt the going concern basis in preparing the

nancial statements.

16 2e2 Group Limited Annual Report and Accounts 2011


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DirectorsThe Directors who served the Company during the year were as

ollows:

T Burt

M McVeigh

N Grossman

S Burt

Directors qualiying third party indemnity provision

The Company has granted an indemnity to one or more o its

Directors against liability in respect o proceedings brought by third

parties, subject to the conditions set out in section 234 o the

Companies Act 2006. Such qualiying third party indemnity provision

remains in orce as at the date o approving the Directors report.

Disabled employees

Applications or employment by disabled persons are given ull and

air consideration or all vacancies in accordance with their particular

aptitudes and abilities. In the event o employees becoming disabled,

every eort is made to retrain them in order that their employment

with the Group may continue.

It is the policy o the Group that training, career development and

promotion opportunities be made available to all employees.

Employee involvement

The Group maintains a practice o keeping employees inormed o

matters aecting them as employees and the nancial and economic

actors aecting the perormance o the Group.

Policy and practice on payment o creditors

It is the policy o the Group to pay all amounts due to suppliers as

they all due. As at 31 December 2011, trade creditors o the Group

were equivalent to 54 days purchases (2010: 52 days).

Share-based payments

Employees may be awarded share options as a reward or past

perormance or to incentivise uture perormance. The options will

vest i the employee remains in service or a period o our years rom

the date o grant. The contractual lie o the options is ten years and

there are no cash settlement alternatives. During the year a total o

356,500 options were granted.

Corporate governanceThe Directors recognise the importance o adopting good corporate

governance practices in the best interests o shareholders as a whole.

Disclosure o inormation to the auditors

So ar as each person who was a Director at the date o approving

this report is aware, there is no relevant audit inormation, being

inormation needed by the auditor in connection with preparing its

report, o which the auditor is unaware. Having made enquiries o

ellow Directors and the Companys auditor, each Director has taken

all the steps that he/she is obliged to take as a Director in order to

make himsel/hersel aware o any relevant audit inormation and to

establish that the auditor is aware o that inormation.

AuditorsA resolution to reappoint Ernst & Young LLP as auditors will be put to

the members at the Annual General Meeting.

On behal o the Board

Simon Burt

Director

30 March 2012

172e2 Group Limited Annual Report and Accounts 2011


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Notes

2011

000

2010Restated

000

Fixed assets

Intangible assets 10 193,366 205,741

Tangible assets 11 13,468 14,985

206,834 220,726

Current assets

Stocks 13 7,828 8,077

Debtors: amounts due within one year 14 162,312 153,601

Debtors: amounts due ater more than one year 14 4,200 6,328

Cash 25,587 18,643

199,927 186,649

Creditors: amounts alling due within one year 15 (179,033) (172,760)

Net current assets 20,894 13,889

Total assets less current liabilities 227,728 234,615

Provisions or liabilities 16 (6,052) (6,086)

Creditors: amounts alling due ater more than one year 17 (154,377) (152,108)

Net Assets prior to Group loans alling due ater more than one year* 67,299 76,421

Financed by:

Group loans alling due ater more than one year* 18 79,934 80,777

Capital and reserves

Called up share capital 21 105 105

Share premium account 22 265 265

Other reserves 22 516 466Prot and loss account 22 (13,521) (5,192)

Shareholders Decit and Net Liabilities (12,635) (4,356)

67,299 76,421

* Non-statutory disclosure, presented or supplementary understanding o the nancial statements.

Simon Burt

Director

30 March 2012

Group balance sheetat 31 December 2011



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Notes2011000

2010000

Fixed assets

Tangible assets 11 1 2

Investments 12 222 222

223 224

Current assets

Debtors 14 163,288 160,159

Creditors: amounts alling due within one year 15 (20,009) (11,921)

Net current assets 143,279 148,238

Total assets less current assets 143,502 148,462

Creditors: amounts alling due ater more than one year 17 (58,098) (61,856)

Net assets prior to Group loans alling due ater more than one year* 85,404 86,606

Financed by:

Creditors: Group loans alling due ater more than one year* 18 79,934 80,777

Capital and reserves

Called up share capital 21 105 105

Share premium account 22 265 265

Other reserves 22 76 51

Prot and loss account 22 5,024 5,408

Shareholders Funds and Net Assets 5,470 5,829

85,404 86,606

* Non-statutory disclosure, presented or supplementary understanding o the nancial statements.

Simon Burt

Director

30 March 2012

Company balance sheetat 31 December 2011



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Notes2011000

2010000

Net cash infow rom operating activities 23(a) 28,249 25,578

Returns on investments and servicing o nance

Interest received 58 66

Interest paid (13,543) (14,779)

Finance lease interest paid (42) (100)

Net cash outfow rom returns on investments and servicing o nance (13,527) (14,813)

Taxation 988 455

Capital expenditure and nancial investment

Purchase o intangible xed assets (1,769) Purchase o tangible xed assets (4,153) (6,051)

Net cash outfow rom capital expenditure and nancial investment (5,922) (6,051)

Acquisitions and disposals

Purchase o subsidiary undertakings (69,629)

Net cash rom purchase o subsidiary undertakings 11,435

Sale o subsidiary undertakings 2,316

Payments in respect o prior year acquisitions (2,367)

Net cash outfow rom acquisitions and disposals (51) (58,194)

Net cash infow/(outfow) beore nancing 9,737 (53,025)

FinancingCash outfow o borrowings (1,906) (4,561)

Cash infow o loans rom parent undertaking 76,351

Finance leases (887) (662)

Net cash (outfow)/infow rom nancing (2,793) 71,128

Increase in cash 23(b) 6,944 18,103

Group statement o cash fowsor the year ended 31 December 2011



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1. Accounting policiesBasis o preparation and change in accounting policy

The nancial statements are prepared under the historical cost convention and in accordance with applicable accounting standards.

In preparing the nancial statements or the current year, the Group has changed its accounting policy or revenue recognition on managed

service contracts.

The business had historically recognised revenue at the point a contract was awarded to a value refecting the work carried out, but beore the

nalisation o the nal terms and conditions o the contract. As projects have become larger and more complex, contract terms and conditions

oten take longer to negotiate. The Group has adjusted its policy and now recognises revenues only where a contractual relationship is

established. Evidence might take the orm o a signed contract, purchase order or an invoice to the customer or services. In the event that a

contractual relationship is not established during the period, the Group will recognise revenue associated with the contract where there is a

reasonable expectation that the Group will recover the pre-contract costs.

In order to determine the prior year adjustment value, the Group reviewed each contract relevant to the revenue taken and identied the date

that the contractual relationship was established. An adjustment has been made where the contractual relationship was established outside o

the prior-year period. In these cases, the Group does not consider it prudent to recognise any revenue to recover pre-contract costs due to the

amount o time that has passed and the diculty in identiying any costs incurred.

In light o the materiality o the amounts involved, the Directors are o the opinion that it is appropriate to adjust the comparatives or the year

ended 31 December 2010 retrospectively and thereore the eect has been treated as a prior-year adjustment. The Directors believe this will

ensure that the results or the current period are not distorted and that the prior periods have the correct amount o revenue and prots.

The eect o this adjustment is to increase the loss ater tax by 1.8m or the year ended 31 December 2010 and reduce net assets by 2.9m

as at that date, including a 2.9 million reduction to retained reserves brought orward at 1 January 2011.

Basis o consolidation

The Group nancial statements consolidate those o the Company and o all its subsidiary undertakings (see Note 12), drawn up to 31

December 2011.

The acquisition method o accounting has been adopted or acquisitions. Under this method the results o the subsidiary undertakings acquired

or disposed o in the year are included in the prot and loss account rom the date o acquisition or up to the date o disposal.

In the Companys nancial statements, investments in subsidiary undertakings are stated at cost less any provisions or diminution in value.

In accordance with section 408 o the Companies Act 2006, 2e2 Group Limited is exempt rom the requirement to present its own prot and

loss account.

Goodwill

Goodwill arising on consolidation, representing the excess o the air value o the consideration given over the air values o the identiable net

assets acquired, is capitalised and is amortised on a straight-line basis over its estimated useul economic lie, generally 20 years. It is reviewed

or impairment at the end o the rst ull nancial year ollowing the acquisition and in other periods i events or changes in circumstances

indicate that the carrying value may not be recoverable.

Negative goodwill is written back to the prot and loss account to match the recovery o the non-monetary assets acquired.

Intangible assets-development costs

An internally generated intangible asset arising rom the Groups development activities is recognised i all o the ollowing conditions are met:

An asset is created that can be separately identied;

It is probable that the asset created will generate uture economic benets; and

The development cost o the asset can be measured reliably.

Internally generated intangible assets are amortised on a straight-line basis over their useul lives. The carrying value o intangible assets are

reviewed or impairment i events or changes in circumstances indicate the carrying value is not recoverable.

Notes to the nancial statementsat 31 December 2011



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1. Accounting policies continuedTurnover

Sales of Goods

Revenue is measured at the air value o the consideration received or receivable and represents amounts receivable or goods and services

provided in the normal course o business, net o discounts, VAT and other sales-related taxes. Sales o goods are recognised when the

signicant risks and rewards o ownership o the goods have passed to the buyer, usually on despatch.

Rendering of services

Revenue rom the provision o services is recognised on a time and materials basis in the period in which the services are provided.

Managed service contracts

Where the outcome cannot be estimated reliably, revenue is recognised to the extent that costs incurred will probably be recovered. When it is

probable that total contract costs will exceed total contract revenues, the expected loss is recognised as an expense immediately.

Tangible xed assets

Tangible xed assets are stated at cost or valuation, net o depreciation and any provision or impairment.

Depreciation is calculated to write down the cost o all tangible xed assets by equal annual instalments over their estimated useul economic

lives or lease term i shorter. The rates generally applicable are:

Leasehold improvements Term o the lease

Computer equipment 3 4 years

Fixtures and ttings 4 years

Motor vehicles 4 years

Rental assets 2 3 years

The carrying value o tangible assets are reviewed or impairment when events or changes in circumstances indicate the carrying value may not

be recoverable.

Investments

Investments are included at cost less amounts written o.

Stocks

Stocks are stated at the lower o cost and net realisable value. Net realisable value is based on estimated selling price less any urther costs

expected to be incurred to completion and disposal.

Long-term contracts

The attributable prot on long-term contracts is recognised once their outcome can be assessed with reasonable certainty. The prot

recognised refects the proportion o work completed to date on the project.

Costs associated with long-term contracts are included in stock to the extent that they cannot be matched with contract work accounted or as

turnover. Long-term contract balances included in stocks are stated at cost, ater provision has been made or any oreseeable losses and the

deduction o applicable payments on account.

Full provision is made or losses on all contracts in the year in which the loss is rst oreseen.

Deerred taxation

Deerred taxation is recognised in respect o all timing dierences that have originated but not reversed at the balance sheet date where

transactions or events have occurred at that date that will result in an obligation to pay more, or right to pay less or to receive more, tax,

with the ollowing exceptions:

Provision is made or deerred taxation that would arise on remittance o the retained earnings o subsidiaries, associates and joint ventures

only to the extent that, at the balance sheet date, dividends have been accrued as receivable; and

Deerred tax assets are recognised only to the extent that the Directors consider that it is more likely than not that there will be suitable

taxable prots rom which the uture reversal o the underlying timing dierences can be deducted.

Deerred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing dierences

reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.

Notes to the nancial statements continuedat 31 December 2011



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1. Accounting policies continuedForeign currencies

Transactions in oreign currencies are translated at the exchange rate ruling at the date o the transaction. Monetary assets and liabilities in

oreign currencies are translated at the rates o exchange ruling at the balance sheet date. The nancial statements o oreign subsidiaries are

translated at the rate o exchange ruling at the balance sheet date. The exchange dierences arising rom the retranslation o the opening net

investment in subsidiaries are taken directly to reserves. Where exchange dierences result rom the translation o oreign currency borrowings

raised to acquire oreign assets they are taken to reserves and oset against the dierences arising rom the translation o those assets. All other

exchange dierences are dealt with through the prot and loss account.

Research and development

Research and development expenditure is charged to the prot and loss account in the period in which it is incurred.

Interest rate swaps

The Groups criteria or interest rate swaps are:

The instrument must be related to an asset or liability; and

It must change the character o the interest rate by converting a variable rate to a xed rate or vice versa.

Interest dierentials are recognised by accruing with net interest payable. Interest rate swaps are not revalued to air value or shown on the

Group balance sheet at the year end. I they are terminated early, the cost is spread over the remaining maturity o the original instrument.

Interest-bearing loans

All interest bearing loans and borrowings are initially recognised at net proceeds. Ater initial recognition debt is increased by the nance cost in

respect o the reporting period and reduced by repayments made in the period.

Finance costs o debt are allocated over the term o the debt at a constant rate on the carrying amount.

Costs associated to raising the debt are held on the balance sheet and recognised in the prot and loss account over the term o the

corresponding debt.

Leasing and hire purchase commitments

Assets held under nance leases and hire purchase contracts are capitalised in the balance sheet and depreciated over their estimated useul

economic lives.

The interest element o leasing payments represents a constant periodic rate o charge on the remaining balance o the obligation or each

accounting period and is charged to the prot and loss account over the period o the lease.

All other leases are regarded as operating leases and the payments made under them are charged to the prot and loss account on a straight-

line basis over the lease term.

Provisions

A provision is recognised when the Group has a legal or constructive obligation as a result o a past event and it is probable that an outfow o

economic benets will be required to settle the obligation.

PensionsThe Group operates a number o dened contribution pension schemes. Contributions are charged in the prot and loss account as they

become payable.

Share-based payments

The Group issues equity-settled share-based payments to certain employees and advisers. Equity-settled share-based payments are

measured at air value (excluding the eect o non market-based vesting conditions at the date o grant). The air value so determined has been

expensed on a straight-line basis over the vesting period, based on the Groups estimate o the number o shares that will eventually vest, and

adjusted or the eect o non-market vesting conditions.

Where an equity-settled award is cancelled, it is treated as i it had vested on the date o cancellation, and any cost not yet recognised in the

income statement or the award is expensed immediately. Any compensation paid up to the air value o the award at the cancellation or

settlement date is deducted rom equity, with any excess over air value being treated as an expense in the income statement.

Fair value is measured using a Black-Scholes-Merton option pricing model. The key assumptions used in the model have been adjusted, basedon managements best estimate, or the eects o non-transerability, exercise restrictions and behavioural considerations.



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2. TurnoverTurnover represents the amounts derived rom the provision o goods and services, which is stated net o value added tax and is attributable to

one principal activity, as stated in the Directors report.

An analysis o turnover by geographical market is given below:

2011

000

2010

Restated

000

United Kingdom (including the Channel Islands and the Isle o Man) 306,154 243,800

Europe 94,770 75,435

Rest o world 2,699 6,030

403,623 325,265

3. Operating prot

This is stated ater charging/(crediting):2011

000

2010

000

Auditors remuneration audit services UK 330 375

overseas 98 89

non-audit services 130 134

Depreciation and amortisation goodwill (Note 10) 12,100 10,843

development costs (Note 10) 714

tangible xed assets owned 4,662 6,025

held under nance leases and hire purchase contracts 832 595

FRS 20 share option charges 27

Other operating lease rentals land and buildings 4,697 6,422

Exceptional restructuring and integration costs 6,884 5,458

Exceptional restructuring costsThe restructuring costs relate to the ollowing activities:

2011

000

2010

000

Restructuring costs and redundancy costs in the UK Group 3,631 3,745

Restructuring costs and redundancy costs in the Netherlands Group 1,869 1,362

Restructuring costs and redundancy costs in Other Divisions 1,384 351

6,884 5,458

Fundamental restructuring costs

In 2011, the Group incurred costs o 3.4m in relation to undamental restructuring costs. These costs were incurred as part o the completion

o the integration o Morse plc, acquired in 2010 and the oshoring o certain services to Patni Computer Systems.

In 2010, the Group incurred costs o 4.9m in relation to a undamental reorganisation. These costs were incurred as a result o thereorganisation o the management and operations within the UK business ollowing the acquisition and subsequent integration o Morse plc.

The businesses had previously been organised as separately managed corporate entities. The reorganisation o the operations included the

transer o certain services to Patni Computer Systems, our oshore service provider.

4. Directors remuneration

Directors remuneration has been borne by ellow group company 2e2 Holdings Limited.2011

000

2010

000

Remuneration 1,218 841

Pension contributions to money purchase pension schemes 117 93

1,335 934

The amounts set out above include remuneration in respect o the highest paid Director or the year as ollows:2011

000

2010

000

Remuneration 451 268

Pension contributions to money purchase pension schemes 47 52

During the year three Directors participated in money purchase pension schemes (2010: our).




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5. Sta costs 2011000

2010

000

Wages and salaries 89,654 71,574

Social security costs 11,500 8,773

Other pension costs 2,073 1,867

103,227 82,214

On the acquisition o Morse plc in June 2010, 2e2 Group assumed the dened benet pension liabilities which may arise under the SouthTyneside & Gateshead (ST&G) Building Schools or the Future contract. A provision o 0.9m is maintained in the balance sheet and is basedon an actuarial valuation carried out in 2011. At 31 December 2011, there were 16 employees in the pension scheme.

The average monthly number o employees during the year was made up as ollows:2011

No.

2010

No.

Management and administration 240 237

Sales and marketing 308 265

Operations 1,421 1,115

1,969 1,617

6. Interest payable and similar charges2011

000

2010

000

Interest payable on bank loans 20,894 17,684

Finance charges in respect o nance leases 148 100

21,042 17,784

Other interest receivable and similar income (200) (66)

20,842 17,718

7. Tax

(a) Tax on loss on ordinary activities

The tax charge is made up as ollows:

2011

000

2010

Restated

000

Current tax:

Overseas taxation 1,772 (323)

Adjustments in respect o prior years (630)

Total current tax (Note 7(b)) 1,142 (323)

Deerred tax:

Origination and reversal o timing dierences

Total deerred tax Tax on loss on ordinary activ ities 1,142 (323)

(b) Factors aecting tax charge or the year

The tax assessed or the year diers rom the standard rate o corporation tax in the UK o 26.5% (2010: 28%). The dierences are

explained below:

2011

000

2010

Restated

000

Loss on ordinary activities beore tax (7,261) (9,417)

Loss on ordinary activities multiplied by standard rate o corporation tax in the UK o 26.5% (2010: 28%) (1,924) (2,637)

Effects of:

Expenses not deductible or tax purposes 5,567 8,201

Decelerated capital allowances 1,077 1,191

Utilisation o tax losses (2,410) (7,342)

Adjustments to tax charge in respect o previous years (630)

Group relie received (149) (200)

Other short-term timing dierences (389) 464

Current tax or the year (Note 7(a)) 1,142 (323)



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11. Tangible xed assets continued

Company

Computer

equipment

000

Cost:

At 1 January 2011 8

Additions

At 31 December 2011 8

Depreciation:

At 1 January 2011 (6)

Provided in the year (1)

At 31 December 2011 (7)

Net book value:

At 31 December 2011 1At 1 January 2011 2

12. Investments

Company

Investment

in subsidiary

undertakings

000

At 1 January 2011 and 31 December 2011 222

The Company owns either directly or indirectly 100% o the ordinary share capital o the ollowing principal subsidiary companies, the principal

activities o which are the provision o computer services:

Incorporated in the United Kingdom (including the Channel Islands and the Isle o Man)

2e2 Limited 2e2 UK Limited

2e2 Oshore Limited 2e2 Property Group Limited

Netstore Limited Morse Overseas Holdings Limited

Morse Group Limited Morse Limited

Diagonal Solutions Limited Diagonal Consulting Limited

Xayce Limited

Incorporated in the Netherlands

2e2 Tradecom International B.V. 2e2 Dynomic B.V.

2e2 Group B.V. 2e2 Motiact Group B.V.

2e2 Yul Data Security B.V.

Incorporated in Spain

Morse Spain SL

Incorporated in Ireland

Morse Computer Group Limited

All subsidiaries are held indirectly with the exception o 2e2 Limited which is held directly.

13. StocksGroup

2011

000

Company

2011

000

Group

2010

000

Company

2010

000

Spare parts 1,667 2,037

Goods or resale 5,823 5,966

Other stock 338 74

7,828 8,077



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17. Creditors: amounts alling due ater more than one year Group2011

000

Company

2011

000

Group

2010

000

Company

2010

000

Deerred income 1,101 1,927

Bank loans 152,739 149,927

Amounts owed to Group undertakings 58,098 61,856

Amounts due under nance leases 537 254

154,377 58,098 152,108 61,856

The bank loans are secured by a xed and foating charge over all the assets o the Group. The bank loans consist o the ollowing acilities:

Term Loan A in the amount o 25.2 million is repayable in instalments. A total o 6.8 million is repayable within one year with the balance

payable in instalments nishing on 30 June 2015. Interest is charged at the rate o LIBOR plus 2.25% to 4.50%.

Term Loan B in the amount o 37.5 million is repayable in a single instalment on 10 October 2016. Interest is charged at the rate o LIBOR

plus 3.00% to 5.00%. Term Loan C in the amount o 37.5 million is repayable in a single instalment on 10 October 2017. Interest is charged at the rate o LIBOR

plus 5.50%.

Revolving Facility in the amount o 18.4 million is repayable in a single instalment on 30 September 2013. Interest is charged at the rate o

LIBOR plus 2.25% to 4.50%.

Mezzanine Facility in the amount o 35.0 million is repayable in a single instalment on 10 October 2018. Interest is payable at the rate o

LIBOR plus 16.00%. 11.00% o the interest is not due or payment and rolls up until 10 October 2018.

Amounts due under nance leases are secured on the assets to which they relate.

18. Creditors: Group loans alling due ater one yearGroup

2011

000

Company

2011

000

Group

2010

000

Company

2010

000

Amounts due to Group under takings 79,934 79,934 80,777 80,777

The Directors have included the amounts due to Group undertakings separately rom other Group debt and disclosed it separately on the basis

that the debt is not due or payment until 2020. The Directors believe that this additional disclosure aids the user in understanding the unding

structure o the Group and in helping their understanding o the nancial statements.

19. Borrowings

Borrowings are repayable as ollows:Group

2011

000

Company

2011

000

Group

2010

000

Company

2010

000

Within one year:

Bank and other borrowings 6,787 20,005 6,400 11,898

Finance leases 725 420

Ater one and within two years:

Bank and other borrowings 7,585 6,800

Finance leases 537 254

Ater two years and within ve years:

Bank and other borrowings 66,701 31,894

Finance leases

Ater ve years:

Bank and other borrowings 161,277 138,032 195,471 142,633

Less: issue costs (2,890) (3,461)

240,722 158,037 237,778 154,531

Bank and other borrowings repayable ater ve years comprise:Group

2011

000

Company

2011

000

Group

2010

000

Company

2010

000

Bank borrowings 72,428 110,000

Accrued interest 8,915 4,694

Amounts owed to Group undertakings 79,934 138,032 80,777 142,633

161,277 138,032 195,471 142,633



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19. Borrowings continuedOn 10 October 2008, the Company entered into a cross guarantee in the amount o 165,000,000, in avour o its bankers in respect o the

borrowings o the Group.

Following the acquisition o Morse plc by 2e2 Ltd on 21 June 2010, the Company entered into a cross guarantee on 21 June 2010 or the

amount o 85,000,000, in avour o certain investors.

Through its Spanish business unit, the Group has access to customer-specic unding through debt actoring arrangements with a number o

nancing institutions in Spain. Morse Spain SL receives unds rom the nancing institutions which are then repaid as cash is received rom the

customer. At 31 December 2011 the outstanding borrowings balance was 5.9m (2010: 3.9m) through the without recourse debt actoring

agreement. Interest is charged at dierent rates depending on the nancial institution ranging rom EURIBOR + 1.25% to EURIBOR + 4.41%.

20. Deerred taxation

Deerred taxation recognised in the nancial statements is set out below (Note 14):Group

2011000

Company

2011000

Group

2010000

Company

2010000

Assets:

Depreciation in excess o capital allowances and other short-term timing dierences 6,328 6,328

The movement in deerred tax is as ollows:Group and

Company

000

At 1 January 2011 and 31 December 2011 6,328

Unrecognised deerred tax

Unrecognised deerred taxation is set out below:Group

2011000

Company

2011000

Group

2010000

Company

2010000

Assets:

Depreciation in excess o capital allowances 4,650 14 4,105 15

Other short-term timing dierences 190 1,865

Tax losses carried orward 13,610 17,429

Total tax losses carried orward 18,450 14 23,399 15

In Budget 2011 on 23 March 2011, the Chancellor o the Exchequer announced a reduction in the UK rate o corporation tax to 26%. This

reduced rate applied rom 1 April 2011 and was enacted using secondary legislation, called the Provisional Collection o Taxes Act. A urther

1% rate reduction to 25% was also announced and it was intended that this would be eective rom 1 April 2012. However, in his budget o

21 March 2012, the Chancellor o the Exchequer announced a number o urther changes to the UK Corporation Tax rate. These included a

reduction in the UK corporation tax rate rom 25% to 24% eective rom 1 April 2012 (substantively enacted as o 26 March 2012 and dealt with

by Resolution under the Provisional Collection o Taxes Act). The UK Government intends to urther reduce the UK corporate income tax rate, to22%, in annual increments o 1% per annum which will be enacted in successive Finance Bills. Consequently, the Company will only recognise

the impact o the rate change which is substantively enacted at that time in its nancial statements. However, or indicative purposes only, the

Company has shown the eect o the proposed reduction in the corporate income tax rate or each year on the gross deerred tax asset

recognised as at 31 December 2011 as ollows:

31 December 2011 (substantively enacted tax rate = 25%) 6,328,300




Further, rom 1 April 2012, there will be a 2% reduction in the rates o capital allowances, the main rate pool going down rom 20% to 18% and

the special rate pool rom 10% to 8%.




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21. Issued share capital

Group and Company Allotted, called up and ully paid No.

2011

000 No.

2010

000

Ordinary shares o 0.04 each 2,637,250 105 2,637,250 105

Share option reserve

The Groups parent undertaking, 2e2 Holdings Limited operates a share option scheme which is open to all employees o the Group at the

discretion o the board o 2e2 Holdings Limited. The Group records a charge in accordance with FRS 20 or options to acquire shares o 2e2

Holdings Limited that are granted to employees o the Group. In the scheme the options typically vest based on the ollowing pattern, 50% on

the second anniversary o the date o grant and a urther 25% on the third and ourth anniversaries; the options also vest on the listing on a

public market or the sale o 2e2 Holdings Limited. The options lapse i they remain unexercised ater 10 years rom the date o grant. The

options also lapse ollowing the employee leaving the Group. There were 366,245 share options outstanding at the year end (2010: 44,250).

The air values were calculated using a Black-Scholes-Merton model. The inputs into the model were as ollows: 2011 2010

Weighted average share price 1.50 1.00

Weighted average exercise price 1.50 1.00

Expected volatility 35 to 40% 35.5%

Risk-ree rate 0.5% 4.25%

Expected dividend yield nil nil

Expected volatility was determined using as a base the share price movements recorded over the same period as the vesting period (rom grant

date to vesting date) and taking into account any specic actors impacting during the period. The expected lie used in the model has been

adjusted, based on managements best estimate or the eects o non-transerability, exercise restrictions and behavioural considerations.

There were 366,245 outstanding at the year end (2010: 44,250). There were 356,500 options granted in the year. During the year 38,930

options were oreited whilst 85,000 options were oreited ater the year end as a result o employees leaving. For the share options outstanding

as at 31 December 2011, the weighted average remaining contractual lie is nine years (2010: six).

The Group recognised total charges o 26,568 related to equity-settled share-based payment transactions during the year (2010: nil).

22. Movements on reserves

Group

Share premium

account

000

Other reserves

000

Restated Prot

and loss account

000

At 1 January 2011 as reported 265 466 (2,289)

Prior year adjustment (Note 1) (2,903)

Restated at 1 January 2011 265 466 (5,192)

Retained loss or the year (8,403)

FRS20 charge 27

Currency translation dierences on oreign currency net investments 23 74

At 31 December 2011 265 516 (13,521)

Company

Share premium

account

000

Other reserves

000

Prot and loss

account

000

At 1 January 2011 265 51 5,408

FRS20 charge 25

Retained loss or the year (384)

At 31 December 2011 265 76 5,024



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23. Notes to the statement o cash fows(a) Net cash infow rom operating activities

2011

000

2010

Restated

000

Operating prot 16,990 13,176

Cash impact o undamental restructuring (3,409) (4,875)

Amortisation o goodwill 12,100 10,843

Amortisation o development costs 714

Adjustment to goodwill (425)

Depreciation o tangible xed assets 5,494 6,620

Decrease/(Increase) in stock 249 (3,209)

(Increase) in debtors (9,099) (32,077)

Decrease in creditors 4,661 35,064

Loss on sale o subsidiary operations 987

Loss/(prot) on sale o xed assets (13) 36

Net cash infow rom operating activities 28,249 25,578

(b) Reconciliation o net cash infow to movement in debt2011

000

2010

000

Cash infow in cash in the year 6,944 18,103

Cash fow rom nancing 1,906 5,223

Cash fow rom amounts due to parent (76,351)

Change in net debt resulting rom cash fows 8,850 (53,025)

Finance leases 887

Non-cash movements (5,737) (2,700)

Movement in net debt 4,000 (55,725)

Net debt at 1 January 2011 (219,135) (163,410)

Net debt at 31 December 2011 (215,135) (219,135)

(c) Analysis o net unds/(debt)

At

1 January 2011

000

Cash fow

000

Non cash

changes

000

At

31 December

2011

000

Cash at bank 18,643 6,944 25,587

Borrowings rom parent (80,777) 843 (79,934)

Long-term loans (156,327) 1,906 (5,105) (159,526)

Finance leases (674) 887 (1,475) (1,262)

(219,135) 9,737 (5,737) (215,135)

24. Disposals

During the year the Group disposed o the trade and assets o Xayce Ltd or a cash consideration o 2.4m.

The results o the Group or the year include revenue o 248,000 and prot o 16,000 rom the trading activities o Xayce up to its date o

disposal on 2 February 2011.




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24. Disposals continuedNet assets disposed o were as ollows:000

Debtors 603

Net assets 603

Goodwill 1,754

Loss on disposal (25)

2,332

Satised by:

Cash 2,408

Fees (76)

2,332

During the year, the Group disposed o the trade and assets o two divisions o its Dutch subsidiary or a cash consideration o 0.3m. A third

division remains and continues to trade within the Group.

The results o the Group or the year include revenues o 7,405,000 and a loss o 1,143,000 rom the trading activities o these two divisions

up to the date o disposal on 31 October 2011.

Net assets disposed o were as ollows:000

Tangible Fixed Assets 196

Debtors 1,914

Creditors (1,164)

Net assets 946

Loss on disposal (962)

(16)

Satised by:

Cash 295

Fees (311)

(16)

25. Interest rate swaps

The Group purchases interest rate swaps to manage the Groups exposure to foating interest rates. At the balance sheet date the interest rate

swaps held by the Group were as ollows:

Hedged amount at period end: 50.0m

Final maturity date: rom 31 December 2011 to 31 December 2012

Fixed rate payable 1.18%

Floating rate receivable GBP LIBOR BBA

26. Capital commitments

The Group had no capital commitments at 31 December 2011 (2010: nil).



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27. Contingent liabilitiesThere were no contingent liabilities at 31 December 2011 (2010: nil).

28. Other nancial commitments

Operating lease payments amounting to 1.4m (2010: 2.5m) are due within one year. The leases to which these amounts relate expire as

ollows:Land and

buildings

2011

000

Other

2011

000

Land and

buildings

2010

000

Other

2010

000

Operating leases which expire:

Within one year 767 623 814 1,633

In one to ve years 2,810 679 2,415 2,052

Over ve years 2,460 1,449

6,037 1,302 4,678 3,685

29. Related party transactions

The Group has taken advantage o the exemption available to wholly owned subsidiary undertakings under FRS 8 (Related Party Transactions),

and accordingly has not provided details o its transactions with entities orming part o the 2e2 Group.

30. Ultimate parent undertaking and controlling party

The Companys ultimate parent undertaking is 2e2 Holdings Limited, a company incorporated in the United Kingdom. 2e2 Holdings Limited is

the only Group which consolidates these accounts and its nancial statements are available rom its registered address o The Mansion House,

Benham Valence, Newbury, RG20 8LU. The Companys immediate parent undertaking is 2e2 Investments Limited.




41/44

DirectorsT Burt

M McVeigh

N Grossman

S Burt

Secretary

S Burt

Auditors

Ernst & Young LLP

Apex Plaza

Forbury Road

Reading

Berkshire RG1 1YE

Bankers

Royal Bank o Canada

Thames Court

One Queen Hithe

London EC4V 4DE

HSBC Bank plc

70 Pall Mall

London SW1Y 5EZ

Lloyds Banking Group plc

25 Gresham Street

London EC2V 7HN

Barclays Bank plc

1 Churchill Place

London E14 5HP

Solicitors

DLA Piper UK LLP

3 Noble Street

London EC2V 7EE

Registered Oce

The Mansion House

Benham Valence

Newbury

Berkshire RG20 8LUUnited Kingdom

Company inormation



42/44

Notes



43/44

FSC LOGO TO GO HERE


44/44

2e2 Group Limited

The Mansion House

Benham Valence

Newbury

Berkshire RG20 8LU

T +44 (0) 1635 568 000

F +44 (0) 1635 568 001

[email protected]

www.2e2.com

2e2 2011 Annual Report

Documents

Transcript of 2e2 2011 Annual Report