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Transcom 2010 Annual Report


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Transcom's 2010 Annual Report & Accounts.

Transcom's 2010 Annual Report & Accounts.

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  • 1. Getting closer to customersAnnual Report & Accounts 2010
  • 2. Contents 1 2010 highlights 4 Transcom in the Philippines 5 Our world... 6 From the CEO 8 Transcom in Chile 9 Closer to customers12 Transcom in Hungary13 Regional overview15 Transcom in Croatia16 Directors’ report18 Board of directors20 The Transcom share and shareholders22 Corporate responsibility24 Corporate governance28 Consolidated income statement29 Consolidated statement of comprehensive income30 Consolidated statement of financial position32 Consolidated statement of changes in equity33 Consolidated statement of cash flows34 Notes to the consolidated financial statements59 Independent auditor’s report60 Information for our shareholdersTranscom manages what matters most to itsclients. Our customer management servicessupport profitable, long-term relationships.Our credit management services secure ourclients’ revenue streams.ii TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 3. 2010 highlightsPositioning for growth Reinforcing the infrastructureIn 2010 we began the transformation of Transcom’s We have continued to streamline our operational pro-service portfolio, which will create a combined customer cesses to provide greater consistency and cost efficiency.and credit management offering that can be delivered We have completed a comprehensive review of our ITwith consistency across our global network. This rein- infrastructure. This will result in a progressive evolutionforces our ability to build cohesive international programs of our technological capability, starting in 2011, that willfor our clients, based on uniform service options and deliver enhanced performance and reduced operationaluniversally agreed quality standards. cost.Addressing the market Extending the networkWe have reinforced our market proposition with a new We have reaffirmed our commitment to our offshorevisual identity and compelling business messages. This delivery model, recognizing that challenging economicdifferentiates us from our competition in a fragmented conditions continue to drive our clients’ search for lower-marketplace and creates messages that speak power- cost delivery locations. We have boosted our capabilitiesfully to our clients’ customer lifecycle management in key locations including Chile, the Philippines andneeds. Tunisia, which are expected to be the fastest growing offshore markets in the next three to five years.Building the pipelineWe have strengthened our in-country and global sales Addressing overcapacityteams, supporting them with new marketing collateral. We have identified isolated areas of overcapacity in ourFor the first time we have engaged in global marketing network, most particularly in North America, and arecampaigns that demonstrate our industry expertise and working actively to resolve them. Most significantly,encourage client engagement. we have embarked on a positive rationalization of our French business that, once completed, will halve ourFocusing our sales resource loss run rate in the region, and secure a viable founda-We have improved our account management and oppor- tion for stable future growth.tunity qualification processes. This allows us to focus onwinning high value client relationships that generatehigher margins because they involve a wider range ofmore complex services, frequently delivered on a cross-border basis.TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 1
  • 4. 2010 highlightsFinancial highlights Net revenues €589.1 million (€560.2 million in 2009) Gross profit €111.9 million (€123.4 million in 2009) Gross margin 19.0% (22.0% in 2009) EBITA –€3.7million (€27.2 in 2009) EPS –€0.11 (€0.28 in 2009)Net revenues Gross profit EBITA€ million € million € million700 150 40 35600 120 30500 25 90400 20300 60 15200 10 30100 5 0 0 0 –06 –07 –08 –09 –10 –06 –07 –08 –09 –10 –5 –06 –07 –08 –09 –10 The reported results for 2010 were impacted by a one-off charge of €19.4 million related to the divestments of two sites in France. The underlying business perfor- mance, excluding the impact of the divestments, is shown below. Net revenues €589.1 million (€560.2 million in 2009) Gross profit €118.0 million (€123.4 million in 2009) Gross margin 20.0% (22.0% in 2009) EBITA €15.7 million (€27.2 in 2009) EPS €0.15 (€0.28 in 2009)2 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 5. Additions to our client base in 2010 includeEndesa: Transcom Portugal will provide win-back and Migrationsverket: A one-year deal with the Swedishcontract management services for this Spanish energy Migration Board will provide on-demand translationcompany in a two-year contract. services via phone. An innovative solution forged by Transcom and our translation services subsidiary,INPS: (Istituto Nazionale della Previdenza Sociale) Transvoice.In our most significant Italian deal to date, we havesecured a three-year contract to provide inbound Western Union: Transcom will provide customer carecustomer care and technical support to Italian citizens service to this financial institution’s consumer and smallon behalf of the National Social Security Institute. The business clients in the Nordic countries and marks Transcom’s entry into Italy’s public sectormarketplace. “ The transformation of Transcom is firmly in progress and important milestones are being met. We continue to deliver revenue growth as we reshape our business to meet the expectations of our clients and the demands of our business. “ Pablo Sánchez-Lozano, CEOTRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 3
  • 6. Transcom in the PhilippinesServing our clients’ English-speaking customersacross North America, Europe and AustralasiaTranscom has been active in the Philippines since 2007. From From the Philippines Transcom services clientsthree sites in Manila, Bacolod and Iloilo we provide our full range in North America, the UK and Australia.of customer and credit management services to clients acrossNorth America, the UK and Australasia. North America – 76%From our site in Manila, Transcom provides an integrated cus- UK – 22% Australia – 2%tomer and credit management program for the UK’s secondlargest fixed line telecommunications provider, TalkTalk. In 2010,Transcom grew the value of this contract by over 50%, loweredour clients’ costs by transferring work to the Philippines andincreased the TalkTalk team from 200 to 800 people.“ We are growing our business in the Philippines because Transcom shares our determination to put the customer at the heart of our decisions, processes and systems – and because their agents epitomize our brand in their daily inter- actions with our customers. Transcom under- stands, as we do, that this is the foundation stone that supports long lasting and “ profitable customer relationships. Nigel Pearson, Senior Director of Customer Services, TalkTalkIn 2010 the Philippines business process outsourcing industry,dominated by contact center activity, was reported to be worth$12 billion; and to be growing at around 18% per annum.1Transcom has a total of 3,300 seats in the Philippines. It ispoised for expansion in what promises to be a high-growthmarket serving English speaking customer bases worldwide.1) The British Philippine Outsourcing Council4 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 7. Our world……centered upon our clients’ customers.Transcom is a global provider of outsourced customer with 15 sites and almost 3,100 people in the USA andand credit management services. We deliver a compre- Canada. These resources – coupled with our extensivehensive range of services that embrace the whole custom- offshore and nearshore facilities across South America,er lifecycle – from customer acquisition, through service North Africa and Asia – allow us to offer our clients cost-to collections – across our global contact center network. competitive location choices and extensive territorial reach.Every day we handle over 600,000 customer contactsin 33 languages for more than 350 clients, including A significant portion of our revenues are generated frombrand leaders in some of today’s most challenging and clients that are using Transcom in multiple countries tocompetitive industry sectors. support international customer bases.Transcom has the largest customer management foot- Our services embrace the entire customer lifecycle,print in Europe, with 57 sites, plus home agent opera- from sales to service and revenue recovery. In this waytions in two countries, and 15,000 employees. We are we help our clients win customers, grow their businessalso one of the largest operators serving North America, and secure their revenue streams. Working with our clients to deliver: Profitable customer relationships Secure revenues Tangible business resultsTRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 5
  • 8. From the CEOIn 2010 Transcom has made clear progress on its Addressing underperforming areastransformation journey. We are rapidly becoming Addressing these overcapacity issues is our secondthe company that our clients and shareholders strategic objective. In late January 2011, we announcedwant us to be, operationally and technologically plans to divest two sites in our French business. Werobust and focused on growth. Our strategy for have secured buyers and are currently conducting atransformation centers upon the achievement of mandatory information and consultation procedure withthree objectives: to deliver growth, to address employee representatives. Once this procedure is com-underperforming areas of our business, and to plete, the sites will be transferred to their new owners.continue on our transformation journey. I am happy We expect this to occur in the first half of 2011. Assumingto report that we have made significant advances these plans go ahead, our losses in France are estimatedtoward each. to be reduced in the range of half the current run rate. Also, as a direct result of the transactions, revenue in ourDelivering growth French operations will decrease by approximately €7Our first objective is to deliver growth. In 2010, despite million in 2011 (or €13 million on a full year basis). Morethe pressures of a challenging global economy, we have importantly, we will have created a firm foundation forachieved that, with a 5.2% revenue increase (1.6% sustainable growth in mainland Europe’s second-largestexcluding currency effects). A steady flow of new clients contact center market. Because we have been able tohas contributed to this revenue growth and we also saw sell these centers as operational businesses, the ratio-increased volumes within our existing client base. The nalization has been achieved, I believe, in a cost effec-revenue erosion we experienced in 2009 is behind us tive manner. The anticipated cost of the divestment isand we are now back onto the growth trajectory that shown as a €19.4 million charge in our 2010 accounts.has characterized our business over the last 15 years.We have renewed contracts and grown business with We continue to address our overcapacity issues insome of our largest clients, including Brighthouse, the North American market by rationalizing sites whereOrange, TalkTalk, Telenor Sweden AB and Tele2, and necessary and growing business volumes whereverexpanded our relationships with several others. This possible. In Canada we will focus on the growth of do-was mainly driven by our improved account manage- mestic business since, given the now firmly establishedment skills and our clients’ confidence in our ability to parity of the US and Canadian dollar, its attractivenesssupport their business aspirations. It is also evidence as a nearshore option for US businesses is weakened.that our business model is acknowledged by manyclients who now buy customer and credit management Portfolio and technology transformationservices from a single provider, as these traditionally In 2010, we concluded the first phase of our portfolioseparate activity streams converge. transformation by consolidating our global offering around a differentiated and compelling market proposition.Our growth has been achieved despite the poor globaleconomic climate, volume erosion within our installed It is differentiated because it reflects our unique ability tobase in North America, the dramatic impacts of the serve the entire customer lifecycle, from closing a saleChilean earthquake and the long-term overcapacity to recovering a debt and every stage between.burden we have carried in the French market. Inevitablythese realities have impacted our margins, which have It is compelling because, by bringing customer and cred-fallen this year, with a subsequent impact on overall profit- it management together, we are responding to a clearly-ability. Nevertheless, our revenue growth performance emerging trend towards convergence within two inter-confirms my confidence that, as global economies related disciplines. Today the proportion of global contactrecover, and as we fix our overcapacity issues, our center seats dedicated to debt collection is modest, butgrowth rate will accelerate and our margins will improve. growing steadily. This is a trend that we are not only clearly positioned to garner advantage from, but to lead.6 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 9. Also during 2010, we have laid plans for an evolutionof our technology infrastructure that will deliver a single,scalable, high-performance technology platform for ourbusiness. This will enhance our global service capability,reduce our operational costs and future-proof our deliv-ery of advanced contact center services.Growing talentDuring the year we have continued to strengthen ourmanagement resource. As well as a complete renewal ofour French management team, we appointed two newregional directors: Johan Eriksson joined us in the NorthRegion, bringing a wealth of international experiencewithin business service and outsourcing companies.Geoff Smyth joined us in North America and Asia with30 years’ experience in customer management, busi-ness process outsourcing, e-commerce and logistics.Our executive team has been reinforced with the ap-pointment of Roberta Carluccio. As Commercial Director,she is responsible for the development and negotiationof strategic sales and sourcing transactions. This willbolster our contracting capability as the size and so-phistication of our client engagements increase. Wehave also reinforced our sales and account managementteams, increasing our ability to win, grow and retainclient business.In closing, I would like to thank our clients, both thosethat have joined us in 2010 and those that have main-tained or increased their business with us. Their contin-ued commitment is, of course, invaluable. I would alsolike to thank Transcom’s other stakeholders, our part-ners, shareholders and, most particularly, our employees.Their ongoing support is both much needed and highlyvalued as we continue on the road to transformation.Much has been achieved. Much remains to be done. Butthe progress we have made is real and lasting. I lookforward to continuing the journey with you in 2011.Pablo Sánchez-LozanoCEOTRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 7
  • 10. Transcom in ChileServing our clients’ customers in Spain.Transcom’s business in Chile was established in 2006. Today, with ourcontact centers in Concepción and Valdivia operating at close to fullcapacity, we are the biggest player in the country’s burgeoning offshorecustomer management market.Our Chile operation is an essential part of the large-scale cross-borderprogram Transcom operates for global telecoms leader, Orange. In supportof Orange’s consumer and business to business customer base in Spain,we provide a comprehensive range of customer care, loyalty and retentionservices from Chile, supplemented by a further four centers in Spain. In 2010,we signed a new contract with Orange, extending the relationship forged in2007 for a further 2 years.“ Transcom’s confident cross-border management has given us the financial flexibility and business stability we need to grow our business in Spain, despite the dramatic downturn in the economy. The priority they give to high quality customer care is helping us maintain our market leading position. Yves Bazin, Operations Director, Orange Spain “Transcom has helped Orange grow its business in Spain by over 34%since 2007.The Spanish Contact Center Association has referenced Chile as Spain’snumber one offshore destination with a 25% share of Spain’s growing off-shore volumes.Transcom has 1,100 employees in Chile. Plans for further expansion intoLatin America are already in progress, as the company responds to Spain’srapidly growing demand for offshore services.8 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 11. Closer to customersTranscom’s focus is to bring its clients closer to their A growing number of clients now use Transcom in atcustomers, and to engage them in mutually benefi- least two of our three service areas. We expect thiscial relationships that deliver value for both parties. trend to continue. As it does so, we will see the value of our client relationships increase and their depthManaging customers and debt… strengthen.We appreciate that this means interacting meaningfullywith customers on our clients’ behalf, managing rela- More of our clients are using Transcom in at leasttionships over time rather than dealing with isolated two of our three service areas including…interactions. By doing so, we help our clients achieveconsistency within their customer engagements, Win Grow Secureprogressively deepening their understanding of their Telecommunicationscustomers, the level of engagement they achieve with Comcastthem, and the share of spend they are able to realize Orangeover the customer’s lifetime. TalkTalk Tele2To support this, we have built a comprehensive serviceportfolio that embraces the entire customer lifecycle, Financial servicesmarrying together the traditionally separate practices BBVAof customer management (including service and sales) Santanderand credit management. In this way, we are respondingto a growing recognition within our industry that the Othermanagement of customers and the management of VW Groupdebt are inter-related. Many of our more sophisticatedclients are taking an increasingly holistic approach tocustomer lifecycle management and buying servicesfrom us in both areas. Our comprehensive portfolio covers three service areas… Secure Revenue Win Customers Early collections Customer acquisition Contingent collections Cross & upsell Legal collections Grow Business Customer service Technical support Customer retentionTRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 9
  • 12. Closer to customersBy growing our customer and credit management Secondly, continued economic pressure has ensuredbusinesses in tandem, and by presenting them to the that our clients’ appetite for offshore service delivery –market as a holistic offering, we will achieve long-term which can provide them with a transformational costoperational synergies. Our extensive contact center differential – remains high. In 2010, we have grown ourinfrastructure and customer management disciplines offshore business by 16%.give us a competitive advantage over the pure-play debtcollection agencies with whom we compete. In parallel, While onshore growth in our key markets of Europe andour debt collection competence helps us to build firmer North America is forecast to reach a modest 2% overfinancial scrutiny into the sales and service processes the next three years, the near and offshore markets areof our customer management clients, reducing their expected to grow between 6 and 7% p.a.1, giving us atransactional risk. substantial advantage over competitors that provide services in their domestic markets only.…across a global networkOur global delivery network, with 77 sites in 27 countries We have invested in those locations that promise theacross five continents, is one of the most extensive in greatest future growth; most particularly, the Philip-our industry. The advantages of our global network pines, from which we serve English-speaking marketshave been enhanced during the recent economic down in North America, Europe and Australasia; and Chile,turn. from which we currently serve Spain.First, there is a noticeable trend for international clients Asia Pacific, dominated by the Philippines, is expectedto rationalize their outsourced service relationships, to account for 70% of all offshore delivery over the periodseeking partners that can deliver price competitiveness 2009 to 20131. Chile, which currently attracts aroundand operational synergies across several countries. Our 25% of offshore activity from Spain, is expected tosales force is motivated to identify international oppor- experience further growth. Its ability to offer an averagetunities and we have simultaneously strengthened our 50% price differential over Spain’s domestic contactglobal account management infrastructure to realize centers makes it an attractive option for an economyincremental cross-geography growth opportunities from under considerable pressure.our existing client base. 1) Ovum, ‘CRM Outsourcing Forecasts’, July 2010Each of our European and North American ‘home’ marketsis supported by a range of near and offshore locations. Home markets Nearshore Offshore Austria, Belgium, France, Croatia, Chile, Canada, Denmark, Czech Republic, the Philippines, France, Germany, Italy, Estonia, Hungary, Tunisia Luxembourg, Netherlands, Latvia, Lithuania, Norway, Poland, Portugal, Romania, Serbia Slovakia, Spain, Sweden, Switzerland, UK, US10 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 13. We continue to serve French-speaking markets from Transcom has a strong positionour offshore operations in Tunisia where, despite recent in dominant vertical marketscivil unrest, we have maintained a stable operation. Our Number of agent positions by industry in the global market, 2009principal clients there, are a global logistics provider anda leading online retailer. For both, Tunisia is a vital link in Financial Services 384,000pan-European programs which we serve from several Telecommunications 384,000international locations. Other 645,000Our Baltic and Eastern European locations continue tooffer cost-effective location choices for clients serving, inparticular, English, German, Spanish and Scandinaviancustomer bases. From these sites, we can provide ser- Source: Ovum, ‘CRM Outsourcing Forecasts’, July 2010vices in more than 30 languages.…within top performing industriesOver our sixteen-year history, Transcom has established A transformation journeystrong expertise in the two industry verticals which dom- The transformation of Transcom is gathering pace. Ininate the outsourced customer lifecycle management these early years we are taking action to create financialmarketplace: telecommunications and financial services. stability and global consistency. We have aligned ourTogether they represent around 80% of our business executive team within a global performance manage-and over half (54%) of the total customer management ment framework that drives global performance andmarket. This share is expected to remain stable over accountability. We are beginning to see the emergencethe next three years. of an efficient, well-structured global business with predictable financial performance. This is the first stageTranscom’s heritage lies in the highly competitive tele- of our journey. Though we have made good progress,communications industry, where we have fine tuned our much remains to be done in 2011.ability to manage extreme volume peaks and troughsand to support highly complex sales, service and col- Our next step will be to enhance our portfolio of ser-lection functions. Today our clients include three of the vices, creating a range of industry-specific offeringsworld’s five largest mobile phone networks. and boosting our solutions design capability through advanced technology and business processes. ThisTranscom’s largest shareholder is Investment AB Kinne- will take us to the final destination; the achievement ofvik, which is also a significant shareholder in one of market leadership, measured both in terms of size andEurope’s leading telecoms providers, Tele2. During the the richness of our service offering.1990’s, our network supported Tele2’s rapid Europeanexpansion. Today we continue to serve Tele2’s custom- As we follow our strategic plan, we expect to see earn-ers in eight European countries. ings per share rise, through growth in the first instance and then, increasingly, through margin improvement asOur clients include all five of the world’s biggest banks the sophistication of the services we offer increasesranked by asset value, and four of the world’s top 10 their value. With its size and scale, Transcom has anranked by shareholder equity. These include Barclays, opportunity to emerge as a strong contender in a highlyBNP Paribas, Citibank, Deutsche Bank, Grupo fragmented industry. The first steps in this directionSantander, HSBC and Royal Bank of Scotland. have been taken. We continue our journey in 2011.TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 11
  • 14. Transcom in HungaryServing our clients across Western EuropeTranscom Hungary was established in 2005 to support major telecom- From Hungary, Transcom serves clients across Europe, Middle East and Africa.munications clients in Central and Eastern Europe and to act as a multi-lingual near shore destination for Transcom’s clients in Western Europe.Today our 450 seat contact center in Budapest supports a wide range Germany – 38%of multinational clients in 19 languages. Italy – 14% Spain – 11%Since June 2007, Transcom Hungary, in partnership with Computer Other – 37%Science Corporation (CSC), has provided a comprehensive visainformation and application management service to the UK BorderAgency. The service encompasses 56 countries across Europe,the Middle East and Africa in nine languages.“ I am most impressed by the professionalism of the team. The support given by team leaders is first class. From a customer point of view, the call centre is providing an excellent and reliable service. Comments from applicants show they are very satisfied with the information they get and the way their queries are handled. “ Nikica Pecnik, Regional Operations Manager, Europe, Computer Sciences Corporation (CSC)Hungary has been pre-eminent as a near shore location within centralEurope since the start of the 21st century. Its diverse language skills, plusit’s advanced IT and communications infrastructure, means it can offer arobust service to Western European clients at, on average, a 30% costdifferential.12 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 15. Regional overviewTranscom’s global business is managed within five North America & Asia Pacific Regionregional structures. Here we provide an overview of This region consists of our opera- Share of totalour 2010 performance in each. tions in the United States and revenues 22% Canada plus offshore operationsIberia Region in the Philippines that serve thoseIberia consists of Portugal and Spain Share of total markets as well as the UK andplus Chile, our dominant Spanish- revenues 18% Australia.language offshore location. Revenues for 2010 were €131.7Revenues increased by 2.0% to million, representing a 12.7%€103.4 million in 2010 (€101.4 increase compared to 2009. Net ofmillion in 2009). Gross margin currency impact, revenue growth was 8.8%. Volumesdecreased to 19.3% (20.2%). EBITA related to our San Antonio site were ramped down infor the full-year 2010 was €4.1 mil- the fourth quarter of 2010. As a consequence oflion, unchanged compared to 2009. overcapacities and currency impact, the gross margin declined from 30.2% in 2009 to 20.6% in 2010.The slight gross margin erosion was mainly driven by Addressing the overcapacity is a key priority goingthe impact of the Chilean earthquake in February 2010, forward. EBITA for 2010 was €2.2 million, down fromas well as by changes in our volume mix. The earth- €16.6 million in 2009, taking into account a net nega-quake damaged our site in the Chilean city of Concep- tive foreign exchange impact of €5.8 million.ción. However, our contingency plans were executedpromptly in close collaboration with our clients and we South Regionquickly returned the site to full operational capacity. The South Region consists of our Share of total operations in France and Italy plus revenues 14%North Region our offshore operation in Tunisia,The North region consists of Share of total which serves the French and ItalianDenmark, Norway and Sweden. revenues 25% markets.Revenues for 2010 were €144.7 Revenues decreased by 7.2% tomillion, a 15.3% increase compared €81.0 million (€87.2 million). Grossto 2009 (€125.5 million). Net of margin fell from 8.8% to 0.5% andcurrency effects, revenue for 2010 EBITA decreased to –€30.7 millionincreased by 5.1% to €131.9 million. (–€9.1 million).Gross margin increased from 18.1%in 2009 to 20.2% in 2010. EBITA for Our performance in the South Region has been impactedthe full-year amounted to €10.8 million, compared to by positive action we have taken to address overcapacity€3.5 million in 2009. Currency fluctuation had a positive issues in our French operation. In December 2010, ourimpact on EBIT of €1.6 million over the year. Board approved plans to dispose of two French sites in Roanne and Tulle. These transactions are reflected inThe North region’s performance has been underpinned our financial statements for the year as a charge of €19.4by new business wins and increased volumes within its million. This includes a charge of €10.0 million, whichinstalled client base. covers funding provided to the acquirers in order to manage the takeover (€7.6 million), transition costsTRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 13
  • 16. Regional overview(€2.4 million), and a charge of €9.4 million related to the West & Central Regionprovisioning of contracts which are now being either This region consists of Transcom’s Share of totaldiscontinued or are considered onerous given the operations in Austria, Belgium, revenues 22%action we have taken. We expect the transaction to be Croatia, the Czech Republic, Estonia,complete by April 2011, when the required information Germany, Hungary, Latvia, Lithuania,and consultation procedure with employee representa- Luxembourg, the Netherlands,tives is anticipated to be completed. Poland, Romania, Serbia, Slovakia, Switzerland and the UnitedThe action we have taken is expected to halve our loss rate in France. As a direct result of the transactions,revenue in our French operations will reduce by approx- Revenues remained relatively stableimately €7 million in 2011 (or €13 million on a full year compared to 2009 at €128.3 million versus €129.3 millionbasis). last year. Gross margin decreased to 27.4% (28.7%), mainly due to a less efficient collections environment.We believe our actions will provide a stable foundation EBITA was €10.0 million in 2010, compared to €12.1for sustainable growth in our French business. million in 2009.Excluding the impact of the intended divestment, grossmargin in the South region was 8.2% in 2010 (8.7%)and EBITA was –€11.4 million (–€9.1 million).14 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 17. Transcom in CroatiaServing our clients’ German and Italian speaking customersTranscom Croatia was created in 2005. From three sites in Osijek, Vuk- From Croatia, Transcom serves clients inovar and Pula we provide customer and credit management services to Germany and Italy as well as in Croatia itself.clients in central and Eastern Europe, most particularly Germany and Italy. Italy – 47%Transcom’s site in Osijek, along with two others in Germany, is part of a Croatia – 39%comprehensive program to build the value of Tele2’s German customer Germany – 14%base of over 1 million. Since 2009, customer satisfaction has grown by10%, while conversion rates in cross and upsell initiatives have been ashigh as 20%. Osijek also provides front-line customer services to Tele2clients in Croatia itself.“ Whether in Croatia or Germany, Transcom’s highly skilled agents have been key to our success, thanks to their ability to treat every customer as an individual and to handle each of their requests with consummate professionalism. “ Michael Stinner, Head of Customer Operations, Tele2 GermanyTranscom Croatia grew its business with Tele2 by 81% in 2010 and furthergrowth is expected in the coming year. It’s part of a much bigger program:from 14 locations across Europe, around 2,000 Transcom agents handlean average 2.5 million interactions with Tele2 customers in eight countriesevery month.With over 350 seats in Croatia, Transcom is positioned for growth andcan offer a competitive value proposition for clients in Italy and Germany.Our site in Pula opened in May 2010 and now employs 217 people,serving Italian client bases for clients in the telecommunications andtravel industries.TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 15
  • 18. Directors’ reportPrincipal activities Stock Exchange ListingTranscom is a global outsourced service provider On September 6, 2001, Transcom was listed on theentirely focused on customers, the service they experi- O-list of the Stockholm Stock Exchange, the Stockholms-ence and the revenue they generate. Transcom’s cus- börsen. Transcom class A and B shares are currentlytomer management and credit management services listed on the NASDAQ OMX Nordic Mid Cap list underare designed to strengthen its clients’ customer rela- the symbols “TWW SDB A” and “TWW SDB B”.tionships and secure their revenue streams. Executive ManagementTranscom’s broad service portfolio supports every Pablo Sánchez-Lozano was appointed as Presidentstage of the customer lifecycle, from acquisition and Chief Executive Officer of Transcom WorldWidethrough service, retention, cross and upsell, then on S.A. in January 2009. Aïssa Azzouzi joined Transcomthrough early and contingent collections to legal recov- as Chief Financial Officer in January 2010.ery. Expert at managing both customers and debt,Transcom makes a positive contribution to its clients’ Regimantas Liepa (General Manager, West & Centralprofitability by helping them win customers, maintain Region) joined Transcom in 2002. Carolina Abrahamtheir loyalty and secure their payments. (Human Resources Director) joined Transcom in 2003. José Maria Pérez Melber (General Manager, SouthernWhile Transcom’s services are designed to maximize Europe, Latin America and North Africa) joined Transcomrevenue, its delivery operations are built to drive effi- in 2004. In 2007, Ignacio De Montis joined the Companyciency. Through its global network, Transcom can pro- as Global Accounts Director. Martin Kochman (Chiefvide service in any country where its clients have cus- Strategy Officer and Head of Credit Management),tomers, accessing the most appropriate skills and John Robson (Chief Information Officer) and Jörgdeploying the best communication channels in the Zimmermann (Operations Director), all joined Transcommost cost effective locations. in 2009. Roberta Carluccio (Commercial Director), Johan Eriksson (General Manager, Northern EuropeEvery day, Transcom handles over 600,000 customer Region) and Geoff Smyth (Executive Vice President,contacts in 33 languages from 77 sites in 27 countries North America & Asia) all joined Transcom in 2010.for more than 350 clients. Transcom’s clients includebrand leaders in some of today’s most challenging and Torsten Edebäck (formerly Regional Manager, Northcompetitive industry sectors, including telecommunica- Europe Region), retired and was replaced by Johantions, financial services, travel and tourism, media, utili- Eriksson in October 2010.ties and retail. Board proceduresCapitalization Transcom’s Board held eight Board meetings duringAs at December 31, 2010, the issued and outstanding 2010, of which four were physical meetings and fourshare capital was €31,547,764 consisting of 36,684,903 were held via conference calls. The Audit CommitteeTranscom WorldWide Class A voting shares, each with held nine meetings during 2010, of which three werea nominal value of €0.43, and 36,681,990 Transcom physical meetings and six were held via conference calls.WorldWide Class B non-voting shares, each with a The Remuneration Committee held three meetings innominal value of €0.43, with a total market capitaliza- 2010, one of which was a physical meeting. Two meet-tion of SEK 1,419.6 million (€158.0 million). ings were held via conference calls.16 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 19. Consolidated results Business reviewNet revenue in 2010 increased by 5.2% to €589.1 At the end of 2010, the Company had 77 operatingmillion (€560.2 million). Earnings before interest, taxes centers employing almost 24,000 people, providingand amortization (EBITA) decreased by 114% to –€3.7 services from 27 countries. Transcom’s global opera-million (€27.2 million). Operating income for the full year tions are divided into five regions: Iberia, North, Northwas –€6.6 million (€24.3 million). Transcom reported a America & Asia Pacific, South and West & Central.pretax profit of –€5.7 million (€25.3 million), with a netincome of –€8.1 million, compared with €20.6 million in Please refer to page 13–14 for a review of performance2009. Transcom reported earnings per share (before and significant developments during the year in eachdilution) of –€0.11 (€0.28). region.Transcom’s 2010 results were materially impacted by Outlookthe intended divestment of two sites in France. The Transcom will continue the transformation journeycontemplated transactions are reflected in Transcom’s described in this report focusing on three main priori-financial results for the fourth quarter of 2010 as a ties: achieving growth, creating strong foundations bycharge of €19.4 million. This amount includes a charge addressing non-performing business units, and trans-of €10.0 million, which corresponds to the funding pro- forming our service portfolio and technology in ordervided to the bidders in order to manage the takeover as to support cost-effective global delivery of world-classwell as the transition costs, and a charge of €9.4 million solutions.related to the provisioning of three contracts which areeither discontinued or becoming onerous as a conse-quence of this operation. The direct cost component ofthe €19.4 million charge amounts to €6.2 million. Theremainder, €13.2 million, is classified as SG&A. William M. Walker Chairman of the Board of Directors,Excluding the effect of the intended divestments, earn- Luxembourg, Grand Duchy of Luxembourgings before interest, taxes and amortization (EBITA) in2010 decreased by 42.3% to €15.7 million (€27.2 million).Financial positionOperating cash flow in 2010 was €17.2 million (€44.6million). Capital expenditure, net of disposals of €1.8million, amounted to €4.8 million (€8.2 million), mainlyattributable to IT hardware and software. The workingcapital movement was €22.2 million (–€14.9 million).Transcom made no acquisitions in the financial yearended December 31, 2010. Transcom had liquid fundsof €41.0 million (€36.8 million) at December 31, 2010.Long-term debt was €118.5 million (€132.9 million)giving a net debt of €77.5 million. The equity to assetsratio at December 31, 2010 was 46.9% (45.7% atDecember 31, 2009).TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 17
  • 20. Board of directorsWilliam M. Walker Charles BurdickChairman of the Board of Transcom WorldWide S.A. since 2005. Member of the Board of Transcom WorldWide S.A. since 2010.Member of the Remuneration Committee of Transcom Worldwide Mr. Charles Burdick currently serves as CEO and Chairman of Com-S.A. BA, St. Lawrence University, USA; MBA, Harvard University, verse Technology, Inc., a world leader in multimedia telecommunica-USA. Chairman and Chief Executive Officer of Walker & Dunlop, Inc. tions applications, and is Chairman of Verint Systems, Inc, a leader(NYSE: WD), a commercial real estate finance company. Chairman in actionable intelligence for workforce optimization and securityof the Board of the Washington DC Water and Sewer Authority (DC intelligence. Mr. Burdick also joined the Board of Directors of CTCWater). Other Board assignments: Walker & Dunlop, Inc. and Sus- Media in 2006, where he currently serves as a non-Executive Director,tainable Technology Capital, LP. Chairman of the Compensation Committee and Member of the Audit Committee. Mr. Burdick has an extensive background in telecom-Henning Boysen munications and media, with over 25 years experience in the industry.Member of the Board of Transcom WorldWide S.A. since 2009. Until July 2005, he was Chief Executive Officer of HIT EntertainmentMember of the Remuneration Committee of Transcom Worldwide PLC, a publicly listed provider of pre-school children’s entertainment.S.A. Henning is an experienced international executive with sig- From 1996 to 2004, he worked for Telewest Communications, thenificant operational experience of the travel industry. He holds a second-largest cable television company in the United Kingdom,Masters in Economics from Aarhus University, Denmark. He is serving as Chief Financial Officer and Chief Executive Officer.Chairman of Kuoni, one of Europe’s leading leisure travel compa- Mr. Burdick has also held a series of financial positions with Timenies, a position he has held since 2006, board member since 2003. Warner, US West and Media One, specializing in corporate finance,Other board assignments: Chairman of Global Refund Group and mergers and acquisitions and international treasury.Chairman of Apodan Nordic. Henning was formerly President andCEO of Gate Gourmet from 1996 to 2004, during which time hetransformed Gate Gourmet from a mid-sized European companyinto a truly global organisation before selling the business to TexasPacific Group. Between 1988 and 1992 he was COO and DeputyPresident of Saudia Catering in Saudi Arabia.Henning Boysen William M. Walker Charles Burdick Torun Litzén18
  • 21. Robert Lerwill Mia Brunell LivforsMember of the Board of Transcom WorldWide S.A. since 2010. Member of the Board of Transcom WorldWide S.A. since 2006.Chairman of the Audit Committee of Transcom WorldWide S.A. Member of the Remuneration Committee of Transcom WorldWideMr. Robert Lerwill has been a non-Executive Director and Chairman S.A. Studies in Business Administration, Stockholm University.of the Audit Committee of British American Tobacco plc since 2005 President and Chief Executive Officer of Investment AB Kinnevik.and is also Chairman of Synergy Health plc. Mr. Lerwill served as Previously, Chief Financial Officer of Modern Times Group MTG ABChief Executive Officer of Aegis Group plc, the media communica- 2001–2006. Other Board assignments: Chairman of the Board oftions and market research group, between 2005 and 2008. Until Metro International S.A. and Member of the Board since 2006. Mem-2003, Mr. Robert Lerwill was an Executive Director of Cable & Wire- ber of the Board of Tele2 AB and Korsnäs AB since 2006, as well asless PLC, one of the world’s leading telecommunication companies, Millicom International Cellular S.A. and Modern Times Group MTG ABwhere he served as Finance Director between 1997 and 2002 and since 2007. Member of the Board of H & M Hennes & Mauritz ABChief Executive of Cable & Wireless Regional between 2000 and since 2008. Member of the Board of CDON AB since 2010.2003. In both companies, he was instrumental in developing andmanaging major international businesses. From 1986 to 1996, he Roel Louwhoffwas Group Finance Director of WPP Group plc. Member of the Board of Transcom WorldWide S.A. since 2007. MBA from Rijksuniversiteit, Groningen in the Netherlands. CurrentlyTorun Litzén Chief Executive Officer of BT Operate, part of British Telecom plc,Member of the Board of Transcom WorldWide S.A. since 2008. leading a global team of 15,000 people running the communicationsMember of the Audit Committee of Transcom WorldWide S.A. Torun services for customers over BT’s core network and systems. Previ-Litzén is Director of Investor Relations for Investment AB Kinnevik, a ously Chief Operating Officer for the international business processleading Swedish investment company which operates and actively outsourcer ClientLogic Corporation. Before that, Chief Operatingowns a portfolio of businesses in over 60 countries. Investment AB Officer at SNT Group, a European call centre provider. His earlyKinnevik is a significant shareholder of Transcom. From 2002 to career was as a management consultant with Andersen Consulting2007, Ms. Litzén was senior Investor Relations Officer and Financial where he worked in the CRM practice in Europe and North America.Reporting Manager at Nordea Bank AB in Sweden. Prior to that, shewas an analyst and fund manager focused on the Russian equitymarket, having worked 3 years in Moscow as an economic advisorand consultant in the mid 1990’s Roel Louwhoff Robert Lerwill Mia Brunell Livfors 19
  • 22. The Transcom shareand shareholdersThe Annual General Meeting of Kinnevik shareholders Nordic Exchange’s Mid Cap list under the symbolsheld on May 18, 2001 voted to distribute new A and “TWW SDB A” and “TWW SDB B”.B shares in Transcom WorldWide on the Stockholms-börsen O-List and on the NASDAQ Stock Exchange in The chart below shows the share price development forNew York. The new shares consequently began trading the Transcom B share in 2010, measured against theon September 6, 2001, under the symbols TWWA and relevant stock market index.TWWB in Stockholm, and TRCMA and TRCMB in NewYork. In May 2003 Transcom de-listed its shares from The market capitalization of Transcom WorldWide S.A.the NASDAQ Stock Exchange. Transcom class A and at the close of business on December 31, 2010 wasB shares are currently listed on the NASDAQ OMX SEK 1,419.6 million (€158.0 million).The Transcom Share (SEK)5040302010 0 1.1.2010 31.12.2010 Transcom WorldWide B NASDAQ OMX Nordic Mid Cap Index (rebased)20 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 23. Transcom Shareholders Total A shares B shares % Capital % VotesInvestment AB Kinnevik 16,339,448 16,339,448 – 22.3% 44.5%Nordea fonder 6,363,891 – 6,363,891 8.7% 0.0%Swedbank Robur fonder 5,787,290 3,135,057 2,652,233 7.9% 8.5%Odin fonder 3,174,760 2,255,282 919,478 4.3% 6.1%Fjärde AP-fonden 3,115,160 461,900 2,653,260 4.2% 1.3%Svolder 2,973,533 – 2,973,533 4.1% 0.0%Unionen 2,389,650 1,092,270 1,297,380 3.3% 3.0%Catella 2,386,725 341,000 2,045,725 3.3% 0.9%Länsförsäkringar 1,890,116 1,890,116 – 2.6% 5.2%Avanza Pension 1,616,791 448,515 1,168,276 2.2% 1.2%SEB fonder 1,377,042 722,091 654,951 1.9% 2.0%Skandia 1,261,778 1,138,081 123,697 1.7% 3.1%Andra AP-fonden 1,128,840 – 1,128,840 1.5% 0.0%Försäkringsbolaget PRI 1,119,416 – 1,119,416 1.5% 0.0%ABN AMRO BANK NV 830,779 687,547 143,232 1.1% 1.9%Nordnet Pensionsförsäkring 719,102 220,171 498,931 1.0% 0.6%Manticore 663,200 663,200 – 0.9% 1.8%JP MORGAN BANK 644,564 559,979 84,585 0.9% 1.5%Danica Pension 607,562 136,240 471,322 0.8% 0.4%Carnegie Svea Aktiefond 497,780 – 497,780 0.7% 0.0%Subtotal 54,887,427 30,090,897 24,796,530 74.8% 82.0%Other 18,479,466 6,594,006 11,885,460 25.2% 18.0%Total 73,366,893 36,684,903 36,681,990 100.0% 100.0%TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 21
  • 24. Corporate responsibilityA sustainable approach Our business leaders in Spain quickly assembled aCorporate responsibility at Transcom means: Disaster Response Team to ensure business continuity and to address the well-being of our people. Concerned Taking a sustainable and ethical approach when employees in Spain responded to the team’s call on the delivering services to our clients and their customers. morning of the quake and came to work to provide Creating honest, flexible and safe environments emergency cover for customer calls re-routed from Chile. where employees can build their careers and enjoy Meanwhile, efforts began to locate our employees in their work. Concepción via our own web site, social networks and Encouraging our people’s good will, energy and the media. All were found and a team of Chilean and enthusiasm to take part in charitable activities. Spanish business leaders took personal responsibility for ensuring their wellbeing.We continue to support the UN Global Compact. Its tenprinciples, which cover aspects of corporate behavior It became evident that our center would be out of oper-related to human rights, labor conditions, environment ation for several weeks and we decided to transfer workand anti-corruption, are incorporated into our worldwide to our second Chilean center in Valdívia. Two hundredoperations. and fifty of our employees in Concepción volunteered to relocate for the duration. As they made the 500kmOur commitment to ethical business conduct is rein- journey, they took with them the equipment they wouldforced by our codes of business conduct for employ- need to carry on working. We are overwhelming gratefulees and suppliers. These were updated during 2010 to them. Their dedication meant we were able to main-in line with Kinnevik’s social responsibility initiatives. tain our service levels and win the confidence and praiseDistributed to every employee, our Employee Code of of our clients.Business Conduct makes clear our position on issuesrelated to legal compliance, respect and equality in the The Transcom family worldwide responded with greatworkplace. It also gives guidance on the mechanisms generosity. Fund raising initiatives have raised more thanemployees can use to report concerns of an ethical €33,000, enough to rebuild and repair our employees’nature. The Supplier Code of Business Conduct asks destroyed and damaged homes. The work continues.our suppliers and partners to commit to the same stan-dards of corporate responsibility, business conduct and Transcom’s center in Concepción was open for busi-environmental protection that we do. ness again within two weeks and fully operational within five. It has been cited by commentators across SpainTranscom’s Environmental Policy expresses our com- as a best-practice example of disaster recovery.mitment to minimize the environmental impact of ouroperations and encourage environmentally responsible Other examples of our values in actionbehavior within our workforce. Our New Leaf Sustain- Across the Transcom world our employees were in-able Best Practice Guidelines make recycling and energy volved in charitable initiatives during 2010 including…efficiency standard practice in all our centers. In North America our people raised €72,000 for aSupporting the Transcom family range of charities including the Canadian CancerIn the early hours of February 27, 2010 the city of Con- Society, Médecins Sans Frontières and the Red Cross.cepción in Chile, home to 1,000 Transcom employees In the Philippines our ‘Transcom Cares’ initiative hasserving customers in Spain, was hit by an 8.8 magnitude seen employees volunteer for a range of communityearthquake. The quake and the tsunami that followed based assignments, working with local schools, reli-disabled our operation, destroyed the homes of six of gious groups, children’s and retirement homes, home-our employees and severely damaged those of 54 more. less shelters and charitable foundations.22 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 25. Transcom Germany donated €5,000 to the Children’s Charity, ‘Deutsches Kinderhilfswerk’. The money was used to support the Rostock City of Children Com- munity project.Building our communityKeeping our employees up to date on our strategicdirection is a priority for Transcom. Our quarterly inter-nal video, Transnews, is the central pillar of our internalcommunications program. It provides updates to ourdiverse workforce on company developments, teamand individual achievements, business successes,corporate responsibility initiatives, celebrations andmotivational events.In 2010, Transnews was supplemented by a major pro-gram to introduce our employees to the new Transcomvisual identity and messaging. This was well received,with a strong majority reporting positive views of thechanges.In June 2010, the Transcom European CommunicationForum held its annual meeting in Barcelona, Spain. Themeeting aims to foster constructive dialogue betweenEuropean Works Council members and Transcom’s topmanagement and gives worker representatives fromacross Europe the chance to share perspectives andreach agreement on transnational issues. This year’smeeting was addressed by Transcom’s CEO and mem-bers of the executive team, who explained the compa-ny’s strategic priorities and took part in lively Q&Asessions. Attendees also received a specialist trainingsession in Finance Administration, with the aim ofproviding insight to Transcom’s key business drivers.Our annual employee satisfaction survey attracted13,500 responses in 2010, making it arguably the mostrepresentative ever conducted in our company. Man-agement teams across the business have conducteddetailed local analyses of the survey’s findings anddeveloped action plans to target areas of concern.TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 23
  • 26. Corporate governance1 The company European Commission recommendations of FebruaryTranscom WorldWide S.A. (the “Company”) is a Luxem- 15, 2005 on the role of Non-Executive Directors (andbourg public limited liability company (Société Anonyme), members of the Supervisory Board) of listed companiesthe shares of which are listed and admitted to the and on the committees of the Board (or SupervisoryNASDAQ OMX Stockholm Exchange. Corporate gover- Board).nance within the Company is based on the Luxembourglaw and the listing requirements of the NASDAQ OMX Summary curriculum vitae for each member of theStockholm Exchange. The Company follows the ten Board of Directors of the Company and the list of otherprinciples of corporate governance of the Luxembourg paid positions held by them in other listed companies isStock Exchange which came into effect on January 1, disclosed on pages 20–21.2007. 3.2 The responsibility of the Board of Directors2 Annual General Meeting of shareholders and work in 2010Shareholders’ rights to decide on the affairs of the In order to carry out its work more effectively, the BoardCompany are exercised at the Annual General Meeting of Directors has appointed a Remuneration Committeeof the shareholders of the Company (the “Annual Gen- and an Audit Committee. These committees handleeral Meeting”). business within their respective areas and present recommendations and reports on which the Board ofThe Annual General Meeting is held in Luxembourg Directors may base its decisions and actions.each year on the last Wednesday in May at 10am atthe registered office of the Company or at such other The Board of Directors carried out its own evaluation andplace as may be specified in the notice convening the the evaluation of its committees in accordance with theMeeting. Corporate Governance Charter of the Company. These evaluations have not led to any important changes in3 Board of Directors respect of the Board of Directors or the committees.3.1 Composition of the Board of Directorsof the Company (“The Board of Directors”) The Board of Directors has also adopted procedures forThe Board of Directors of the Company comprises sev- instructions and mandates issued to the Chief Executiveen Non-Executive Directors. The members of the Board Officer and Chief Financial Officer which delegate theof Directors of the Company are: William Walker (Chair- day-to-day management of the Company to, born 1967, independent), Henning Boysen (born1946, independent), Charles Burdick (born 1951, inde- The Board of Directors held eight Board meetings dur-pendent), Robert Lerwill (born 1952, independent), ing 2010, of which four were physical meetings and fourTorun Litzén (born 1967), Mia Brunell Livfors (born were held via conference calls. All Board members, plus1965), and Roel Louwhoff (born 1964, independent). the Chief Executive Officer and Chief Financial Officer, were present at each meeting.Charles Burdick and Robert Lerwill were appointedDirectors of the Board at the 2010 Annual General 3.3 Remuneration CommitteeMeeting of Shareholders (AGM), held on May 26, 2010. Membership of the Remuneration Committee consistsThe AGM re-elected William Walker, Henning Boysen, of William Walker (Chairman), Mia Brunell Livfors andTorun Litzén, Mia Brunell Livfors, and Roel Louwhoff as Henning Boysen.Directors of the Board. The responsibilities of the Remuneration CommitteeThe independence criteria used by the Company in or- include issues regarding salaries, pension plans, bonusder to determine the independence of the members of programs and other employment terms of the Chiefits Board of Directors are those listed in Annex ii of the Executive Officer and senior management.24 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 27. The Remuneration Committee held three meetings in proposal on the Chairman of the 2011 Annual General2010, one of which was a physical meeting and two Meeting, which will be presented to the 2011 Annualwere held via conference calls. All of the Remuneration General Meeting for approval.Committee members attended all meetings. The Nomination Committee met five times during 20103.4 Audit Committee and all of its members attended the meetings.At a statutory Board meeting following the 2010 AnnualGeneral Meeting, the Board decided that the Audit 4 Management teamCommittee be comprised of Robert Lerwill, Charles The Board of Directors has appointed an executiveBurdick and Torun Litzén. Robert Lerwill was elected as management team (the “Management Team”). A full listits Chairman. of its members is provided on page 16.The Audit Committee held nine meetings during 2010, 5 Remunerationof which three were physical meetings and six were The total amount of remuneration and other benefitsheld via conference calls. All of its members attended granted directly or indirectly by the Company to thethese meetings. The Audit Committee’s responsibility is members of its Board of Directors is provided in note maintain the working relationship with the Company’sinternal and external auditors, as well as to review the The total amount of remuneration and other benefitsGroup’s accounting and financial reporting procedures. granted directly or indirectly by the Company to the members of its Management Team is provided in noteThe Audit Committee focuses on ensuring quality and 24.accuracy in the Company’s financial reporting, theinternal controls within the Company, the qualification The Company did not grant any loan to any member ofand independence of the auditors and the Company’s its Board of Directors or to any member of the Manage-adherence to prevailing rules and regulations. Where ment Team.applicable, it reviews transactions between theCompany and related parties. 6 Major holdings The Company’s share ownership is disclosed on pages3.5 Nomination Committee 20–21 under “The Transcom share and shareholders”The Nomination Committee of major shareholders in section.Transcom has been convened in accordance withthe resolution of the 2010 Annual General Meeting. All other significant relationships between the CompanyThe Nomination Committee is comprised of Cristina and its major shareholders, insofar as it is aware of them,Stenbeck on behalf of Investment AB Kinnevik, Kerstin are described in note 30 “Related Party Transactions”.Stenberg on behalf of Swedbank Robur Funds andTomas Ramsælv on behalf of Odin Funds. Cristina 7 Market abuse related considerationsStenbeck was elected Chairman of the Nomination The Company has adopted and applies an insider trad-Committee for the 2011 Annual General Meeting. The ing policy.composition of the Nomination Committee may bechanged to reflect any changes in the shareholdings of 8 Internal controlthe major shareholders during the nomination process. The Board of Directors has overall responsibility for the Company’s and its subsidiaries’ (“the ’Group’’) internalThe Nomination Committee will submit a proposal for control systems and for monitoring their effectiveness.the composition of the Board of Directors; remunera- Executive Directors and senior management are re-tion for the Board of Directors and the auditor; and a sponsible for the implementation and maintenance ofTRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 25
  • 28. Corporate governancethe internal control systems, which are subject to peri- The principal features of the Group’s systems of internalodic review that is documented. An internal audit func- control are designed to:tion reviews the internal controls throughout the Group.The Board of Directors monitors the ongoing process Safeguard assets;by which critical risks to the business are identified, Maintain proper accounting records;evaluated and managed. Provide reliable financial information; Identify and manage business risks;Each year the Audit Committee assesses the effective- Maintain compliance with appropriate legislation andness of the Group’s system of internal controls (includ- regulation; anding financial, operational and compliance controls, and Identify and adopt best practice.risk management systems) on the basis of: The principal features of the control framework and the Established procedures, including those already methods by which the Board of Directors satisfies itself described, which are in place to manage perceived that it is operating effectively are detailed below. risks; Management reviews and responds to internal audit Control environment and external auditors’ reports, and advises the audit The Group has an established governance framework, Committee on controls; the key features of which include: The continuous Group-wide process for formally identifying, evaluating and managing the significant Terms of reference for the Board of Directors and risks to the achievement of the Group’s objectives; each of its committees; and A clear organizational structure, with documented Reports to the Audit Committee on the results of delegation of authority from the Board of Directors to internal audit reviews. Management Team; A Group policy framework, which sets out risk man-The Group’s internal control systems are designed to agement and control standards for the Group’s oper-manage, rather than eliminate, risks that might impact ations worldwide; andachievement of the Group’s objectives, and can only Defined procedures for the approval of major trans-provide reasonable, and not absolute, assurance against actions and capital allocations.material misstatement or loss. In assessing what con-stitutes reasonable assurance, the Board of Directors Corporate planconsiders the materiality of financial and non-financial The Management Team submits an annual corporaterisks and the relationship between the cost of, and plan to the Board of Directors for approval. The plan forbenefit from, internal control systems. each business unit is the quantified assessment of its planned operating and financial performance for theThe Board of Directors regularly reviews the actual and next financial year, together with strategic reviews forforecast performance of the business compared with the following five years. Group management reviewsthe annual report, as well as other key performance the plans with each operational team. The individualindicators. plans are based on key economic and financial assump- tions and incorporate an assessment of the risk andLines of responsibility and delegated authorities are sensitivities underlying the projections.clearly defined. The Group’s policies and proceduresare regularly updated and distributed throughout the Performance monitoring and reviewGroup. Monthly performance and financial reports are produced for each business unit, with comparisons to budget.26 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 29. Reports are consolidated for overall review by the Man- 9 Explanation from the company of its decisionagement Team together with forecasts for the income relating to corporate governancestatement and cash flow. Detailed reports are presented Instead of recommendation 10.6 of the Ten Principlesto the Board of Directors on a regular basis. of Corporate Governance of the Luxembourg Stock Exchange, the Company follows the provisions ofRisk identification, assessment and management Luxembourg law pursuant to which one or more share-An ongoing process is in place for identifying, evaluating holders who together hold at least 10% of the subscribedand managing the significant risks faced by the Group capital may request that one or more additional itemswhich has operated throughout the year and up to the be put on the agenda of any general on which this report was signed. The Group’s riskmanagement and control framework is designed to Instead of recommendation 4.2 of the Ten Principlessupport the identification, assessment, monitoring, of Corporate Governance of the Luxembourg Stockmanagement and control of risks that are significant to Exchange, the Nomination Committee is made up ofthe achievement of the Group’s business objectives. major shareholders and is elected during the thirdThe Group has a set of formal policies which govern quarter of the year.the management and control of both financial and non-financial risks. The adoption of these policies through-out the Group enables a broadly consistent approachto the management of risk at business unit level. AtGroup level, policy owners are responsible for the Group-wide aggregation and oversight of their specific risks.Management is responsible for reviewing and monitor-ing the financial risks to the Group and considers therisks in the businesses. Similarly, management alsomonitors risks associated with information technology,human resource management and regulatory compli-ance. Management monitors the completeness of theGroup’s risk profile on a regular basis through a Grouprisk monitoring framework.MonitoringThe Board of Directors reviews the effectiveness of es-tablished internal controls through the Audit Commit-tee, which receives reports from the ManagementTeam, the Group’s internal audit function and the exter-nal auditors on the systems of internal control and riskmanagement processes and procedures.Internal Audit reviews the effectiveness of internal con-trols and risk management through a work programwhich is based on the Company’s objectives and riskprofile and is agreed with the Audit Committee. Find-ings are reported to the operational and managementteams, with periodic reporting to the Audit Committee.TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 27
  • 30. Consolidated income statementfor the year ended December 31, 2010 2010 2009 (€000, except share and per share amounts) Note €000 €000 Revenue 5 589,117 560,218 Cost of sales (477,248) (436,823) Gross profit 111,869 123,395 Selling expenses (7,156) (6,577) Administrative expenses (95,316) (89,666) Other expenses 22 (15,989) (2,875) Profit/(loss) from operations 23 (6,592) 24,277 Finance income 25 3,140 3,371 Finance costs 25 (2,232) (2,354) Profit/(loss) before tax (5,684) 25,294 Income tax expense 26 (2,394) (4,703) Profit/(loss) for the year attributable to owners of the parent 5 (8,078) 20,591 Earnings per share for the year (expressed in € per common share) 27 Basic – per A class share, for profit/(loss) for the year attributable to owners of the parent (0.11) 0.28 – per B class share, for profit/(loss) for the year attributable to owners of the parent (0.11) 0.28 Diluted – per A class share, for profit/(loss) for the year attributable to owners of the parent (0.11) 0.28 – per B class share, for profit/(loss) for the year attributable to owners of the parent (0.11) 0.28The accompanying notes form an integral part of the consolidated financial statements.28 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 31. Consolidated statement of comprehensive incomefor the year ended December 31, 2010 2010 2009 €000 €000 €000 €000 Profit/(loss) for the year (8,078) 20,591 Other comprehensive income Exchange differences on translating foreign operations 10,590 7,273 Actuarial loss on post employment benefits obligation (212) – Cash flow hedges – gains/(losses) recognized directly in equity 502 349 Income tax relating to cash flow hedges (166) 336 (117) 232 Net investment hedge – gains/(losses) recognized directly in equity 1,108 (2,279) Income tax relating to net investment hedge (317) 791 650 (1,629) 11,505 5,876 Total comprehensive income attributable to owners of the parent 3,427 26,467The accompanying notes form an integral part of the consolidated financial statements.TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 29
  • 32. Consolidated statement of financial positionas at December 31, 2010 2010 2009 Note €000 €000 Assets Non-current assets Property, plant and equipment 7 19,139 29,300 Intangible assets 8 174,820 168,465 Deferred tax assets 9 5,554 3,279 199,513 201,044 Current assets Trade and other receivables 10 112,294 118,727 Prepaid expenses and accrued income 11 18,731 18,856 Derivative financial instruments 12 1,959 349 Cash and cash equivalents 40,977 36,780 173,961 174,712 Total assets 373,474 375,756The accompanying notes form an integral part of the consolidated financial statements.30 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 33. Consolidated statement of financial positionas at December 31, 2010 2010 2009 Note €000 €000 Equity and liabilities Equity attributable to owners of the parent 13 Share capital 31,548 31,516 Share premium 10,156 10,023 Legal reserve 3,908 3,908 Retained earnings 132,437 140,606 Equity-based payments 342 – Foreign exchange reserve (3,469) (14,850) Other reserves 14 38 232 Total equity 174,960 171,435 Non-current liabilities Borrowings 17 118,462 132,923 Deferred tax liabilities 9 6,811 6,795 Provisions for other liabilities and charges 18 5,117 1,500 Employee benefit obligations 19 2,704 2,901 Government grants 20 917 1,987 134,011 146,106 Current liabilities Trade and other payables 21 55,095 51,841 Provisions for other liabilities and charges 18 7,885 – Income tax payable 1,523 6,374 64,503 58,215 Total liabilities 198,514 204,321 Total equity and liabilities 373,474 375,756The accompanying notes form an integral part of the consolidated financial statements.TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 31
  • 34. Consolidated statement of changes in equityfor the year ended December 31, 2010 Attributable to the owners of the parent Share Equity- Foreign Other capital Share Legal Retained based exchange Reserves (Note 13) premium reserve earnings payments reserve (Note 14) Total €000 €000 €000 €000 €000 €000 €000 €000 Balance as at January 1, 2009 31,749 9,877 3,908 117,102 2,190 (20,746) (243) 143,837 Profit for the year – – – 20,591 – – – 20,591 Other comprehensive income, net of tax – – – (243) – 5,644 475 5,876 Total comprehensive income for the year – – – 20,348 – 5,644 475 26,467 Transaction with owners Equity based payments – – – 3,156 (2,190) – – 966 Issue of share capital 19 146 – – – – – 165 Decrease of share capital (252) – – – – 252 – – Total transaction with owners (233) 146 – 3,156 (2,190) 252 – 1,131 Balance as at December 31, 2009 31,516 10,023 3,908 140,606 – (14,850) 232 171,435 Balance as at January 1, 2010 31,516 10,023 3,908 140,606 – (14,850) 232 171,435 Loss for the year – – – (8,078) – – – (8,078) Other comprehensive income, net of tax – – – 232 – 11,381 (108) 11,505 Total comprehensive income for the year – – – (7,846) – 11,381 (108) 3,427 Transaction with owners Dividends (note 16) – – – (158) – – – (158) Equity based payments – – – – 342 – – 342 Issue of share capital 32 133 – (165) – – – – Purchase of treasury shares – – – – – – (86) (86) Total transaction with owners 32 133 – (323) 342 – (86) 98 Balance as at December 31, 2010 31,548 10,156 3,908 132,437 342 (3,469) 38 174,960The accompanying notes form an integral part of the consolidated financial statements.32 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 35. Consolidated statement of cash flowsfor the year ended December 31, 2010 2010 2009 Note €000 €000 Cash flows from operating activities Profit/loss for the year (8,078) 20,591 Adjustments for non cash items: Depreciation and amortization 23 17,760 20,989 Share-based payments 342 966 Income tax expense 26 2,394 4,703 Other non-cash adjustments 4,757 (2,676) Cash flows from operating activities before changes in working capital 17,175 44,573 Changes in working capital: Decrease in trade and other receivables 6,558 10,237 Increase/(decrease) in trade and other payables 4,354 (22,303) Increase/(decrease) in provisions including employee benefit obligations 11,305 (2,862) Changes in working capital 22,217 (14,928) Income tax paid (10,292) (11,930) Net cash flows from operating activities 29,100 17,715 Cash flows from investing activities Purchases of property, plant and equipment 7 (1,861) (7,488) Purchases of intangible assets 8 (2,903) (1,084) Purchase of subsidiaries and non-controlling interests, net of cash acquired 6 (1,100) (21,313) Interest received 295 784 Net cash flows used in investing activities (5,569) (29,101) Cash flows from financing activities Proceeds from/(repayment of) borrowings (17,000) 5,911 Proceeds from issuance of shares 13 0 165 Interest paid (2,176) (2,354) Dividends paid to owners 16 (158) – Net cash flows used in financing activities (19,334) 3,722 Net (decrease)/increase in cash and cash equivalents 4,197 (7,664) Cash and cash equivalents at beginning of year 36,780 44,444 Cash and cash equivalents at end of year 40,977 36,780The accompanying notes form an integral part of the consolidated financial statements.TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 33
  • 36. Notes to the consolidated financial statementsfor the year ended December 31, 2010The accompanying notes are an integral part of the consolidated financial statements. Amounts in thousands of EUR unless otherwise stated.1 Corporate information fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs are expensed. This standard had no im-Transcom WorldWide S.A. (the “Company” or the “parent entity”) and its subsid- pact on the current financial year.iaries (together, “Transcom” or the “Group”) provide multi-language customerrelationship management products and services (“CRM”) and credit management IAS 27 (revised) requires the effects of all transactions with non-controlling inter-services (“CMS”), including customer help lines and other telephone-based mar- ests to be recorded in equity if there is no change in control and these transac-keting and customer service programs (“teleservices”) to clients in customer- tions will no longer result in goodwill or gains and losses. The standard alsointensive industries. specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognized in profit or loss. IASThe Company is a limited liability company (“Société Anonyme”) incorporated and 27 (revised) has had no impact on the current financial year.existing under the laws of the Grand Duchy of Luxembourg. The Company wasregistered on June 11, 1997 with the Luxembourg Registration Office – Company IFRIC 16, ‘Hedges of a net investment in a foreign operation’ (effective prospec-Register (“Tribunal d’arrondissement de et à Luxembourg”) number RC B59528. tively for annual periods beginning on or after July 1, 2009). This amendmentThe registered office of the Company is at 45, Rue des Scillas, L-2529, Luxem- states that, in a hedge of a net investment in a foreign operation, qualifying hedg-bourg. The Company operates in 28 countries and employed 19,713 full time ing instruments may be held by any entity or entities within the Group, includingemployees at December 31, 2010. Transcom WorldWide S.A. class A and class the foreign operation itself, as long as the designation, documentation and effec-B shares are listed on the Nordic Exchange Mid Cap list under the symbols tiveness requirements of IAS 39 that relate to a net investment hedge are“TWW SDB A” and “TWW SDB B”. satisfied. In particular, the Group should clearly document its hedging strategy because of the possibility of different designations at different levels of the Group.The consolidated financial statements were authorized for issue at the Board of IAS 36 (amendment), ‘Impairment of assets’, (effective prospectively for annualDirectors’ meeting on February 7, 2011. These consolidated financial statements periods beginning on or after January 1, 2010). The amendment clarifies thatwill be submitted for approval at the Annual General Meeting on May 25, 2011. the largest cash-generating unit (or Group of units) to which goodwill should be allocated for the purposes of impairment testing is an operating segment, asCertain comparatives have been reclassified to conform with current year presen- defined by paragraph 5 of IFRS 8, ‘Operating segments’ (that is, before thetation. aggregation of segments with similar economic characteristics). IAS 38 (amendment), ‘Intangible assets’, (effective prospectively for annual peri- ods beginning on or after January 1, 2010). The amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business combi-2 Summary of significant accounting policies nation and permits the Grouping of intangible assets as a single asset if each asset has similar useful economic lives.The principal accounting policies applied in the preparation of these consolidated IFRS 8 (amendment), ‘Operating segments’. (effective for annual periods begin-financial statements are set out below. These policies have been consistently ap- ning on or after January 1, 2010). This amendment clarifies that an entity is re-plied to all the years presented, unless otherwise stated. quired to disclose a measure of segment assets only if that measure is regularly reported to the chief operating decision maker.2.1 Basis of preparationThe consolidated financial statements of Transcom WorldWide S.A. have been (b) New and amended standards, and interpretations mandatory for the first timeprepared in accordance with International Financial Reporting Standards (“IFRS”) for the financial year beginning January 1, 2010 but not currently relevant to theand IFRIC Interpretations, as adopted by the European Union. The consolidated Group (although they may affect the accounting for future transactions and events)financial statements have been prepared under the historical cost basis, exceptfor derivative financial instruments that have been measured at fair value. The The following standards and amendments to existing standards have been pub-consolidated financial statements are presented in Euros which is the Group’s lished and are mandatory for the Group’s accounting periods beginning on or afterreporting currency, rounded in thousands of Euros. January 1, 2010 or later periods.The preparation of financial statements in conformity with IFRS requires the use IFRIC 17, ‘Distribution of non-cash assets to owners’ (effective annual periodsof certain critical accounting estimates. It also requires management to exercise beginning on or after July 1, 2009). The interpretation was published in Novem-its judgment in the process of applying the Group’s accounting policies. The ber 2008. This interpretation provides guidance on accounting for arrangementsareas involving a higher degree of judgment or complexity, or areas where as- whereby an entity distributes non-cash assets to shareholders either as a distri-sumptions and estimates are significant to the consolidated financial statements bution of reserves or as dividends. IFRS 5 has also been amended to requireare disclosed in note 3. that assets are classified as held for distribution only when they are available for distribution in their present condition and the distribution is highly probable.2.1.1 Changes in accounting policies and disclosures IFRIC 9, ‘Reassessment of embedded derivatives and IAS 39, Financial instru-(a) New and amended standards adopted by the Group ments: Recognition and measurement’, (effective annual periods beginning onThe following new standards and amendments to standards are mandatory for or after July 1, 2009). This amendment to IFRIC 9 requires an entity to assessthe first time for the financial year beginning January 1, 2010. whether an embedded derivative should be separated from a host contract when the entity reclassifies a hybrid financial asset out of the ‘fair value through IFRS 3 (revised), ‘Business combinations’, and consequential amendments to profit or loss’ category. This assessment is to be made based on circumstances IAS 27, ‘Consolidated and separate financial statements’, IAS 28, ‘Investments that existed on the later of the date the entity first became a party to the con- in associates’, and IAS 31, ‘Interests in joint ventures’, are effective prospectively tract and the date of any contract amendments that significantly change the to business combinations for which the acquisition date is on or after the begin- cash flows of the contract. If the entity is unable to make this assessment, the ning of the first annual reporting period beginning on or after July 1, 2009. hybrid instrument must remains classified as at fair value through profit or loss in its entirety.IFRS 3 (revised) continues to apply the acquisition method to business combina- IAS 1 (amendment), ‘Presentation of financial statements’. The amendmenttions but with some significant changes compared with IFRS 3. For example, all clarifies that the potential settlement of a liability by the issue of equity is not rel-payments to purchase a business are recorded at fair value at the acquisition date, evant to its classification as current or non current. By amending the definitionwith contingent payments classified as debt subsequently re-measured through of current liability, the amendment permits a liability to be classified as non-cur-the statement of comprehensive income. There is a choice on an acquisition-by- rent (provided that the entity has an unconditional right to defer settlement byacquisition basis to measure the non-controlling interest in the acquiree either at transfer of cash or other assets for at least 12 months after the accounting period)34 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 37. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S notwithstanding the fact that the entity could be required by the counterparty to ‘Classification of rights issues’ (amendment to IAS 32), issued in October 2009. settle in shares at any time. The amendment applies to annual periods beginning on or after February 1, IAS 7 (amendment), ‘Statement of cash flows’. (effective annual periods begin- 2010. Earlier application is permitted. The amendment addresses the account- ning on or after January 1, 2010). This amendment clarifies that only expendi- ing for rights issues that are denominated in a currency other than the functional tures that result in recognized asset in the financial statements can be classified currency of the issuer. Provided certain conditions are met, such rights issues as investing activities in the statement of cash flows. Consequently, cash flows are now classified as equity regardless of the currency in which the exercise price related to developments costs that do not meet the criteria in IAS 38 must be is denominated. Previously, these issues had to be accounted for as derivative classified as operating activities in the statement of cash flows. liabilities. The amendment applies retrospectively in accordance with IAS 8 IAS 17 (amendment), ‘Leases’. (effective annual periods beginning on or after ‘Accounting policies, changes in accounting estimates and errors’. January 1, 2010). Prior to this amendment, IAS 17 generally required leases of land with indefinite useful life to be classified as operating leases. Following the The Group will apply the amended standard from January 1, 2011. It is not ex- amendments, leases of land are classified as either ‘finance’ or ‘operating’ in pected to have any impact on the Group financial statements accordance with the general principles of IAS 17. These amendments are to be applied retrospectively to unexpired leases as of the effective date if the neces- IFRIC 19, ‘Extinguishing financial liabilities with equity instruments’, effective from sary information was available at the inception of the lease. Otherwise, the annual periods beginning on or after July 1, 2010. The interpretation clarifies the amended standard will be applied based on the facts and circumstances exist- accounting by an entity when the terms of a financial liability are renegotiated and ing on the effective date and entities will recognize assets and liabilities related result in the entity issuing equity instruments to a creditor of the entity to extinguish to land leases newly classified as finance lease at their fair values on that date. all or part of the financial liability (debt for equity swap). It requires a gain or loss Any difference between those fair values will be recognized in retained earnings. to be recognized in profit or loss, which is measured as the difference between IFRS 2 (amendments), ‘Group cash-settled share-based payment transactions’, the carrying amount of the financial liability and the fair value of the equity instru- (effective for annual periods beginning on or after January 1, 2010). In addition ments issued. If the fair value of the equity instruments issued cannot be reliably to incorporating IFRIC 8, ‘Scope of IFRS 2’, and IFRIC 11, ‘IFRS 2 – Group and measured, the equity instruments should be measured to reflect the fair value of treasury share transactions’, the amendments expand on the guidance in IFRIC the financial liability extinguished. 11 to address the classification of Group arrangements that were not covered by that interpretation. The Group will apply the interpretation from January 1, 2011. It is not expected to IFRS 5 (amendment), ‘Non-current assets held for sale and discontinued opera- have any impact on the Group financial statements. tions’. (effective for annual periods beginning on or after January 1, 2010). The amendment clarifies that IFRS 5 specifies the disclosures required in respect of ‘Prepayments of a minimum funding requirement’ (amendments to IFRIC 14). non-current assets (or disposal groups) classified as held for sale or discontinued The amendments correct an unintended consequence of IFRIC 14, ‘IAS 19 – operations. It also clarifies that the general requirement of IAS 1 still applies, in The limit on a defined benefit asset, minimum funding requirements and their particular paragraph 15 (to achieve a fair presentation) and paragraph 125 interaction’. Without the amendments, entities are not permitted to recognize (sources of estimation uncertainty) of IAS 1. as an asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC 14 was issued, and the amendments correct(c) New standards, amendments and interpretations issued but not effective for this. The amendments are effective for annual periods beginning on or afterthe financial year beginning January 1, 2010 and not early adopted January 1, 2011. Earlier application is permitted. The amendments should be applied retrospectively to the earliest comparative period presented.The Group’s and parent entity’s assessment of the impact of these new standardsand interpretations is set out below. The Group will apply these amendments for the financial reporting period com- mencing on January 1, 2011. It is not expected to have any impact on the Group IFRS 9, ‘Financial instruments’, issued in November 2009. This standard is the financial statements. first step in the process to replace IAS 39, ‘Financial instruments: recognition and measurement’. IFRS 9 introduces new requirements for classifying and Annual Improvements to IFRS (issued in May 2010). The IASB issued Improve- measuring financial assets and is likely to affect the Group’s accounting for its ments to IFRS, an omnibus of amendments to its IFRS standards. The amend- financial assets. The standard is not applicable until January 1, 2013 but is ments have not been adopted as they become effective for annual periods available for early adoption. However, the standard has not yet been endorsed beginning on or after either July 1, 2010 or January 1, 2011. The amendments by the EU. listed below, are considered to be applicable to the Group: IFRS 3 Business CombinationsThe Group will apply the interpretation from January 1, 2013, subject to endorse- IFRS 7 Financial Instruments: Disclosuresment by the EU. However, the Group is yet to assess IFRS 9’s full impact. IAS 1 Presentation of Financial Statements IAS 27 Consolidated and Separate Financial Statements Revised IAS 24 (revised), ‘Related party disclosures’, issued in November 2009. IFRIC 13 Customer Loyalty Programs It supersedes IAS 24, ‘Related party disclosures’, issued in 2003. IAS 24 (re- vised) is mandatory for annual periods beginning on or after January 1, 2011. The Group however, expects no impact from the adoption of the above amend- Earlier application, in whole or in part, is permitted. The revised standard clarifies ments on its financial position or performance. and simplifies the definition of a related party and removes the requirement for government-related entities to disclose details of all transactions with the gov- 2.2 Consolidation ernment and other government-related entities. The Group will apply the revised Subsidiaries are all entities (including special purpose entities) over which the Group standard from January 1, 2011. When the revised standard is applied, the Group has the power to govern the financial and operating policies generally accompanying and the parent will need to disclose any transactions between its subsidiaries a shareholding of more than one half of the voting rights. The existence and effect and its associates. of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fullyThe Group is currently putting systems in place to capture the necessary informa- consolidated from the date on which control is transferred to the Group. They aretion. It is, therefore, not possible at this stage to disclose the impact, if any, of the de-consolidated from the date that control ceases.revised standard on the related party disclosures. The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary isTRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 35
  • 38. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T Sthe fair values of the assets transferred, the liabilities incurred and the equity inter- also eliminated unless the transaction provides evidence of an impairment of theests issued by the Group. The consideration transferred includes the fair value asset transferred. Accounting policies of associates have been changed whereof any asset or liability resulting from a contingent consideration arrangement. necessary to ensure consistency with the policies adopted by the Group. DilutionAcquisition-related costs are expensed as incurred. Identifiable assets acquired gains and losses arising in investments in associates are recognized in the incomeand liabilities and contingent liabilities assumed in a business combination are statement.measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognizes any non-controlling interest in the acquiree The Group has changed its accounting policy for transactions with non-control-either at fair value or at the non-controlling interest’s proportionate share of the ling interests and the accounting for loss of control or significant influence fromacquiree’s net assets. January 1, 2010 when revised IAS 27, ‘Consolidated and separate financial state- ments’, became effective. The revision to IAS 27 contained consequential amend-Investments in subsidiaries are accounted for at cost less impairment. Cost is ments to IAS 28, ‘Investments in associates’, and IAS 31, ‘Interests in joint ven-adjusted to reflect changes in consideration arising from contingent consideration tures’. Previously transactions with non-controlling interests were treated asamendments. Cost also includes direct attributable costs of investment. transactions with parties external to the Group. Disposals therefore resulted in gains or losses in profit or loss and purchases resulted in the recognition of good-The excess of the consideration transferred, the amount of any non-controlling will. On disposal or partial disposal, a proportionate interest in reserves attribut-interest in the acquiree and the acquisition-date fair value of any previous equity able to the subsidiary was reclassified to profit or loss or directly to retained earn-interest in the acquiree over the fair value of the Group’s share of the identifiable ings. Previously, when the Group ceased to have control or significant influencenet assets acquired is recorded as goodwill. If this is less than the fair value of the over an entity, the carrying amount of the investment at the date control ornet assets of the subsidiary acquired in the case of a bargain purchase, the differ- significant influence became its cost for the purposes of subsequently accountingence is recognized directly in the statement of comprehensive income (note 2.6). for the retained interests as associates, jointly controlled entity or financial assets.Inter-company transactions, balances and unrealized gains/losses on transactions The Group has applied the new policy prospectively to transactions occurring onbetween Group companies are eliminated. Unrealized losses are also eliminated. or after January 1, 2010. As a consequence, no adjustments were necessary toAccounting policies of subsidiaries have been changed where necessary to ensure any of the amounts previously recognized in the financial statements.consistency with the policies adopted by the Group. As at December 31, 2010 and December 31, 2009, the Group did not own any(b) Transactions and non-controlling interests associates.The Group treats transactions with non-controlling interests as transactions withequity owners of the Group. For purchases from non-controlling interests which 2.3 Segment reportingdo not result in a change of control of the subsidiary, the difference between any Operating segments are reported in a manner consistent with the internal report-consideration paid and the relevant share acquired of the carrying value of net ing provided to the chief operating decision-maker. The chief operating decision-assets of the subsidiary is recorded in equity. Gains or losses on disposals to maker, who is responsible for allocating resources and assessing performance ofnon-controlling interests are also recorded in equity. the operating segments, has been identified as the regional general manager that makes strategic decisions.When the Group ceases to have control or significant influence, any retained interestin the entity is remeasured to its fair value, with the change in carrying amount rec- 2.4 Foreign currency translationognized in profit or loss. The fair value is the initial carrying amount for the purposes (a) Functional and presentation currencyof subsequently accounting for the retained interest as an associate, joint venture or Items included in the financial statements of each of the Group’s entities are mea-financial asset. In addition, any amounts previously recognized in other comprehen- sured using the currency of the primary economic environment in which the entitysive income in respect of that entity are accounted for as if the Group had directly operates (‘the functional currency’). The consolidated financial statements aredisposed of the related assets or liabilities. This means that amounts previously rec- presented in ‘Euro(€)’, which is the Group’s presentation currency.ognized in other comprehensive income are reclassified to profit or loss. (b) Transactions and balancesIf the ownership interest in an associate is reduced but significant influence is re- Foreign currency transactions are translated into the functional currency using thetained, only a proportionate share of the amounts previously recognized in other exchange rates prevailing at the dates of the transactions or valuation where itemscomprehensive income are reclassified to profit or loss where appropriate. are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of mon-(c) Associates etary assets and liabilities denominated in foreign currencies are recognized in theAssociates are all entities over which the Group has significant influence but not income statement, except when deferred in other comprehensive income ascontrol, generally accompanying a shareholding of between 20% and 50% of the qualifying cash flow hedges and qualifying net investment rights. Investments in associates are accounted for using the equity methodof accounting and are initially recognized at cost. The Group’s investment in asso- Foreign exchange gains and losses that relate to borrowings and cash and cashciates includes goodwill identified on acquisition, net of any accumulated impair- equivalents are presented in the income statement within ‘finance income or costs’.ment loss. All other foreign exchange gains and losses are presented in the income statement within ‘finance income/ finance costs’.The Group’s share of its associates’ post-acquisition profits or losses is recog-nized in the income statement, and its share of post-acquisition movements in (c) Group companiesother comprehensive income is recognized in other comprehensive income. The The results and financial position of all the Group entities (none of which has thecumulative post-acquisition movements are adjusted against the carrying amount currency of a hyper-inflationary economy) that have a functional currency differentof the investment. When the Group’s share of losses in an associate equals or from the presentation currency are translated into the presentation currency asexceeds its interest in the associate, including any other unsecured receivables, follows:the Group does not recognize further losses, unless it has incurred obligations ormade payments on behalf of the associate. assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;Unrealized gains on transactions between the Group and its associates are elimi- income and expenses for each income statement are translated at averagenated to the extent of the Group’s interest in the associates. Unrealized losses are exchange rates (unless this average is not a reasonable approximation of the36 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 39. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S cumulative effect of the rates prevailing on the transaction dates, in which case Amortization is calculated using the straight-line method over the expected life of income and expenses are translated at the rate on the dates of the transac- the customer relationship which is between 7 to 15 years. tions); and all resulting exchange differences are recognized in other comprehensive income. (c) Development costs Costs associated with maintaining computer software programs are recognized asOn consolidation, exchange differences arising from the translation of the net in- an expense as incurred. Development costs that are directly attributable to thevestment in foreign operations, and of borrowings and other currency instruments design and testing of identifiable and unique software products controlled by thedesignated as hedges of such investments, are taken to other comprehensive Group are recognized as intangible assets when the following criteria are met:income . When a foreign operation is partially disposed of or sold, exchange dif-ferences that were recorded in equity are recognized in the income statement as it is technically feasible to complete the software product so that it will be avail-part of the gain or loss on sale. able for use; management intends to complete the software product and use or sell it;Goodwill and fair value adjustments arising on the acquisition of a foreign entity are there is an ability to use or sell the software product;treated as assets and liabilities of the foreign entity and translated at the closing rate. it can be demonstrated how the software product will generate probable future economic benefits;2.5 Property, plant and equipment adequate technical, financial and other resources to complete the developmentAll property, plant and equipment is stated at historical cost less depreciation. and to use or sell the software product are available; andHistorical cost includes expenditure that is directly attributable to the acquisition the expenditure attributable to the software product during its development canof the items. Cost may also include transfers from equity of any gains/losses on be reliably measured.qualifying cash flow hedges of foreign currency purchases of property, plant andequipment. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period.Subsequent costs are included in the asset’s carrying amount or recognized asa separate asset, as appropriate, only when it is probable that future economic Computer software development costs recognized as assets are amortized overbenefits associated with the item will flow to the Group and the cost of the item their estimated useful lives, which is between 3 to 5 years.can be measured reliably. The carrying amount of the replaced part is derecog-nized. All other repairs and maintenance are charged to the income statement 2.7 Impairment of non-financial assetsduring the financial period in which they are incurred. Assets that have an indefinite useful life – for example, goodwill or intangible assets not ready to use – are not subject to amortization and are tested annuallyDepreciation on assets is calculated using the straight-line method to allocate for impairment. Assets that are subject to amortization are reviewed for impairmenttheir cost less their residual values over their estimated useful lives, as follows: whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which Telephone switch 5 years the asset’s carrying amount exceeds its recoverable amount. The recoverable Fixtures and fittings 3–5 years amount is the higher of an asset’s fair value less costs to sell and value in use. Computer, hardware and software 3–5 years For the purposes of assessing impairment, assets are grouped at the lowest levels Office improvements and others 3–5 years for which there are separately identifiable cash flows (cash-generating units). Non- financial assets other than goodwill that suffered an impairment are reviewed forThe assets’ residual values and useful lives are reviewed, and adjusted if appro- possible reversal of the impairment at each reporting date.priate, at the end of each reporting period. An asset’s carrying amount is writtendown immediately to its recoverable amount if the asset’s carrying amount is 2.8 Financial assetsgreater than its estimated recoverable amount (note 2.7). 2.8.1 Classification The Group classifies its financial assets in the following categories: at fair valueGains and losses on disposals are determined by comparing the proceeds with through profit or loss, held to maturity investments, loans and receivables, andthe carrying amount and are recognized within ‘other income/ other expenses’ in available for sale. The classification depends on the purpose for which thethe income statement. financial assets were acquired. Management determines the classification of its financial assets at initial recognition.2.6 Intangible assets(a) Goodwill (a) Financial assets at fair value through profit or lossGoodwill represents the excess of the cost of an acquisition over the fair value of Financial assets at fair value through profit or loss are financial assets held forthe Group’s share of the net identifiable assets of the acquired subsidiary at the trading. A financial asset is classified in this category if acquired principally for thedate of acquisition. Goodwill on acquisitions of subsidiaries is included in ‘intangi- purpose of selling in the short term. Derivatives are also categorized as held forble assets’. Goodwill is tested annually for impairment and carried at cost less trading unless they are designated as hedges. Assets in this category are classifiedaccumulated impairment losses. Impairment losses on goodwill are not reversed. as current assets if expected to be settled within 12 months; otherwise, they areGains and losses on the disposal of an entity include the carrying amount of classified as non-current.goodwill relating to the entity sold. (b) Held to maturity investmentsGoodwill is allocated to cash-generating units for the purpose of impairment test- Non-derivative financial assets with fixed or determinable payments and fixeding. The allocation is made to those cash-generating units or Groups of cash- maturities are classified as held to maturity when the Group has the positive inten-generating units that are expected to benefit from the business combination in tion and ability to hold it to maturity. They are included in current assets, exceptwhich the goodwill arose, identified according to operating segment. for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. As at December 31, 2010 and December(b) Contractual customer relationships 31, 2009, the Group did not own any held to maturity investments.Contractual customer relationships acquired in a business combination are recog-nized at fair value at the acquisition date. The contractual customer relations have (c) Loans and receivablesa finite useful life and are carried at cost less accumulated amortization and is as- Loans and receivables are non-derivative financial assets with fixed or determin-sessed for impairment whenever there is an indication that the asset is impaired. able payments that are not quoted in an active market. They are included in cur-TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 37
  • 40. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T Srent assets, except for maturities greater than 12 months after the end of the For loans and receivables category, the amount of the loss is measured as the dif-reporting period. These are classified as non-current assets. The Group’s loans ference between the asset’s carrying amount and the present value of estimatedand receivables comprise ‘trade and other receivables’, and ‘prepayments and future cash flows (excluding future credit losses that have not been incurred) dis-accrued income’ in the balance sheet. counted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognized in the consolidated(d) Available-for-sale financial assets income statement. If a loan or held- to-maturity investment has a variable interestAvailable-for-sale financial assets are non-derivatives that are either designated in rate, the discount rate for measuring any impairment loss is the current effectivethis category or not classified in any of the other categories. They are included in interest rate determined under the contract. As a practical expedient, the Groupnon-current assets unless the investment matures or management intends to dis- may measure impairment on the basis of an instrument’s fair value using an ob-pose of it within 12 months of the end of the reporting period. As at December servable market price.31, 2010 and December 31, 2009, the Group did not own any available for salefinancial assets. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment2.8.2 Recognition and measurement was recognized (such as an improvement in the debtor’s credit rating), the rever-Regular purchases and sales of financial assets are recognized on the trade-date sal of the previously recognized impairment loss is recognized in the consolidated– the date on which the Group commits to purchase or sell the asset. Investments income statement.are initially recognized at fair value plus transaction costs for all financial assetsnot carried at fair value through profit or loss. Financial assets carried at fair value (b) Assets classified as available for salethrough profit or loss are initially recognized at fair value, and transaction costs The Group assesses at the end of each reporting period whether there is objec-are expensed in the income statement. Financial assets are derecognized when tive evidence that a financial asset or a Group of financial assets is impaired. Forthe rights to receive cash flows from the investments have expired or have been debt securities, the Group uses the criteria refer to (a) above. In the case of equitytransferred and the Group has transferred substantially all risks and rewards of investments classified as available for sale, a significant or prolonged decline inownership. Available-for-sale financial assets and financial assets at fair value the fair value of the security below its cost is also evidence that the assets arethrough profit or loss are subsequently carried at fair value. Loans and receivables impaired. If any such evidence exists for available-for-sale financial assets, theare subsequently carried at amortized cost using the effective interest method. cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously2.8.3 Offsetting financial instruments recognized in profit or loss – is removed from equity and recognized in the con-Financial assets and liabilities are offset and the net amount reported in the balance solidated income statement.sheet when there is a legally enforceable right to offset the recognized amountsand there is an intention to settle on a net basis or realize the asset and settle the Impairment losses recognized in the consolidated income statement on equityliability simultaneously. instruments are not reversed through the consolidated income statement. If, in a subsequent period, the fair value of a debt instrument classified as available for2.8.4 Impairment on financial assets sale increases and the increase can be objectively related to an event occurring(a) Assets carried at amortized cost after the impairment loss was recognized in profit or loss, the impairment loss isThe Group assesses at the end of each reporting period whether there is reversed through the consolidated income statement.objective evidence that a financial asset or Group of financial assets is impaired.A financial asset or a Group of financial assets is impaired and impairment losses Impairment testing of trade receivables is described in note 2.10.are incurred only if there is objective evidence of impairment as a result of one ormore events that occurred after the initial recognition of the asset (a ‘loss event’) 2.9 Derivative financial instruments and hedging activitiesand that loss event (or events) has an impact on the estimated future cash flows Derivatives are initially recognized at fair value on the date a derivative contract isof the financial asset or group of financial assets that can be reliably estimated. entered into and are subsequently re-measured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is desig-The criteria that the Group uses to determine that there is objective evidence of nated as a hedging instrument, and if so, the nature of the item being impairment loss include: The Group designates certain derivatives as either: significant financial difficulty of the issuer or obligor; (a) hedges of the fair value of recognized assets or liabilities or a firm commitment a breach of contract, such as a default or delinquency in interest or principal (fair value hedge); payments; (b) hedges of a particular risk associated with a recognized asset or liability or a the group, for economic or legal reasons relating to the borrower’s financial diffi- highly probable forecast transaction (cash flow hedge); or culty, granting to the borrower a concession that the lender would not other- (c) hedges of a net investment in a foreign operation (net investment hedge). wise consider; it becomes probable that the borrower will enter bankruptcy or other financial The Group documents at the inception of the transaction the relationship between reorganization; hedging instruments and hedged items, as well as its risk management objectives the disappearance of an active market for that financial asset because of and strategy for undertaking various hedging transactions. The Group also docu- financial difficulties; or ments its assessment, both at hedge inception and on an ongoing basis, of observable data indicating that there is a measurable decrease in the estimated whether the derivatives that are used in hedging transactions are highly effective future cash flows from a portfolio of financial assets since the initial recognition in offsetting changes in fair values or cash flows of hedged items. of those assets, although the decrease cannot yet be identified with the individ- ual financial assets in the portfolio, including: The fair values of various derivative instruments used for hedging purposes are(i) adverse changes in the payment status of borrowers in the portfolio; and disclosed in note 12. Movements on the hedging reserve in other comprehensive(ii) national or local economic conditions that correlate with defaults on the assets income are shown in statement of other comprehensive income. The full fair value in the portfolio. of a hedging derivative is classified as a non-current asset or liability when the remaining hedged item is more than 12 months, and as a current asset or liabilityThe Group first assesses whether objective evidence of impairment exists. when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.38 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 41. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T SThe Group does not hold or issue derivative instruments for speculative purposes, 2.12 Cash and cash equivalentsalthough derivatives not meeting the above criteria are classified for accounting In the consolidated statement of cash flows, cash and cash equivalents includespurposes at fair value through profit and loss as appropriate. Such derivatives cash in hand, deposits held at call with banks, other short-term highly liquid in-predominately relate to those used to hedge the foreign exchange exposure on vestments with original maturities of three months or less and bank overdrafts.recognized monetary assets and liabilities. In the consolidated balance sheet, bank overdrafts are shown within borrowings in current liabilities.(a) Fair value hedgeChanges in the fair value of derivatives that are designated and qualify as fair value 2.13 Share capital and treasury shareshedges are recorded in the income statement, together with any changes in the Ordinary shares are classified as equity.fair value of the hedged asset or liability that are attributable to the hedged risk. Incremental costs directly attributable to the issue of new ordinary shares or op-If the hedge no longer meets the criteria for hedge accounting, the adjustment to tions are shown in equity as a deduction, net of tax, from the proceeds.the carrying amount of a hedged item for which the effective interest method isused is amortized to profit or loss over the period to maturity. As at December 31, Where any Group company purchases the company’s equity share capital (trea-2010 and December 31, 2009, the Group did not have any fair value hedge. sury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the company’s(b) Cash flow hedge equity holders until the shares are cancelled or reissued. Where such ordinaryThe effective portion of changes in the fair value of derivatives that are designated shares are subsequently reissued, any consideration received, net of any directlyand qualify as cash flow hedges is recognized in other comprehensive income. attributable incremental transaction costs and the related income tax effects, is in-The gain or loss relating to the ineffective portion is recognized immediately in the cluded in equity attributable to the company’s equity holders.income statement within ‘finance income/costs’. 2.14 Share based paymentsThe Group uses such contracts to fix the income from foreign currency sales in The Group issues equity-settled share-based payments to certain employees andthe functional currency of the entity concerned. The cumulative gain or loss initially key management. Equity-settled share based payments are measured at fair valuerecognized in equity is reclassified to the income statement at the same time the (excluding the effect of non market-based vesting conditions) at the date of grant.hedged transaction affects the income statement. The fair value determined at the grant date of the equity-settled share-based pay- ments is recognized as an expense on a graded vesting basis over the vestingWhen a hedging instrument expires or is sold, or when a hedge no longer meets period, based on the Group’s estimate of the shares that will eventually vest andthe criteria for hedge accounting, any cumulative gain or loss existing in equity at adjusted for the effect of non market vesting conditions. Fair value is measuredthat time remains in equity and is recognized when the forecast transaction is ulti- using the Black-Scholes pricing model or any relevant valuation model. The ex-mately recognized in the income statement. When a forecast transaction is no pected life used in the model is adjusted at the end of each reporting period,longer expected to occur, the cumulative gain or loss that was reported in equity based on management’s best estimate, for the effect of non-transferability, exer-is immediately transferred to the income statement within ‘finance income/costs’. cise restrictions and behavioral considerations.The Group designates all hedges of foreign currency risk in relation to firm com- 2.15 Borrowingsmitments as cash flow hedges. Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortized cost; any difference between the(c) Net investment hedge proceeds (net of transaction costs) and the redemption value is recognized in the in-Hedges of net investments in foreign operations are accounted for similarly to come statement over the period of the borrowings using the effective interest flow hedges. Fees paid on the establishment of loan facilities are recognized as transactionAny gain or loss on the hedging instrument relating to the effective portion of the costs of the loan to the extent that it is probable that some or all of the facility willhedge is recognized in other comprehensive income. The gain or loss relating to be drawn down. In this case, the fee is deferred until the draw-down occurs. Tothe ineffective portion is recognized immediately in the income statement within the extent there is no evidence that it is probable that some or all of the facility will‘finance income/costs’. be drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates.Gains and losses accumulated in equity are included in the income statementwhen the foreign operation is partially disposed of or sold. 2.16 Leases Leases in which a significant portion of the risks and rewards of ownership areWhen the hedge no longer meets the criteria and becomes ineffective, the cumu- retained by the lessor are classified as operating leases. Payments made underlative gain or loss that was reported in equity is immediately transferred to the in- operating leases (net of any incentives received from the lessor) are charged tocome statement within ‘finance income/costs’. the income statement on a straight-line basis over the period of the lease.2.10 Trade receivables The Group leases certain property, plant and equipment. Leases of property, plantTrade receivables are amounts due from customers for services performed in the and equipment where the Group has substantially all the risks and rewards ofordinary course of business. If collection is expected in one year or less (or in the ownership are classified as finance leases. Finance leases are capitalized at thenormal operating cycle of the business if longer), they are classified as current as- lease’s commencement at the lower of the fair value of the leased property andsets. If not, they are presented as non-current assets. the present value of the minimum lease payments.Trade receivables are recognized initially at fair value and subsequently measured Each lease payment is allocated between the liability and finance charges. Theat amortized cost using the effective interest method, less provision for impairment. corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the in-2.11 Other receivables and prepayments come statement over the lease period so as to produce a constant periodic rateOther receivables and prepayments are recognized initially at fair value and sub- of interest on the remaining balance of the liability for each period. The property,sequently measured at amortized cost using the effective interest method, less plant and equipment acquired under finance leases is depreciated over the short-provision for impairment. er of the useful life of the asset and the lease term.TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 39
  • 42. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S2.17 Current and deferred income tax Since January 1, 2010, actuarial gains and losses arising from experience adjust-The tax expense for the period comprises current and deferred tax. Tax is recog- ments and changes in actuarial assumptions are charged or credited to equity innized in the income statement, except to the extent that it relates to items recog- other comprehensive income in the period in which they arise. The Group previ-nized in other comprehensive income or directly in equity. In this case, the tax is ously applied the ‘corridor method’ for the recognition of actuarial gains and losses.also recognized in other comprehensive income or directly in equity, respectively. This accounting policy change didn’t have a material impact on 2010 and com- parative financial information.The current income tax charge is calculated on the basis of the tax laws enactedor substantively enacted at the balance sheet date in the countries where the com- Past-service costs are recognized immediately in income, unless the changes topany and its subsidiaries operate and generate taxable income. Management peri- the pension plan are conditional on the employees remaining in service for aodically evaluates positions taken in tax returns with respect to situations in which specified period of time (the vesting period). In this case, the past-service costsapplicable tax regulation is subject to interpretation. It establishes provisions where are amortized on a straight-line basis over the vesting period.appropriate on the basis of amounts expected to be paid to the tax authorities. For defined contribution plans, the Group pays contributions to publicly or privatelyDeferred income tax is recognized, using the liability method, on temporary differ- administered pension insurance plans on a mandatory, contractual or voluntaryences arising between the tax bases of assets and liabilities and their carrying basis. The Group has no further payment obligations once the contributions haveamounts in the consolidated financial statements. However, deferred tax liabilities been paid. The contributions are recognized as employee benefit expense whenare not recognized if they arise from the initial recognition of goodwill; deferred in- they are due. Prepaid contributions are recognized as an asset to the extent thatcome tax is not accounted for if it arises from initial recognition of an asset or liabil- a cash refund or a reduction in the future payments is available.ity in a transaction other than a business combination that at the time of the trans-action affects neither accounting nor taxable profit or loss. Deferred income tax is The Group’s main defined benefit plans are pension scheme plan in Norway anddetermined using tax rates (and laws) that have been enacted or substantially termination indemnity plan in Italy.enacted by the balance sheet date and are expected to apply when the relateddeferred income tax asset is realized or the deferred income tax liability is settled. 2.19 Provisions Provisions for restructuring costs and legal claims are recognized when: theDeferred income tax assets are recognized only to the extent that it is probable Group has a present legal or constructive obligation as a result of past events;that future taxable profit will be available against which the temporary differences it is probable that an outflow of resources will be required to settle the obligation;can be utilized. and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination payments.Deferred income tax is provided on temporary differences arising on investmentsin subsidiaries and associates, except for deferred income tax liability where the Where there are a number of similar obligations, the likelihood that an outflow willtiming of the reversal of the temporary difference is controlled by the Group and it be required in settlement is determined by considering the class of obligations asis probable that the temporary difference will not reverse in the foreseeable future. a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.Deferred income tax assets and liabilities are offset when there is a legally en-forceable right to offset current tax assets against current tax liabilities and when Provisions are measured at the present value of the expenditures expected to bethe deferred income taxes assets and liabilities relate to income taxes levied by required to settle the obligation using a pre-tax rate that reflects current marketthe same taxation authority on either the same taxable entity or different taxable assessments of the time value of money and the risks specific to the obligation.entities where there is an intention to settle the balances on a net basis. The increase in the provision due to passage of time is recognized as interest expense.2.18 Employee benefitsGroup companies operate various pension schemes. The schemes are generally 2.20 Government grantsfunded through payments to insurance companies or trustee-administered funds, Government grants are initially recognized as deferred income at fair value whendetermined by periodic actuarial calculations. The Group has both defined benefit there is reasonable assurance that they will be received and the Group will com-and defined contribution plans. ply with the conditions associated with the grant.A defined contribution plan is a pension plan under which the Group pays fixed Grants that compensate the Group for expenses incurred are recognized in thecontributions into a separate entity. The Group has no legal or constructive obliga- income statement as income in the expense category the grant relates to on ations to pay further contributions if the fund does not hold sufficient assets to pay systematic basis based on the conditions of the grant.all employees the benefits relating to employee service in the current and priorperiods. A defined benefit plan is a pension plan that is not a defined contribution Grants that compensate the Group for the cost of an asset are recognized inplan. Typically defined benefit plans define an amount of pension benefit that an income statement on a systematic basis over the useful life of the assets.employee will receive on retirement, usually dependent on one or more factorssuch as age, years of service and compensation. 2.21 Trade Payables Trade payables are obligations to pay for goods or services that have been ac-The liability recognized in the balance sheet in respect of defined benefit pension quired in the ordinary course of business from suppliers. Accounts payable areplans is the present value of the defined benefit obligation at the end of the report- classified as current liabilities if payment is due within one year or less (or in theing period less the fair value of plan assets, together with adjustments for unrec- normal operating cycle of the business if longer). If not, they are presented asognized past-service costs. The defined benefit obligation is calculated annually non-current independent actuaries using the projected unit credit method. The presentvalue of the defined benefit obligation is determined by discounting the estimated Trade payables are recognized initially at fair value and subsequently measured atfuture cash outflows using interest rates of high-quality corporate bonds that are amortized cost using the effective interest method.denominated in the currency in which the benefits will be paid, and that haveterms to maturity approximating to the terms of the related pension obligation. 2.22 Other payables, other liabilities, accrued expenses and prepaid incomeIn countries where there is no deep market in such bonds, the market rates on Other payables, other liabilities, accrued expenses and prepaid income are recog-government bonds are used. nized initially at fair value and subsequently measured at amortized cost using the effective interest method.40 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 43. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S2.23 Revenue recognition (c) Impairment of goodwill and intangible assetsRevenue comprises the fair value of the consideration received or receivable for The Company annually evaluates the carrying value of goodwill for potential im-the sale of services in the ordinary course of the Group’s activities. Revenue is pairment by comparing projected discounted cash flows (using a suitable discountshown net of value-added tax, returns, rebates and discounts and after eliminat- rate) associated with such assets to the related carrying value. An impairment testing sales within the Group. is also carried out should events or circumstances change which may indicate that there may be need for impairment. An impairment loss would be recognized whenThe Group recognizes revenue when the amount of revenue can be reliably mea- the estimated future discounted cash flow generated by the asset is less than thesured, it is probable that future economic benefits will flow to the Group and when carrying amount of the asset. An impairment loss would be measured as thespecific criteria have been met for each of the Group’s activities as described below. amount by which the carrying value of the asset exceeds the recoverable amount.The Group bases its estimates on historical results, taking into consideration thetype of customer, the type of transaction and the specifics of each arrangement. The Group performed its annual impairment test of goodwill as at December 31, 2010. Please refer to Note 8 for further details. No impairment has been made toRevenues related to inbound teleservices are recognized at the time services are goodwill (2009: –) and other intangible assets (2009: €734 thousand) for the yearprovided on a per-call basis. Revenues on outbound teleservices and debt collec- ended December 31, 2010. Changes in the assumptions and estimates usedtion are recognized at the time services are provided on either a per-call, per-sale may have a significant effect on the income statement and balance sheet.or per-collection basis depending on the terms of the related contract. Revenuesfrom other CRM services are recognized as services are provided. Generally ser- (d) Pension assumptionsvice revenues are billed in the month following provision of related services. Con- The liabilities of the defined benefit pension schemes operated by the Group aretracts to provide call centre services typically do not involve fees related to cus- determined using methods relying on actuarial assumptions and estimates. De-tomer set-up, initiation or activation. tails of the key assumptions are set out in Note 19. The Group takes advice from independent actuaries relating to the appropriateness of the assumptions. Chang-Accrued income is recognized on incomplete activities where a fair assessment of es in the assumptions and estimates used may have a significant effect on the in-the work achieved to date and the future cash inflows associated with it can be come statement and balance sheet.measured with reasonable accuracy. (e) Determination of fair values of intangible assets acquired2.24 Advertising costs in business combinationsAdvertising costs are charged to operations as incurred. The fair values of intangible assets purchased in business combinations are based on the discounted cash flows expected to be derived from the use and eventual2.25 Dividend sale of the assets. The discounted cash flows valuation uses assumptions for net(a) Dividend income cash flows and discount rates.Dividend income is recognized when the right to receive payment is established. (f) Provisions(b) Dividend distribution The group recognizes a provision where there is a present obligation from a pastDividend distribution to the company’s shareholders is recognized as a liability in event, a transfer of economic benefits is probable and the amount of costs of thethe Group’s financial statements in the period in which the dividends are approved transfer can be estimated reliably. The group reviews outstanding legal cases fol-by the company’s shareholders. lowing developments in the legal proceedings and at each balance sheet date, in order to assess the need for provisions and disclosures in its financial statements. Among the factors considered in making decisions on provisions are the nature of3 Critical accounting estimates and judgments litigation, claim or assessment, the legal process and potential level of damages in the jurisdiction in which the litigation, claim or assessment has been brought, theEstimates and judgments are continually evaluated and are based on historical progress of the case (including the progress after the date of the financial state-experience and other factors, including expectations of future events that are be- ments but before those statements are issued), the opinions or views of legal ad-lieved to be reasonable under the circumstances. visers, experience on similar cases and any decision of the group’s management as to how it will respond to the litigation, claim or assessment.The group makes estimates and assumptions concerning the future. The resultingaccounting estimates will, by definition, seldom equal the related actual results.The estimates and assumptions that have a significant risk of causing a materialadjustment to the carrying amounts of assets and liabilities within the next 4 Financial instrument risk managementfinancial year are addressed below. objectives and policies(a) Deferred tax assets Like other internationally operating businesses, the Group is exposed to risksDeferred tax assets are recognized for all unused tax losses to the extent that it is related to foreign exchange and interest. This note describes the Group’s objec-probable that taxable profit will be available against which the losses can be uti- tives, policies and processes for managing these risks and the methods used tolized. Significant management judgment is required to determine the amount of measure them. Further quantitative information in respect of these risks is pre-deferred tax assets that can be recognized, based upon the likely timing and level sented throughout the financial statements.of future taxable profits together with future tax planning strategies. The carryingvalue of recognized deferred tax assets as at December 31, 2010 was €5,554 The Group’s principal financial instruments, other than derivatives, comprise ofthousand (2009: €3,279 thousand). bank loans, trade and other payables and accruals and deferred income. The main purpose of these financial instruments is to raise finance for the Group’s op-(b) Provisions for bad and doubtful debts erations. The Group has various financial assets consisting of trade and other re-The Group continually monitors provisions for bad and doubtful debts; however a ceivables, prepayments and accrued income and cash and short term depositssignificant level of judgment is required by management to determine appropriate which arise directly from its operations.amounts to be provided. Management reviews and ascertains each debt individu-ally based upon knowledge of the client, knowledge of the sector and other eco- The main risks arising from the Group’s financial instruments are interest rate risk,nomic factors, and calculates an appropriate provision considering the time that a liquidity risk, foreign currency risk and credit risk. The Board of Directors reviewsdebt has remained overdue. At December 31, 2010, the provision for bad and and agrees policies for managing each of these risks which are summarized be-doubtful debts was €1,634 thousand (2009: €4,028 thousand).TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 41
  • 44. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T Slow. There have been no substantive changes in the Group’s exposure to finan- Foreign currency risk Foreign currency risk as defined by IFRS 7 arises on ac-cial instrument risks, its objectives, policies and processes for managing those count of financial liabilities being denominated in a currency that is not the func-risks or the methods used to measure them from the previous period unless stat- tional currency and being of a monetary nature, differences resulting from theed in this note. translation of financial statements into the Group’s presentation currency are not taken into consideration. Relevant risk variables are generally all non-functionalManagement controls and procedures currencies in which Transcom has financial instruments.The Board has overall responsibility for the determination of the Group’s risk man-agement objectives and policies. It has delegated the authority for designing and Certain entities within the Group have transactions in non-functional currenciesoperating the required processes that ensure the effective implementation of the and therefore the Group has transactional currency exposures. Such exposuresobjectives and policies to the Group’s treasury department. As such, the Group’s arise from sales by an operating unit in currencies other than the Group’s func-funding, liquidity and exposure to interest rate and foreign exchange rate risks are tional currency. 50% (2009: 50%) of the Group’s sales are denominated in curren-managed by the Group’s treasury department. cies other than the functional currency of the Group. These exposures are not hedged as they constitute translation risk rather than a cash flow exposure.Risk exposures are monitored and reported to management on a quarterly basis,together with required actions when tolerance limits are exceeded. The internal Foreign currency risk table The following table demonstrates the sensitivity to acontrol procedures and risk management processes of the treasury department reasonably possible change in the currencies the Group is most exposed to, withare also reviewed periodically by the internal audit function. The last internal con- all other variables held constant, of the Group’s profit before interest, tax, depreci-trol review was undertaken during the year and the procedures and processes ation and amortization and the impact on the net profit. Exposures in other curren-were deemed satisfactory. cies have an immaterial impact.The overall objective of the Board is to set policies that seek to reduce risk as far Effectas possible, without unduly affecting the Group’s competitiveness and flexibility. Increase/ on profit EffectFurther details regarding these policies are set out below. (decrease) before tax on equity in Euro rate €000 €000For the presentation of market risks, IFRS 7 requires sensitivity analysis that 2010shows the effects of hypothetical changes of relevant risk variables on the incomestatement and shareholders’ equity. Transcom is exposed to interest rate risk and Canadian Dollar 10% 152 96liquidity risk, the periodic effects of which are determined by relating the hypothet- Swedish Krona 10% 698 506ical changes in the risk variables to the balance of financial instruments at the re- Norwegian Krona 10% (137) (174)porting date. It is assumed that the balance at the reporting date is representative Great Britain Pound 10% (96) (85)for the year as a whole. Canadian Dollar (15)% (229) (145)Interest rate risk The Group’s exposure to the risk of changes in market interest Swedish Krona (15)% (1,046) (758)rates relates primarily to the Group’s revolving credit facility. Norwegian Krona (15)% 206 261The interest is calculated on each loan under the facility agreement for each term Great Britain Pound (15)% 144 127as the aggregate of the Interbank offered rate, plus a margin calculated on the ba- 2009sis of consolidated total net debt to consolidated EBITDA, with margins ranging Canadian Dollar 10% 1,253 1,329between 30 to 75 basis points up to €150 million and from 70 to 115 basis points Swedish Krona 10% 394 (2,505)for borrowings exceeding €150 million. Norwegian Krona 10% (42) 499Interest rate risk table The following table demonstrates the sensitivity to a pos- Canadian Dollar (15)% (1,880) (1,993)sible change in interest rates, with all other variables held constant, of the Group’s Swedish Krona (15)% (412) 4,863profit before tax (through the impact on floating rate borrowings). There is noimpact on the Group’s equity. Norwegian Krona (15)% 44 (970) Interest income and interest expense from financial instruments can be recorded Effect on profit in either the functional or non-functional currency and therefore could be affected Increase/(decrease) before tax by exchange rate movements. in basis points €000 2010 If the Euro had lost 10% against other non-functional currencies as at December 31, 2010, the effect on the income statement for the year would have been €573 Euro 10 (97) thousand lower (2009: €364 thousand lower). CAD Dollar 10 (23) Euro (10) 97 Credit risk With respect to credit risk arising from the financial assets of the CAD Dollar (10) 23 Group, which comprise balances from credit sales and cash and cash equiva- lents, the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying value of these instruments. Effect on profit Increase/(decrease) before tax Prior to accepting new accounts and wherever practicable, credit checks are per- in basis points €000 formed using a reputable external source. Credit risk is reviewed monthly by senior 2009 management based on the aged debt reports, and corrective action is taken if pre-agreed limits are exceeded. Euro 10 (113) US Dollar 15 (30) This risk of default of a customer is considered to be small due to the historical Euro (10) 113 default rates and credit checks. However, if needed, appropriate provisions have US Dollar (15) 30 been made in accordance with Group policy and management discretion. Noth- ing is held as collateral against this risk as it is not deemed necessary.42 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 45. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T SFurther analysis on gross trade debtors, provisions and ageing of net trade debt- The Group monitors this risk using a consolidated cash flow model in order toors are provided in Note 10. The maximum exposure to credit risk is represented identify peaks and troughs in liquidity and identify benefits which can be attainedby the carrying amount of each financial asset on the balance sheet. by controlled placement and utilization of available funds.Liquidity risk Liquidity risk arises from the Group’s management of its working A significant mitigating factor of the Group’s liquidity risk is the unused proportioncapital as well as the finance charges and principal repayments on its debt instru- of the revolving credit facility agreement as disclosed in note 17. The unused pro-ments. In essence, it is the risk that the Group will encounter difficulty in meeting portion as at December 31, 2010 was €81.5 million (December 31, 2009: €67.1its financial obligations as they fall due. million). The table below summarizes the maturity profile of the Group’s financial liabilities as at December 31, 2010, based on contractual undiscounted payments. Less than Three to One to Over three months twelve months five years five years Total Year ended December 31, 2010 €000 €000 €000 €000 €000 Borrowings 645 1,935 119,107 – 121,687 Trade and other payables 55,095 – – – 55,095 Less than Three to One to Over three months twelve months five years five years Total Year ended December 31, 2009 €000 €000 €000 €000 €000 Borrowings 526 1,666 137,423 – 139,615 Trade and other payables 12,913 38,922 6 – 51,841Capital management The primary objective of the Group’s capital management Carrying amount Fair valueis to ensure that it maintains a strong credit rating and healthy capital ratios in order 2010 2009 2010 2009to support its business and maximize shareholder value. €000 €000 €000 €000The Group manages its capital structure and makes adjustments to it, in light of Financial assetschanges in economic conditions. To maintain or adjust the capital structure, the Cash and cash equivalents 40,977 36,780 40,977 36,780Group may adjust the dividend payment to shareholders, return capital to share- Trade and other receivables 112,294 118,727 112,294 118,727holders or issue new shares. No changes were made in the objectives, policies or Prepaid expenses and accruedprocesses during the years ended December 31, 2010 and December 31, 2009. income 18,731 18,856 18,731 18,856The Group monitors capital using a return on capital employed ratio, which is profit Derivative financial instruments 1,959 349 1,959 349before interest and tax divided by total assets less current liabilities. The Group’s Financial liabilitiespolicy is to ensure that the ratio follows predicted patterns based on previous year’s Borrowings 118,462 132,923 118,462 132,923results, and is in accordance with forecasted results. Trade and other payables 55,095 51,841 55,095 51,841The table below summarizes the ratio as at December 31, 2010 and December 31,2009. 2010 2009 €000 €000 Profit/(loss) before interest, tax and amortization (3,722) 27,152 Total assets 373,474 375,439 Current liabilities (64,503) (58,104) Capital employed 308,971 317,335 Return on capital employed (1.20%) 8.56%Set out below is a comparison by category of carrying amounts and fair values ofall of the Group’s financial instruments. There are no discontinued operations.TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 43
  • 46. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S5 Segmental information Germany, Hungary, Latvia, Lithuania, Luxembourg, the Netherlands, Poland, Slovakia, Switzerland, and the United KingdomIn line with IFRS 8, Operating Segments, the business segmental reporting bases South: France, Italy and Tunisiaused by the Company are those which are reported to the Chief Operating Decision Iberia: Chile, Portugal and SpainMaker. In line with IFRS 8 (amendment), ‘Operating segments’ (effective for annual North America & Asia Pacific: Canada, the Philippines and USAperiods beginning on or after January 1, 2010), the Group no longer presentssegment assets and liabilities as this information is not reported regularly to the In addition to the geographical segments, the Group also provides information toChief Operating Decision Maker. the market on a quarterly basis according to two distinct products, being Credit Management Services “CMS” and provider of multi-language customer relation-The Group segments are organized by geographical location and are composed ship management products and services “CRM” including customer help linesas follows: and other telephone-based marketing and customer service programs (“teleser- vices”). The following shows the revenue and results by reportable segment in the North: Denmark, Finland, Norway and Sweden year ended December 31, 2010, including supplemental information for CRM and West & Central: Austria, Belgium, Croatia, the Czech Republic, Estonia, CMS. North America 2010 & Asia West & €000 Pacific Central Iberia North South Total CRM CMS Total Revenue Total segment revenue 138,211 130,892 103,593 144,728 94,003 611,427 504,886 85,958 590,844 Inter-segment revenue (6,481) (2,615) (236) – (12,978) (22,310) (1,727) – (1,727) Revenue from external customers 131,730 128,277 103,357 144,728 81,025 589,117 503,159 85,958 589,117 Gross profit 27,142 35,120 19,982 29,219 405 111,869 88,699 23,170 111,869 EBITA 2,157 10,002 4,086 10,753 (30,719) (3,722) (9,632) 5,910 (3,722) Amortization (2,870) (2,870) Finance income 3,140 3,140 Finance costs (2,232) (2,232) Income taxes (2,394) (2,394) Profit/(loss) after tax (8,078) (8,078) North America 2009 & Asia West & €000 Pacific Central Iberia North South Total CRM CMS Total Revenue Total segment revenue 119,736 129,273 102,618 125,498 106,928 584,053 468,039 94,770 562,809 Inter-segment revenue (2,882) – (1,195) – (19,758) (23,835) (2,591) – (2,591) Revenue from external customers 116,854 129,273 101,423 125,498 87,170 560,218 465,448 94,770 560,218 Gross profit 35,348 37,145 20,496 22,772 7,634 123,395 97,359 26,036 123,395 EBITA 16,555 12,070 4,103 3,514 (9,090) 27,152 19,381 7,771 27,152 Amortization (2,875) (2,875) Finance income 3,371 3,371 Finance costs (2,354) (2,354) Income taxes (4,703) (4,703) Profit after tax 20,591 20,591Inter-segment transfers are priced along the same lines as sales to external cus-tomers, with an appropriate discount being applied to encourage use of groupresources at a rate acceptable to local tax authorities.This policy was applied consistently throughout the current and prior period.44 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 47. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S6 Significant acquisitions and disposals Disposals In December 2010, Transcom’s Board of Directors approved the disposal of twoAcquisitions French sites located in Roanne and Tulle. The transactions are reflected in theThere were no acquisitions made in the financial year ended December 31, 2010. Group’s financial statements for the year-ended December 31, 2010 as a chargeThe detail of acquisitions made in previous years which had an impact on the of €19.4 million. This amount includes a charge of €10.0 million which corre-group financial performance and position as at December 31, 2010 and Decem- sponds to the funding provided to the acquirers in order to manage the takeoverber 31, 2009 is as follows: (€7.6 million) as well as the transition costs (€2.4 million), and a charge of €9.4 million related to the provisioning of contract which are either discontinued orCloud 10 considered onerous as a consequence of this operation. The completion date ofOn August 31, 2009 the option to acquire the remaining 40% interest in Cloud the transaction is expected by April 2011, after the completion of the information10 Corp was exercised for a cash consideration of €2,915 thousand (USD3,415 and consultation process with employees’ representatives.thousand), including an earn-out of €1,100 thousand (USD1,478 thousand) whichwas paid in 2010. The total goodwill arising in 2009 related to this acquisition These impacts have been reflected as follows in the consolidated income state-amounted to €2,915 thousand (USD3,415 thousand). ment and statement of financial position:Newman & Company Limited 2010On September 9, 2008, Transcom acquired 100% of Newman & Company Limit- Notes €000ed, a debt collection agency in the United Kingdom, for a total consideration of Consolidated income statement€2,155 thousand (GBP1,689 thousand). Management performed an analysis of Provision for onerous contracts 6,287the identifiable tangible and intangible assets of Newman & Company Limited anddetermined that no significant intangible assets, other than goodwill, should be Total expenses recognized within ‘cost of sales’ 6,287recognized. The goodwill related to this acquisition amounted to €2,155 thousand Sales consideration payable 7,641(GBP1,689 thousand). Provisions for other liabilities and charges 5,157 Impairment of property, plant and equipment 7 321Nucomm InternationalOn August 27, 2007, Transcom acquired 100% of the North American contact call Total expenses recognized within ‘other expenses’ 22 13,119center operations of Nucomm International for a consideration net of loan repay- Total 19,406ments of €31,263 thousand (CAD$ 54,263 thousand), of which an earn-out of€18,912 thousand (CAD$ 32,825 thousand) was paid in 2009. The goodwill relatedto this acquisition amounted to €32,841 thousand (CAD$ 51,457 thousand). 2010 Notes €000 2008 2007 Consolidated statement of financial position GBP000 CAD000 Property, plant and equipment 7 321 Newman Nucomm Provision for other liabilities and charges Net assets acquired (Non-current) 18 3,617 Intangible assets identified as part Provision for other liabilities and charges of the acquisition – 15,750 (Current) 18 7,077 Deferred tax on intangible assets Trade and other payables 21 8,391 identified as part of the acquisition – (4,725) Total 19,406 Non–current assets 6 11,438 Trade receivables 289 28,715 Other receivables 100 6,372 Cash and bank 203 1,414 Non–current liabilities – (21,341) Trade payables (85) (12,252) Other payables (513) (22,565) Total net assets – 2,806 Cash consideration 1,689 53,661 Reimbursement of loans – (39,398) Earn–outs – 40,000 Total consideration paid 1,689 54,263 Goodwill recognized 1,689 51,457TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 45
  • 48. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S7 Property, plant and equipment Computer Telephone Fixtures hardware and Office switch and fittings software improvements Total €000 €000 €000 €000 €000 COST As at January 1, 2010 41,158 25,127 47,702 22,479 136,466 Additions 394 307 2,152 953 3,806 Disposals/write-off (1,032) (464) (4,195) (1,265) (6,956) Impairment – – – (321) (321) Exchange differences 2,004 895 1,762 1,349 6,010 As at December 31, 2010 42,524 25,865 47,421 23,195 139,005 ACCUMULATED DEPRECIATION As at January 1, 2010 (34,066) (19,440) (38,779) (14,881) (107,166) Depreciation charge for the year (3,281) (1,800) (5,328) (2,337) (12,746) Disposals/write-off 933 442 2,181 1,243 4,799 Exchange differences (1,668) (793) (1,711) (581) (4,753) As at December 31, 2010 (38,082) (21,591) (43,637) (16,556) (119,866) Net book value as at December 31, 2010 4,442 4,274 3,784 6,639 19,139Operating lease rentals amounting to €30,265 thousand (2009: €24,993 thou-sand) relating to the lease of office building and equipment respectively, are in-cluded in the income statement (Note 23). Computer Telephone Fixtures and hardware and Office switch fittings software improvements Total €000 €000 €000 €000 €000 COST As at January 1, 2009 39,091 24,065 44,412 21,980 129,548 Additions 1,358 1,099 3,347 1,684 7,488 Disposals/write-off (763) (901) (1,363) (2,058) (5,085) Exchange differences 1,472 864 1,306 873 4,515 As at December 31, 2009 41,158 25,127 47,702 22,479 136,466 ACCUMULATED DEPRECIATION As at January 1, 2009 (29,241) (17,463) (32,324) (13,522) (92,550) Depreciation charge for the year (3,953) (1,981) (6,826) (2,775) (15,535) Disposals/write-off 293 771 1,058 1,544 3,666 Exchange differences (1,165) (767) (687) (128) (2,747) As at December 31, 2009 (34,066) (19,440) (38,779) (14,881) (107,166) Net book value as at December 31, 2009 7,092 5,687 8,923 7,598 29,30046 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 49. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S8 Intangible assets Customer Development Goodwill relationships cost Others Total €000 €000 €000 €000 €000 COST As at January 1, 2010 144,911 23,522 9,158 1,366 178,957 Additions – – – 2,903 2,903 Impairment – – – – – Exchange differences 7,177 1,155 – 134 8,466 As at December 31, 2010 152,088 24,677 9,158 4,403 190,326 ACCUMULATED AMORTIZATION As at January 1, 2010 – (6,254) (3,580) (658) (10,492) Amortization charge for the year – (2,837) (1,950) (227) (5,014) As at December 31, 2010 – (9,091) (5,530) (885) (15,506) Net book value as at December 31, 2010 152,088 15,586 3,628 3,518 174,820 COST As at January 1, 2009 135,174 22,818 8,074 1,388 167,454 Additions 4,719 – 1,084 – 5,803 Exchange differences 5,018 704 – (22) 5,700 As at December 31, 2009 144,911 23,522 9,158 1,366 178,957 ACCUMULATED AMORTIZATION As at January 1, 2009 – (3,498) (1,001) (539) (5,038) Amortization charge for the year – (2,756) (1,845) (119) (4,720) Impairment – – (734) – (734) As at December 31, 2009 – (6,254) (3,580) (658) (10,492) Net book value as at December 31, 2009 144,911 17,268 5,578 708 168,465Amortization expenses of €2,144 thousand (2009: €1,845 thousand) has been es of its impairment testing and, accordingly, did not determine the fair value ofcharged to cost of sales and €2,870 thousand (2009: €2,875 thousand) has been the units as the carrying value of the units was lower than their value in use.charged to other expenses (Note 22). Value in use was determined by discounting the future cash flows generated fromGoodwill the continuing use of the units.Impairment testing for cash generating units containing goodwill The calculation of the value in use was based on the following key assumptions:For the purpose of impairment testing, goodwill is allocated to the Group’s oper-ating divisions which represent the lowest level within the Group at which the Cash flows were projected based on past experience, actual operating resultsgoodwill is monitored for internal management purposes, which is not higher than and the latest 3-year financial plans approved by management. Beyond thethe Group’s operating segments as reported in note 5. specifically forecasted period of three years, the Company extrapolates cash flows for the remaining years based on estimated constant growth rates rang-The aggregate carrying amounts of goodwill allocated to each unit is as follows: ing from 3% to 5% depending on management’s understanding of the market in the region in which the unit is based. The anticipated annual revenue growth 2010 2009 included in the cash-flow projections has been based on historical experience €000 €000 and expectations of future changes in the market conditions. Market conditions North 52,436 50,107 take into account the nature of risk within geographical markets and manage- ment’s estimations of change within these markets. These rates do not exceed West & Central 47,743 47,524 the average long-term growth rates for the relevant markets. Iberia 10,120 10,120 North America & Asia Pacific 41,789 37,160 Pre-tax discount rates ranging from 9.6% to 11.6% were applied in determining the recoverable amounts of the units. The discount rates were estimated 152,088 144,911 based on past experience, industry average weighted cost of capital and Group’s industry related beta adjusted to reflect management’s assessment ofThe movement during the year is related to fluctuations in foreign exchange rates. specific risks related to the unit. The Group’s industry related beta is considered by management to be an arbitrary measurement of the volatility of the Group’sThe recoverable amount of the cash-generating units was assessed based on share value using an index of the volatility of the market as a whole.their value in use. The Company determined to calculate value in use for purpos-TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 47
  • 50. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 2010 2009 The gross movements on the deferred income tax are as follows: Average pre-tax discount rates % % 2010 2009 North 9.6 9.0 €000 €000 West & Central 9.8 8.5 Opening balance as at January 1 (3,516) (5,199) Iberia 9.6 9.5 Income statement movement 2,954 1,716 North America & Asia Pacific 9.6 9.1 Tax relating to components of other comprehensive income (366) 200In validating the value in use determined for the unit, key assumptions used in the Exchange differences (329) (233)discounted cash-flow model (such as discount rates, revenue growth and termi- Closing balance as at December 31 (1,257) (3,516)nal growth rate) were sensitized to test the resilience of value in use. Managementbelieves that reasonably possible changes in key assumptions would not triggerimpairment loss to be recognized. The movement in deferred income tax assets and liabilities during the year, with- out taking into consideration the offsetting balances within the same tax jurisdic-In 2009, the value in use calculation was performed using cash flow projections tions, is as follows:based on management assumptions of the development of the business over thenext five years, with growth rates ranging between 3% and 15% for the first five Property,years, after which a nil growth rate was used. plant and equipment Tax losses Others TotalAs a result of the significance of the global economic slowdown, its impact on the DEFERRED TAX ASSETS €000 €000 €000 €000Company and the expected pace of recovery, the value in use calculated for all Opening balance as atunits in 2010 has decreased from that determined in 2009. However, the results January 1, 2010 983 1,552 744 3,279of the Company’s goodwill impairment test as of December 31, 2010 for eachunit did not result in an impairment of goodwill as the value in use exceeded, in Income statement movement 189 2,328 75 2,592each case, the carrying value of the unit. Tax relating to components of otherCustomer relationships and development costs comprehensive income – – (317) (317)Customer relationships mainly consist of intangible assets that were identified Closing balance as atduring the acquisitions as described in Note 6 based on the discounted cash December 31, 2010 1,172 3,880 502 5,554flows expected to be derived from the use and eventual sale of the asset, deter-mined at the date of acquisition. As at December 31, 2010 and December 31,2009 these assets were tested for impairment. Based on the results of the test- Property,ing, no impairment is required for both 2010 and 2009. plant and equipment Tax losses Others TotalDevelopment costs consist of amounts identified by management where it is con- €000 €000 €000 €000sidered that technological and economical feasibility exists, usually determined by Opening balance as atreference to the achievement of defined milestones according to an established January 1, 2009 72 1,163 83 1,318project management model. These costs relate to development of assets for the Income statement movement 911 389 344 1,644use in the Group. As at December 31, 2010 and December 31, 2009 these as-sets were tested for impairment. Based on the results of the testing, no impair- Tax relating to componentsment is required for 2010 (2009: €734 thousand) of other comprehensive income – – 317 317 Closing balance as at9 Deferred income tax December 31, 2009 983 1,552 744 3,279The analysis of deferred tax assets and deferred tax liabilities is as follows: 2010 2009 €000 €000 Deferred tax assets to be recovered after more than 12 months 5,554 3,279 Deferred tax liabilities to be recovered after more than 12 months (6,811) (6,795) Deferred tax liabilities-net (1,257) (3,516)48 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 51. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Property, Provision for impairment of trade receivables is as follows: plant and Intangible DEFERRED TAX equipment assets Others Total 2010 2009 LIABILITIES €000 €000 €000 €000 €000 €000 Opening balance as at As at January 1 (4,028) (3,527) January 1, 2010 – 4,435 2,360 6,795 Provision (made)/reversed during the year 2,394 (501) Income statement movement 3 (656) 291 (362) As at December 31 (1,634) (4,028) Tax relating to components Other financial assets included in trade and other receivables do not contain im- of other paired assets. As at December 31, the ageing analysis of net trade receivables is comprehensive income – – 49 49 as follows: Exchange differences – 329 – 329 Closing balance as at <30 30–60 60–90 90–120 >120 December 31, 2010 3 4,108 2,700 6,811 Total days days days days days Opening balance as at 2010 102,282 84,304 14,615 1,386 327 1,650 January 1, 2009 69 4,901 1,547 6,517 2009 102,836 89,053 5,773 2,891 1,771 3,348 Income statement movement (69) (699) 696 (72) Tax relating to components The group operates in several jurisdictions and payment terms vary upon this, of other and also vary on a client by client basis. Therefore, based upon the maximum comprehensive income – – 117 117 payment terms, trade receivables of €17,978 thousand are past due but not pro- Exchange differences – 233 – 233 vided for (2009:€22,946 thousand). These relates to a number of independent customers for whom there is no recent history of default. Details of credit risk are Closing balance as at included in note 4. December 31, 2009 – 4,435 2,360 6,795Deferred income tax assets are recognized for tax losses carried forward to the 11 Prepaid expenses and accrued incomeextent that the realization of the related tax benefit through future taxable profit isprobable. The group did not recognize deferred income tax assets of €15,736 2010 2009thousand (2009: €7,813 thousand) in respect of losses amounting to €55,214 €000 €000thousand (2009: €27,414 thousand) which do not expire. Prepaid expenses 13,590 9,993No deferred tax liability was recognized in respect of €121,804 thousand (2009: Accrued income 5,141 8,863€92,516) of unremitted earnings of subsidiaries because the Group was in a posi- 18,731 18,856tion to control the timing of the reversal of the temporary differences and it wasunlikely that such differences would reverse in a foreseeable future. Furthermore,it was not practical to reliably estimate the amount of unrecognized deferred taxin respect of these unremitted earnings. 12 Derivative financial instruments 2010 200910 Trade and other receivables €000 €000 Foreign exchange forwards and 2010 2009 swaps-cash flow hedging 502 349 €000 €000 Foreign exchange forwards and Trade receivables 103,916 106,864 swaps-held for trading 1,457 – Less: provision for impairment of trade receivables (1,634) (4,028) Total 1,959 349 Trade receivables-net 102,282 102,836 Other receivables 10,012 15,891 (a) Forward foreign exchange contracts Total trade and other receivables 112,294 118,727 Forward currency option contracts are operated in Canada in order to hedge against future cash flows of highly probable sales in US Dollars. The Company operates both put and call options to sell or buy US Dollars at a strike rate deter-Of the trade receivables, €23,504 thousand (2009: €20,309 thousand) is from mined at the date of contract. The hedged forecast transactions denominated inrelated parties as detailed in note 30. Terms and conditions of these amounts foreign currency are expected to occur at various dates within the next 12 months.receivable from related parties can be found in note 30. The derivatives held at 31 December, 2010 are considered to be effective and therefore the full value has been recognized in equity. The hedge was effectiveThe carrying value less impairment of trade receivables is assumed to approxi- throughout the year, thus there was no ineffectiveness recognized in the incomemate their fair values. statement for both 2010 and 2009. The fair value of all derivatives has been calculated using the open market value, being level 1 on the hierarchy of valuation under IAS 39.TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 49
  • 52. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S(b) Hedge of net investment in foreign entity Dividends Dividends may be paid in Euros or in the Company’s shares or other-The group’s Canadian Dollar-denominated borrowing is designated as a hedge of wise as the Board may determine in accordance with the provisions of the Lux-the net investment in the group’s Canadian subsidiary. The fair value of the bor- embourg Companies Act. The Transcom WorldWide Class B Shares are entitledrowing at December 31, 2010 was €22,462 (2009: €19,887 thousand). Foreign to the greater of (i) a cumulative preferred dividend corresponding to 0.5% of theexchange movement of €1,108 thousand (2009: €2,279 thousand) on translation accounting par value of the Class B shares in the Company; and (ii) 2% of theof the borrowing to currency at the end of the reporting period is recognized in overall dividend distributions made in a given year. Any balance of dividends muststatement of other comprehensive income. be paid equally on each Transcom WorldWide Class A and Transcom WorldWide Class B Share.The maximum exposure to credit risk at the reporting period is the fair value of thederivative assets in the balance sheet. Nature and purpose of reserves Legal reserve In accordance with statutory requirements in Luxembourg, the13 Equity parent company must maintain reserves not available for distribution. The parent company is required under Luxembourg law to transfer 5% of its annual net profitsAuthorized to a restricted legal reserve until such reserve amounts to 10% of the subscribed share capital. Similar restrictions are applicable for some of the subsidiaries. 2010 2009 Retained earnings The Luxembourg Companies Act provides that the parent Number Number company’s own earnings, after allocation to its legal reserve and after covering 000 000 losses for previous years, shall be available for distribution to shareholders. Class A voting shares of €0.43 par value (2009: €0.43 par value) 800,000 800,000 The shareholders have the authority to declare dividends, upon the recommenda- Class B non-voting shares of €0.43 par value tion of the Board of Directors, out of retained earnings of the parent company (2009: €0.43 par value) 750,000 750,000 subject to the Luxembourg Companies Act. The Articles provide the Board of Directors with the general authority to make dividend payments in advance of shareholder approval and to fix the amount and the payment date of any suchOrdinary shares issued and fully paid advance dividend payment. Dividends declared by the Board of Directors are subject to the approval of the shareholders at the next general meeting of share- Number Value holders. Class A shares 000 €000 As at January 1, 2009 36,626 15,932 Equity-based payment reserve The equity-based payment reserve is used to Issued for cash in lieu of directors fees 22 10 record the value of equity-settled payments provided to certain employees, includ- ing key management personnel, as part of their remuneration package (note 15). Adjustment to per share valuation – (183) As at December 31, 2009 36,648 15,759 Foreign currency translation reserve The foreign currency translation reserve is As at January 1, 2010 36,648 15,759 used to record exchange differences arising from the translation of the financial Issued for cash in lieu of directors fees 37 16 statements of subsidiaries reporting in a non-functional currency. As at December 31, 2010 36,685 15,775 Cash flow hedge reserve The cash flow hedge reserve is used to record the effective element of financial instruments, carried at fair value, designated as Number Value hedging instruments. Class B shares 000 €000 Treasury shares reserve The treasury shares reserve is used to record purchases As at January 1, 2009 36,623 15,817 of the Company’s own share’s from the market. Issued for cash in lieu of directors fees 22 9 Adjustment to fix par value – (69) Actuarial reserve The pension reserve is used to record actuarial losses and gains on post employment benefit obligation plans. As at December 31, 2009 36,645 15,757 As at January 1, 2010 36,645 15,757 Issued for cash in lieu of directors fees 36 16 As at December 31, 2010 36,681 15,773 Total as at December 31, 2010 73,366 31,548 Total as at December 31, 2009 73,293 31,516During the accounting period no shares were issued and not fully paid (2009:None). At the General Meeting held on May 26, 2009 a decision was taken to fixthe nominal value of the Class A voting shares and Class B non-voting shares at€0.43 and for that purpose to reduce the value of the share capital by €252 thou-sand without cancellation of any shares and without re-imbursement to the share-holders of the Group.Share capital Each Class A share has one vote attached and has the right toreceive dividends as shown below. Each Class B share has no voting rights at-tached and has the right to receive dividends as shown below.50 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 53. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S14 Other reserves yields a specific percentage of shares awarded to each employee at the grantThe movement of other reserves during the year was as follows; date. For the 2010 LTIP, the shares granted vest 15% on December 31, 2010, 20% on December 31, 2011 and 65% on December 31, 2012. Cash flow Treasury Total hedge Actuarial shares other The loyalty element requires eligible employees to invest a certain percentage of reserve reserve reserve reserves their salary in shares of the Company on the market in order to receive potential €000 €000 €000 €000 matching shares. The shares awarded under this plan vest at the end of a three year period. Balance as at January 1, 2009 (243) – – (243) The value of the plan has been apportioned equally over the total period of the Other comprehensive plan and charged as necessary through the income statement. The expense rec- income, net of tax 475 – – 475 ognized in the consolidated income statement for the 2010 LTIP amounted to Total comprehensive €342 thousand. The number of share awards expected to vest over the 2010 income for the year 475 – – 475 LTIP is as follows: Balance as at Matching Perfor- December 31, 2009 232 – – 232 share award mance Balance as at plan shares Total January 1, 2010 232 – – 232 2010 2010 2010 Other comprehensive Maximum share awards 33,767 873,661 907,428 income, net of tax 104 (212) – (108) Revision for expected forfeitures – – – Total comprehensive income for the year 104 (212) – (108) Revision for expectations in re- spect of performance conditions – (131,049) (131,049) Transaction with owners Share awards expected to vest 33,767 742,612 776,379 Purchase of treasury shares – – (86) (86) Total transaction 16 Dividends paid and proposed with owners – – (86) (86) Balance as at 2010 2009 December 31, 2010 336 (212) (86) 38 € € Declared and paid during the year (thousands) 158 – Dividend per share 0.0043 –15 Share-based payments On September 16, 2010, the Board of Director’s approved a statutory preferredShare option agreement In 2006 the Company granted options to key manage- cumulative dividend of €0.0043 per share to Class B Transcom shareholders inment employees and executive officers of the Company to purchase shares in the accordance with article 21 of the Company’s Article of Association.Company. The options were granted for a fixed number of shares and at a fixedexercise price that was equal to the estimated fair market value on the date ofgrant. Each option vests in three equal parts: the first after one year, the second 17 Borrowingsafter two years and the third after three years. These share options vested onJune 30, 2007, June 30, 2008 and June 30, 2009, and can be exercised up to 2010 2009June 30, 2012. The share options have been valued at the start date of the plan Local Localand in accordance with IFRS have not been re-valued as no significant changes currency 2010 currency 2009to the contents or rules of the plan have been made. The value of the plan has 000 €000 000 €000been apportioned equally over the total period of the plan and provisions weremade as necessary through the income statement. The expense recognized in Euro 96,000 96,000 113,036 113,036the consolidated income statement for share options was nil at December 31, Canadian dollar 30,000 22,462 30,000 19,8872010 (2009: €145 thousand). 118,462 132,923As of December 31, 2010 the number of shares outstanding amounted to 537,000(2009: 537,000) at a weighted average exercise price of €6.53 (2009: €6.53), and The Company has a revolving variable credit rate facility agreement for an amounta weighted average remaining exercise period of 24 months. No shares were of €200 million divided into tranche A and tranche B. The interest rates are basedgranted, exercised, forfeited or cancelled during the year. on IBOR for non-Euro drawings and EURIBOR for Euro drawings plus margins ranging from 0.30% to 0.75% for tranche A and 0.70% to 1.15% for tranche B.Long-term incentive plan In May 2010 at the Annual General Meeting, a long The facility is due to expire on 12 April 2012. The facility is multi-currency with ele-term incentive plan (“2010 LTIP”) was approved. This plan consists of two ele- ments denominated in Euros. The Company is committed under this agreementments, a performance share plan (“performance element”) and a matching share to maintaining a number of covenants requiring certain financial ratios to be main-award plan (“loyalty element”). This LTIP was granted to Transcom’s executives tained within agreed limits in order to provide sufficient security to the lender.and the grant date was determined to be July 1, 2010. There was no breach of this covenant during the year. The loan is unsecured.The shares awarded under the performance element vest over a three year period, As of December 31, 2010, an amount of €96 million and CAD 30 million wassubject to market conditions based on the “total shareholder return”, and perfor- drawn (December 31, 2009: €113 million and CAD 30.0 million). The table abovemance conditions related to Transcom’s EBITDA and earnings per share. The shows the drawn amounts in each of the currencies utilized by the Group.achievement of a certain level of each condition, measured at each vesting date,TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 51
  • 54. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T SAn unused amount of €81.5 million on the revolving borrowing facility exists at De-cember 31, 2010 (December 31, 2009: €67.1 million) which could be used to settlecapital commitments. There are no restrictions on the use of this borrowing facility.The fair value of borrowings equals their carrying amount, as the interest rates arebased on market rates.The exposure of the group’s borrowings to interest rate changes and the contrac-tual repricing dates at the end of repricing dates at the end of the reporting periodis as follows: 2010 2009 €000 €000 6 months or less 92,462 132,923 6–12 months 26,000 – 1–5 years – – Over 5 years – – 118,462 132,92318 Provisions for other liabilities and charges Onerous Legal contracts claims Others Total €000 €000 €000 €000 Non-current Opening balance as at January 1, 2010 – 1,500 – 1,500 Income statement charge 3,617 – – 3,617 Closing balance as at December 31, 2010 3,617 1,500 – 5,117 Current Opening balance as at January 1, 2010 – – – – Income statement charge 5,737 808 1,340 7,885 Closing balance as at December 31, 2010 5,737 808 1,340 7,885(a) Onerous contractsThis amount represents a provision with respect to onerous contracts related to theintended sale of 2 sites currently held by the Group’s French subsidiary, TranscomWorldWide (France) SAS. Please refer to note 6 for further details. The amountwhich is not expected to be paid within the next 12 months has been classified asnon-current liabilities.(b) Legal claimsThis amount represents a provision with respect to legal claims brought againstthe Group by tax authorities with respect to transfer pricing of services and intel-lectual property. The Group believes that its positions with respect to all opentransfer pricing audits are robust and supportable and that the provision is appro-priate in the light of the information currently available. Management are uncertainover the timing of the resolution of the tax authority audits for €1,500 thousandand has therefore classified this provision as non-current liabilities.(c) OthersThis amount represents a provision with respect to guarantees related to the in-tended sale of 2 sites currently held by the Group’s French subsidiary, TranscomWorldWide (France) SAS. Please refer to note 6 for further details. The amountwhich is expected to be paid within the next 12 months has been classified ascurrent liabilities.52 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 55. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S19 Employee benefit obligationsThe group has employee benefit schemes in Italy and Norway in relation totermination indemnity and defined benefit pensions. A full actuarial valuationwas carried out to December 31, 2010 by a qualified, independent actuary.Reconciliation to the balance sheet Long term rate of Long term rate of Long term rate of return expected Value at return expected Value at return expected Value at at 31/12/10 31/12/10 at 31/12/09 31/12/09 at 31/12/08 31/12/08 % €000 % €000 % €000 Italy – – – – – – Norway 4.6 837 5.6 693 6.3 550 Total market value of assets – 837 – 693 – 550 Italy – (2,285) – (2,390) – (5,301) Norway – (1,256) – (1,070) – (1,157) Present value of scheme liabilities – (3,541) – (3,460) – (6,458) Italy – 2,285 – 2,390 – 5,301 Norway – 419 – 377 – 607 Deficit in the scheme – 2,704 – 2,767 – 5,908 Italy – – – – – – Norway – – – 134 – (145) Unrecognized actuarial movements – – – 134 – (145) Italy – 2,285 – 2,390 – 5,301 Norway – 419 – 511 – 462 Net scheme liability – 2,704 – 2,901 – 5,763Analysis of the amount charged to operating profit 2010 €000 2009 €000 Italy Norway Total Italy Norway Total Current service cost – 178 178 – 195 195 Actuarial movements – – – 820 9 829 Settlements – (74) (74) – (6) (6) Total operating charge – 104 104 820 198 1,018Analysis of the amount credited to other finance costs 2010 €000 2009 €000 Italy Norway Total Italy Norway Total Expected return on pension scheme assets – (17) (17) – (11) (11) Interest on pension scheme liabilities 96 50 146 92 51 143 Net expense 96 33 129 92 40 132The major assumptions used by the actuary for the calculation of the defined benefit pension scheme were: Italy Norway At 31/12/10 At 31/12/09 At 31/12/08 At 31/12/10 At 31/12/09 At 31/12/08 % % % % % % Rate of increase in salaries 2.00 2.00 2.00 4.00 4.25 4.25 Rate of increase in pensions in payment 2.00 2.00 2.00 0.50 1.30 2.00 Discount rate 4.27 6.14 6.10 3.20 4.40 4.30The expected return on plan assets is equal to the weighted average return ap- Assumptions regarding future mortality experience are set based on advice in ac-propriate to each class of asset within the schemes. The return attributed to each cordance with published statistics and experience in each territory.class has been reached following discussions with the group’s actuaries.TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 53
  • 56. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T SAmount recognized in the balance sheet – movement in deficit during the year 2010 €000 2009 €000 Italy Norway Total Italy Norway Total Deficit in scheme at beginning of the year 2,390 511 2,901 5,301 462 5,763 Movement in year: Current service cost and settlements – 104 104 – 189 189 Interest cost 96 50 146 92 51 143 Contributions – (146) (146) – (164) (164) Other finance income – (17) (17) – (11) (11) Actuarial (gains)/ losses 210 2 212 (820) (20) (840) Benefits paid (411) (85) (496) (2,183) 4 (2,179) Deficit in scheme at end of the year 2,285 419 2,704 2,390 511 2,901The Italian scheme actuarial valuation at December 31, 2010 showed a decrease 21 Trade and other payablesin the deficit from €2,390 thousand to €2,285 thousand. 2010 2009The Norway scheme actuarial valuation at December 31, 2010 showed a decrease €000 €000in the deficit from €511 thousand to €419 thousand. Contributions amounted to€146 thousand, 1.39% of pensionable pay (2009: €164 thousand 1.39% of pen- Trade payables 13,967 12,538sionable pay). It has been agreed that contributions will remain at that level. Other payables 21,033 15,584 Accrued expenses and prepaid income 20,095 22,705History of experience gains and losses – Norway scheme Other liabilities – contingent consideration on business combination – 1,014 2010 2009 2008 55,095 51,841 Difference between the expected and actual return on scheme assets: – amount (€000) 1 (31) 187 Of the trade payables, €54 thousand (2009: €102 thousand) is to related parties as detailed in note 30. Terms and conditions of these amounts payable to related – percentage of scheme assets 0.1 (5.6) 43.8 parties can be found in note 30. Experience gains and losses Of the other payables, €7,641 thousand (2009: –) and of the accrued expenses on scheme liabilities: and prepaid income, €750 thousand (2009: –) is related to the intended disposal – amount (€000) 127 274 (37) of 2 French sites, as explained in Note 6. – percentage of the present value of the scheme liabilities 10.1 29.4 (4.2) 22 Other expenses Of the other expenses, €13,119 thousand (2009: –) is related to the impact of the20 Government grants intended disposals of 2 French sites, as explained in Note 6, and €2,870 thousand (2009: 2,875 thousand) relates to amortization of intangible assets. 2010 2009 €000 €000 Opening balance as at January 1, 2010 1,987 2,766 23 Profit from operations Income statement charge (2,722) (779) This has been arrived at after charging/(crediting) Received during the year 1,652 – Closing balance as at December 31, 2010 917 1,987 2010 2009 €000 €000Government grants Since 2001, Transcom has received grants from local Salaries and employee pensions (Note 24) 374,217 402,499governments for having engaged a certain number of employees. As per agree- Depreciation of property, plant and equipmentments with local authorities, the grants received may be subject to repayment if (Note 7) 12,746 15,535Transcom does not keep for a certain period of time (from one year to six years Impairment of property plant and equipmentdepending on the country) the employees covered by the grant. Transcom will (Note 7) 321 –therefore recognize in its accounts the income during the period for which theemployees must be kept within the Company (credited to cost of sales). Impairment of intangible assets (Note 8) – 734 Amortization of intangible assets, includingThere were no other contingencies or unfulfilled conditions relating to government development costs (Note 8) 5,014 4,720grants which existed during the current accounting period that have not been dis- Operating lease expense (Note 7) 30,265 24,993closed in the accounts. Share based payments 342 96654 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 57. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S24 Salaries and employee pensionsSalaries, other remuneration and social security chargesSalaries, other remuneration and social security charges were as follows: 2010 2009 Board of Directors and 2010 Board of Directors and 2009 senior management Other employees senior management Other employees €000 €000 €000 €000 Salaries and other remuneration 3,075 312,158 13,484 327,353 Social security charges 323 56,574 1,317 58,850 Pension expenses 46 5,041 211 3,584The following amounts of salaries are included in cost of sales, selling expenses Effective tax rate A reconciliation of the statutory tax rate to the Company’sand administrative expenses respectively: €341,844 thousand, €3,700 thousand, effective tax rate applicable to income from continuous operations was:€31,673 thousand (December 31, 2009 was €368,281 thousand, €3,356 thou-sand, €32,962 thousand). 2010 2010 2009 2009 €000 % €000 %Directors’ remuneration The President and Chief Executive Officer, Pablo Profit/(loss) before tax (5,684) – 25,294 –Sánchez-Lozano, received salary and remuneration of €425 thousand in the year(2009: €875 thousand). The Chairman of the Board, Mr William Walker, received Statutory tax (expenses)/benefit€90 thousand as Board fees (2009: €90 thousand), and the other members of the tax rate in Luxembourg 1,620 (28.5) (7,209) (28.5)Board received a total of €240 thousand as Board fees (2009: €240 thousand). Foreign tax rate differential 2,993 (52.7) 8,700 34.4The Board fees are determined by the Annual General Meeting, compensation of Losses for which no tax benefitthe President and Chief Executive Officer is determined by the Board, compensa- is recognized (8,473) 149.1 (4,865) (19.2)tion of senior management is determined by the Board in conjunction with the Losses utilized 581 (10.2) 29 0.1President and Chief Executive Officer. Adjustments in respect of prior years 4,250 (74.8) 4,063 16.1 Expenses not deductible for tax25 Finance income and costs purpose (6,988) 122.9 (5,421) (21.5) Income not subject to tax 3,623 (63.7) – – 2010 2009 Total tax charge (2,394) 42.1 (4,703) (18.6) Finance income €000 €000 Interest received on bank deposits 295 784 Foreign exchange, net 2,845 2,587 27 Earnings per share 3,140 3,371 Basic earnings per share amounts were calculated by dividing profit for the year attributable to owners of the parent by the weighted average number of shares in 2010 2009 issue during the year. Finance expense €000 €000 Interest payable on bank borrowings 2,232 2,354 2010 2009 Profit/(loss) for the year attributable to owners of the parent (€000) (8,078) 20,59126 Income tax expense Weighted average number of shares in issue during the year (000) 73,333 73,259 2010 2009 Basic earnings per share (€) (0.11) 0.28 €000 €000 Current income tax on profits for the year (7,555) (7,930) Diluted earnings per share amounts were calculated by dividing profit for the year Adjustments in respects of prior years 2,207 1,511 attributable to owners of the parent by the weighted average number of shares in Total current income tax (5,348) (6,419) issue during the year adjusted for outstanding share options of 537 thousand (2009: 537 thousand). Current year origination and reversal 2010 2009 of temporary differences 911 (836) Profit for the year attributable to owners Adjustment in respects of previous periods 2,043 2,552 of the parent (€000) (8,078) 20,591 Total deferred income tax 2,954 1,716 Weighted average number of shares in issue during Income tax expense (2,394) (4,703) the year adjusted for outstanding stock options (000) 73,870 73,796 Diluted earnings per share (€) (0.11) 0.28TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 55
  • 58. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T SDuring 2010, there were 36,670 thousand weighted average Class A Shares and 30 Related party transactions36,663 thousand weighted average Class B shares in issue (2009: 36,631 thou-sand Class A shares, 36,628 Class B shares). As a result of its substantial direct and indirect shareholdings in the Tele2 Group, Invik Group, Kinnevik Group, MTG Group, and other companies, the StenbeckThere are no post balance sheet events which could have an impact on the basic family has the potential to exert considerable influence in terms of financial andearnings per share or the diluted earnings per share. operational decisions in these companies. These companies have been regarded as related parties to the Group. Business relations between Transcom WorldWide and all closely related parties are subject to commercial terms and conditions.28 Contingencies The Group provided customer service functions for certain Tele2 group compa-The Group has contingent liabilities related to routine litigation and legal claims nies in exchange for service fees determined on an arm’s length basis. The Trans-arising in the ordinary course of the business. com WorldWide Group’s sales revenue from the Tele2 group companies amount- ed to €101,994 thousand in 2010 (2009: €109,315 thousand). Sales revenuesThe integrated worldwide nature of Transcom’s operations, involves a significant mainly relate to customer help lines and other CRM services.level of intra-group transactions which can give rise to complexity and delay inagreeing the Group’s tax position with the various tax authorities in the jurisdic- Operating expenses, mainly for telephone services and switch, paid to Tele2tions in which the Group operates. The Group occasionally faces tax audits group companies amounted to €1,426 thousand in 2010 (2009: €1,110 thou-which, in some cases, can result in disputes with relevant tax authorities. During sand). The Company rents premises from Tele2 group companies under sub-these tax audits, local tax authorities may question or challenge the transfer pric- lease agreements on the same commercial terms provided to Tele agreement that the Group has put in place. The Group’s receivables from and liabilities to Tele2 Group companies at Decem-Management are required to make estimates and judgments about the ultimate ber 31, 2010 and 2009 were as follows:outcome of these investigations in determining legal provision provisions. Actualliabilities when they are ultimately agreed, may differ from management estimates. 2010 2009 €000 €000The Group does not believe that the outcome of these proceedings, or the pro- Trade and other receivables 21,377 18,624ceedings and related proceedings discussed above, individually or in aggregate, Trade and other payables (54) (102)after taking into account the amounts reserved with respect to such matters (note18), will have a material adverse effect on the consolidated financial position or re- Net receivable 21,323 18,522sults of operations of Transcom WorldWide S.A. and its subsidiaries. The Group provided customer service functions for certain MTG group compa- nies in exchange for service fees determined on an arm’s length basis. The Trans-29 Commitments and long term obligations com WorldWide Group’s sales revenue from the MTG group companies amount- ed to €11,429 thousand in 2010 (2009: €15,082 thousand). Sales revenuesSome companies in the Group have entered into agreements to rent premises. In mainly relate to customer help lines.2010, €21,752 thousand (2009: €19,048 thousand) was paid for rent related tonon-cancellable leases. Generally, the Group’s lease contracts require deposits The Group’s receivables from MTG group companies were €2,127 thousand atand certain provisions for inflation-indexed rental increases. Future payments for December 31, 2010 (2009: €1,685 thousand).rent on non-cancellable leases for premises at December 31, 2010 are as follows: 2010 2009 31 Audit fees Premises Premises €000 €000 For the financial year ended December 31, 2010 and December 31, 2009 , the Not later than 1 year 20,619 14,155 approved statutory auditor, and as the case may be affiliated companies of the Later than 1 year and no later than 5 years 42,631 23,277 auditor, billed fees to the Group in relation with the following services: Later than 5 years 8,261 5,143 2010 2009 Total 71,511 42,575 €000 €000 Audit of the statutory and consolidated accounts 730 721 Interim review 70 65 Other audit related fees 24 – Total 824 78656 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 59. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S32 Investment in subsidiaries 2010 2009 Country of Capital/voting Capital/votingSubsidiary incorporation interest (%) interest (%)Transcom WorldWide (Australia) Pty Ltd Australia 100 100IS Forderunsmanagement GmbH Austria 100 100IS Inkasso Service GmbH Austria 100 100Transcom WorldWide Forderungsmanagement GmbH Austria 100 100Transcom WorldWide GmbH Austria 100 100Transcom WorldWide Belgium SA Belgium 100 100Transcom WorldWide (North America) Inc. (formerly The NuComm Corporation)* Canada 100 100Transcom International Solutions Inc. (formerly NuComm Global Solutions Inc) Canada 100 100Transcom Insurance Agency Inc. (formerly NuComm Insurance Agency Inc) Canada 100 100Transcom WorldWide Canada Inc Canada 100 100Transcom WorldWide Chile Limitada Chile 100 100IS Inkasso Servis d.o.o. Croatia 100 100Transcom WorldWide d.o.o. Croatia 100 100Transcom WorldWide Czech Republic s.r.o. Czech Republic 100 100Transcom CMS AS Denmark 100 100Transcom Denmark A/S Denmark 100 100Transcom Eesti OÜ Estonia 100 100Transcom Finland OY Finland 100 100TMK WorldWide SaS France 100 100Transcom WorldWide France SAS France 100 100CIS International GmbH Germany 100 100IK Transcom Europe GmbH Germany 100 100Transcom CMS Forderungs management GmbH Germany 100 100Transcom WorldWide GmbH Germany 100 100Transcom WorldWide Hong Kong Ltd Hong Kong 100 100CEE Holding Kft Hungary 100 100Transcom Hungary Kft Hungary 100 100Transcom WorldWide Spa Italy 100 100SIA Transcom WorldWide Latvia Latvia 100 100Transcom WorldWide Vilnius UAB Lithuania 100 100Transcom Europe Holding BV The Netherlands 100 100Transcom WorldWide BV The Netherlands 100 100CIS Concept AS Norway 100 100Ergo Inkasso AS Norway 100 100Transcom AS Norway 100 100Transcom Financial Services AS (formerly Transcom Credit Management Services AS) Norway 100 100Transcom Norge AS Norway 100 100NuComm International Philippines Inc. (under dissolution) Philippines 100 100Transcom WorldWide Philippines Inc Philippines 100 100Transcom WorldWide CMS Poland Sp. z o.o. Poland 100 100Kancelaria PrawnaTranscom S. K. Poland 100 100Transcom WorldWide Poland Sp. z o.o. Poland 100 100TWW servicos de Helpline e de Atendimento Telefonico Lda Portugal 100 100Transcom WorldWide Slovakia s.r.o. Slovakia 100 100Transcom WorldWide Spain S.L.U. Spain 100 100TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 57
  • 60. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 2010 2009 Country of Capital/voting Capital/voting Subsidiary incorporation interest (%) interest (%) Stockholms Tolkförmedling AB Sweden 100 100 Tolk och Språktjänst i Östergötland AB Sweden 100 100 Transcom AB Sweden 100 100 Transcom Credit Management Services AB Sweden 100 100 Transvoice AB Sweden 99 99 Is Inkasso Service GmbH Switzerland 100 100 Transcom WorldWide AG Switzerland 100 100 Transcom WorldWideTunisie SARL Tunisia 100 100 TWW Gagri Merkezi Servisleri Limited Sirketi (in liquidation) Turkey 100 100 Credit & Business Services Limited (dissolved during the year) United Kingdom 100 100 Top Up Mortgages Ltd United Kingdom 100 100 Transcom WorldWide (UK) Limited United Kingdom 100 100 Newman & Company Limited United Kingdom 100 100 Cloud 10 Corp United States 100 100 Transcom WorldWide (US) Inc. (formerly Nucomm International US Inc.) United States 100 100* During the year, FCC Holdings Limited, Federal Credit & Consulting Corporation, NuComm Credit Services Inc., NuComm Marketing Inc., and NuVoxx Inc., all 100% held Canadian based subsidiaries, were merged into Transcom WorldWide (North America) Inc. (formerly The NuComm Corporation).58 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 61. Independent auditor’s reportTo the Shareholders ofTranscom WorldWide S.A.45, rue des ScillasL-2529 HowaldLuxembourgReport on the consolidated financial statements An audit involves performing procedures to obtain audit evidence about theFollowing our appointment by the General Meeting of the Shareholders dated amounts and disclosures in the consolidated financial statements. The procedures26 May 2010, we have audited the accompanying consolidated financial state- selected depend on the judgement of the “réviseur d’entreprises agréé”, includingments of Transcom WorldWide S.A., which comprise the consolidated statement the assessment of the risks of material misstatement of the consolidated financialof financial position as at 31 December 2010, the consolidated income state- statements, whether due to fraud or error. In making those risk assessments, thement, the consolidated statement of comprehensive income, the consolidated “réviseur d’entreprises agréé” considers internal control relevant to the entity’s prep-statement of changes in equity, the consolidated cash flow statement for the year aration and fair presentation of the consolidated financial statements in order to de-then ended, and a summary of significant accounting policies and other explana- sign audit procedures that are appropriate in the circumstances, but not for the pur-tory information. pose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies usedBoard of Directors’ responsibility for the consolidated financial statements and the reasonableness of accounting estimates made by the Board of Directors,The Board of Directors is responsible for the preparation and fair presentation of as well as evaluating the overall presentation of the consolidated financial state-these consolidated financial statements in accordance with International Financial ments.Reporting Standards as adopted by the European Union and for such internalcontrol as the Board of Directors determines is necessary to enable the prepara- We believe that the audit evidence we have obtained is sufficient and appropriatetion and presentation of consolidated financial statements that are free from to provide a basis for our audit opinion.material misstatement, whether due to fraud or error. OpinionResponsibility of the “réviseur d’entreprises agréé” In our opinion, the consolidated financial statements give a true and fair view of theOur responsibility is to express an opinion on these consolidated financial state- financial position of Transcom WorldWide S.A. as of 31 December 2010, and of itsments based on our audit. We conducted our audit in accordance with Interna- financial performance and its cash flows for the year then ended in accordance withtional Standards on Auditing as adopted for Luxembourg by the “Commission de International Financial Reporting Standards as adopted by the European Union.Surveillance du Secteur Financier”. Those standards require that we comply withethical requirements and plan and perform the audit to obtain reasonable assur- Report on other legal and regulatory requirementsance about whether the consolidated financial statements are free from material The management report, which is the responsibility of the Board of Directors, ismisstatement. consistent with the consolidated financial statements. ERNST & YOUNG Société Anonyme Cabinet de révision agréé Werner WEYNAND Luxembourg, 18 March 2011TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010 59
  • 62. Information for our shareholdersFINANCIAL CALENDARApril 18, 2011First quarter earnings announcementMay 25, 2011Annual General Meeting of shareholders in LuxembourgJuly 20, 2011Second quarter earnings announcementOctober 19, 2011Third quarter earnings announcementFebruary 2012Fourth quarter earnings announcementCORPORATE AND REGISTERED OFFICETranscom WorldWide S.A.45, rue des ScillasL-2529 HowaldLuxembourgCompany registration number:RCS B59528www.transcom.comINVESTOR RELATIONSRålambsvägen 17, 15th floorS-112 59 StockholmSwedenTel: +46 8 120 800 88SALES AND MARKETINGcontactus@transcom.comTel: +34 93 600 419060 TRANSCOM ANNUAL REPORT AND ACCOUNTS 2010
  • 63. Designed and produced by Intellecta Corporate.Printed by Intellecta Infolog, March 2011.
  • 64. Transcom WorldWide S.A.45, rue des ScillasL-2529