Sustainability Report 2017 1 Contents
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BUSINESS GROWTH WITH OPTIMUM CUSTOMER EXPERIENCE SUSTAINABILITY REPORT 2 017 Algar Telecom - Sustainability Report 2017 1 Contents 03 Message from the Management Social and environmental 05 Purpose and vision, mission and values 48 management 06 Highlights of 2017 49 Sustainable commitment 50 Social performance Algar 52 Environmental performance 09 Telecom 10 Corporate profile 19 Growth strategy Performance 27 Corporate governance 57 in 2017 32 Compliance and risk management 58 Operating performance 60 Economic and financial performance Our 36 People 37 People management Outlook 39 Attraction and engagement for 2018 43 Health and safety 67 68 Vision of the future Our 44 Network 69 About the report 72 GRI remissive index 45 Relationship with customers 75 Supplementary GRI indicators 47 Relationship with suppliers 78 Credits Algar Telecom - Sustainability Report 2017 2 We posted record results at Algar Telecom in 2017, in spite of economic instability in Brazil. Gross MESSAGE FROM revenue totaled R$3,557 billion, 7.3% higher than in 2016. Our net profit of R$229.6 million was 25.1% more than in the previous year. These figures show that our strategy – which has been widely THE MANAGEMENT disseminated within the Company, and is based on principles well known to our employees – has enabled all of us to work together and to make an active contribution to achieving our objectives. GRI 102-14 | 102-10 The results show that the Company has continued to expand its corporate customer base, as planned – we started operating in 24 new locations in 2017 – and to add to the range of products and services offered, so that we can meet our customers’ needs for telecommunications and ICT services. For our personal customers we seek to offer convergent products that will boost customer satisfaction and loyalty. We have therefore invested in expanding the capacity of our 4G networks on the 700 MHz and 1,800 MHz frequencies, and in some regions we are already providing 4.5G technology. We have increased our ultra-broadband coverage, and it now accounts for 46% of the fixed broadband base for B2C customers. We focus on quality and relationships to provide the best possible experience for our customers, and as part of this effort we introduced new customer service systems in 2017, including Customer Experience Management (CEM), which is based on artificial and cognitive intelligence. We were once again recognized as a benchmark for customer service by the ReclameAQUI portal during the year, proving that our relationship model is head and shoulders above the others in the sector. We also got top marks in the National Telecommunications Agency (Anatel) survey of customer satisfaction, which measures the Service Performance Index (IDA). Algar Telecom - Sustainability Report 2017 3 We made good headway with our Digital Transformation We ended 2017 with the same level of leverage (the net debt/ Program in 2017. It is aimed at increasing operating efficiency EBITDA ratio) as in the previous year in spite of the additional and improving customer experience. We are committed funding, thanks to a 9.9% increase in EBITDA. It is also notable to innovation and to increased technological automation, that Standard & Poor’s left our credit rating unchanged, with the and this enables us to offer speedy service of the highest outlook improving from “negative” to “stable”. quality, backed by a first-class network and on an increasingly substantial scale. There were important changes in corporate governance during the year. Our preferred shares were converted into We continue to aim for sustainable growth, and for the fifth common shares, independent members were elected to our year in a row we have headed the ranking of benchmark Board, and a Strategy and Innovation Committee was set companies in Brazil published by Exame magazine, the Exame up. In relation to committees, the Strategy and Innovation magazine Telecom Sustainability Guide. This is an important Committee took office. At the end of the year, the GIC - rating, and it confirms that our sustainable business model Singapore’s sovereign fund - signed an investment agreement is effective. As part of our commitment, we have become to acquire a stake in Algar Telecom, which means its share of signatory to the United Nations Global Compact Local total capital will be about 25%. Jean Carlos Borges Luiz Alexandre Garcia Network in Brazil – this is one of the major initiatives for Chief Executive Officer, Chair of the Board of engaging the private sector in sustainability. We see 2018 as a year of further challenges and opportunities. Algar Telecom Directors, Algar Telecom As the Monet submarine cable connecting São Paulo to Florida Another highlight of 2017 was the award of the Época 360o Prize, is completed and it also links Fortaleza to these two points, for the fifth consecutive year, as the best managed telecom we will focus on extending our geographical frontiers to company. These results make us confident that we are supplying the northeastern region of Brazil. At the same time we shall products and services of quality and excellence, and reinforce continue to focus on the efficiency of our business, offering top our company motto: People serving People. quality, differentiated products, as well as on maintaining a close relationship with our customers, motivating our employees and In the area of finance we successfully closed our sixth issue of achieving digital innovation and transformation. These issues are debentures, which raised R$432 million. The book totaled more of the utmost importance if we are to continue to abide by our than R$1 billion – three times the original amount of the offering. company motto: “People serving People”. Algar Telecom - Sustainability Report 2017 Message from the Management 4 PURPOSE AND VISION, Purpose and Vision MISSION AND VALUES People serving People GRI 102-16 Mission To serve and integrate people and businesses sustainably Values The customer, our reason for existing* Acting with integrity Developing and recognizing talents Being entrepreneurs Being committed to sustainability (*)A quote from the Founder of the Algar group, Comendator Alexandrino Garcia. Algar Telecom - Sustainability Report 2017 5 HIGHLIGHTS OF 2017 GRI 102-7 Algar Tech, the subsidiary responsible for the Tech/ Gross revenue from BPO/IT Management segment, is recognized by EBITDA margin Telecom increase 8.0%, The number of B2C Launch of 4.5G Frost & Sullivan as the most innovative company in reaches 38.0% in the including 6.6% in B2B, broadband customers technology for competitive Contact Center strategy, ranked by Valor Telecom segment thanks to an 8.8% rise in with speeds higher than mobile telephony Innovation as one of the most innovative in the and 28.7% for the corporate customers 10 Mbps reaches 46% of for some 45% technology sector, and elected by Exame magazine as consolidated figures. and 8.1% in B2C. the total. of users. one of the 50 largest in the digital world. Completion of installation of some 11,000 km of submarine cable connecting the cities of Praia Grande Broadening of (SP) and Fortaleza (CE) with Boca Raton (Florida, USA). Algar Telecom is awarded the ANEFAC/FIPECAFI/ the SME small The cable, which is planned to start operating in the first Algar Telecom SERASA Transparency Trophy. Also, for the fifth company market quarter of 2018, will help us expand our services to the becomes a signatory consecutive year, elected the most sustainable company customer base north-east of the country, as well as reducing leasing costs to the UN Global in the telecommunications sector by the Exame outside the for international connections. Compact. magazine Sustainability Guide. concession area. Algar Telecom - Sustainability Report 2017 6 Operational data - B2B (units) 2 0131 2 0141 2 015 2 016 2 017 Δ 2016/2017 Number of customers N/A N/A 100,015 108,686 95,377 (12.2%) Corporate N/A N/A 7,884 10,000 10 , 919 9.2% 2 SME N/A N/A 92,131 98,686 84,458 (14.4%) 1 In 2013 and 2014, the Company adopted different segmenting criteria so the numbers are not directly comparable. 2 The number of SME customers fell from 2016 to 2017. This was due to 23,724 customers being reallocated as from January 2017, when B2C started to serve them. The purpose of this move was to provide a customer service channel more suitable to these customers’ profiles and needs. B2C operating data (thousands of units) 2 013 2 014 2 015 2 016 2 017 Δ 2016/2017 Revenue-generating units 1, 771 1,968 2,098 2,188 2,267 3.6% Fixed broadband 307 322 356 389 436 12.1% Up to 10 MB 292 263 248 240 236 (1.7%) More than 10 MB 15 59 10 9 14 9 200 34.2% Fixed telephony 499 485 492 507 535 5.5% Mobile telephony 836 1,050 1,15 4 1,204 1,206 0.2% Post-paid accounts 16 3 206 235 285 302 6.0% Pre-paid accounts 672 844 919 919 904 (1.6%) Pay TV 13 0 111 96 88 90 2.3% ARPU cell phones (R$) 26.8 25.1 22.5 21. 2 21. 5 1.6% Algar Telecom - Sustainability Report 2017 Highlights of 2017 7 Consolidated financial 2 013 2 014 2 015 2 016 2 017 Δ 2016/2017 indicators (R$ million) Gross revenue 2,458 2,850 3,092 3,314 3,557 7.3% Net revenue 1,902 2,238 2,418 2,545 2,716 6.7% Consolidated EBITDA 477 543 642 710 780 9.9% EBITDA margin % 25% 24% 27% 28% 29% 1 p.p. EBITDA Telecom 400 450 537 634 717 13.1% EBITDA margin % 28% 30% 33% 36% 38% 2.4 p.p.