Management Report 18 Message from the Chief Executive Officer
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Consolidated Management Report 18 Message from the Chief Executive Officer NOS has come a long way since the merger in 2013, which successfully brought together two organizations with very different operational legacies and cultures, whilst competing in one of the most advanced and highly invested telecom landscapes in the world. After a period of strong growth in revenues and accelerated market share gains, led by the mass-market take up of convergent offers and which enabled us to exceed our original 30% revenue market share target well ahead of schedule, our focus today is to consolidate our position as the leading entertainment and communications company in Portugal. We are leveraging our unique combination of telco and audiovisuals assets whilst transforming our business to become a more customer centric, operationally fit and digitally enabled organization, to deliver long lasting value creation for our shareholders. Our results in 2018 reflect this strategic direction. We strengthened our competitive position in all segments with sound RGU growth in a market that is already highly penetrated. Incremental service growth was led by additional greenfield network coverage, continued uptake, albeit lower, of convergent solutions and by sustained improvement in subscriber churn. Despite the slowdown in commercial activity in comparison with previous years, and price stability during 2018, revenues grew just over 1% to 1,576 million euros and, through disciplined cost management and efficiency, EBITDA grew by almost 3% to 592 million euros. The investment we are doing in strategic technological and operational transformation programmes is a critical enabler of current and long-term competitive strength. Last year we continued to invest in the upgrade of our mobile network to a single RAN, 5G ready architecture, having executed more than 70% of the planned site renewal. Completion of the project during 2019 will stand us with the most technologically advanced mobile network in Portugal, boasting the most advanced and efficient next generation broadband capabilities and features. During the second half of the year, we started to exchange the first FttH households within the context of our network sharing agreement, further extending our greenfield coverage with next generation access technology, and complementing our fully upgraded Docsis 3.1 network, which already allows us to provide Gigabit speeds nationwide. Last year also marked the launch of the first of three waves of our operational transformation programme, designed to re-think and design the way we interact with our customers at all levels of the organization, with an ambition to deliver excellence in customer experience and be the operator of choice in Portugal. The projects being implemented are company-wide, run by internal resources, and are setting the foundations for a much fitter, digital company, driven by simpler, more customer centric processes and new ways of working. The value captured from the programme will start to accelerate once all three waves of projects are up and running, translating into leading customer experience metrics and savings in both operational running costs and customer related investments. Our continuous and sustained improvement in operating profitability and FCF momentum, the strength of our capital structure and our leading competitive positioning provide the basis for long-term value creation and continued and attractive shareholder returns. Against this positive backdrop, the Board has again proposed an increase in dividend payment this year to 35 cents, representing an increase of 17% over last year and demonstrative of the confidence we have in our continued operating and financial momentum. We consider sustainability to be a strategic priority and the guidelines we embrace and report, in line with the GRI - Global Reporting Initiative, are sharing across the organization. We are very conscious of the importance of acting responsibly to ensure our long-term competitiveness, including the role of our sector to contribute to a sustainable future for society. We reiterate our commitment to the ten Principles of Global Compact and to the achievement of the United Nations’ Sustainable Development Goals. I am very confident that NOS is well equipped today to face the long-term challenges of our sector and the ever evolving and legitimate expectations of our customers. The good results we continue to achieve allow us to embrace the future with optimism and I know we have the best team and assets to succeed as the leading entertainment and telecommunications company in Portugal, continuing to increase value generated for our customers, employees, shareholders and other stakeholders. Miguel Almeida IndexMAIN 4 Management Report 7 Non-Financial Statements 57 Consolidated Financial Statements 163 Individual Financial Statements 259 Corporate Governance Report 329 6 Management Report 01 Company Overview 8 The best communications and 02 entertainment group in Portugal 16 Operational and 03 Financial Review 2018 24 01 Company Overview 01. Company Overview Management Report Business Portfolio Telecoms We are part of daily life We have the best products We are partners for and services for our business transformation customers We offer next generation We offer convergent multi- We offer integrated B2B fixed and mobile solutions, device solutions, combining “as-a-service” solutions for internet, voice and data the cutting edge UMA each sector and for companies for all market segments user interface, with high of all sizes, complemented - Residential, Personal, broadband speeds, the largest with ICT and cloud services. Business and Wholesale. We Wi-Fi network in the country are the leading Pay TV and and 4G mobile services. next generation broadband provider in Portugal. Audiovisuals and Cinemas #1 in content distribution #1 in cinema exhibition Leaders in technology We acquire and manage Through NOS Lusomundo 40% of our cinemas have film and series rights Cinemas we are leaders 3D REAL D digital projection. from some of the largest in Portugal in cinema and We opened the first IMAX studios worldwide and from alternative content exhibition. cinema in Portugal in 2013 independent producers We were the first cinema and, in 2016, we were the first and distribute audiovisual chain in Europe, and one of to launch 4DX technology. In content and a number of the first in the world, to be 2017, we inaugurated two fully own produced channels in fully digital. laser equipped complexes Portugal and in Portuguese and in 2018 a third one in the speaking African countries. Greater Lisbon area. 9 01. Company Overview Management Report Recognized and preferred by our customers and the sector The NOS 4 bundle is awarded NOS is awarded Trusted Brand in the Consumer Choice in the Telecommunications and Multimedia Quadruple Play category. category NOS Cinemas are distinguished in the Movie Theatre category 10 01. Company Overview Management Report UMA and the NOS Indie offer are awarded Product of the Year in the TV Solutions and Fixed and Mobile Internet and Apps Services category, respectively 11 01. Company Overview Management Report NOS in Numbers Operating Indicators 9,605 1,623 1,390 1,781 MILLION MILLION MILLION MILLION RGUs Pay TV Subs Broadband Subs Fixed Voice Subs 4,779 767 4,408 91% MILLION K MILLION THOUSAND Mobile Subs Convergent Subs HomesPassed 4G Coverage 8,889 42% 37% 34% MILLION Cinema Tickets Pay TV Market Share Broadband Market Share Fixed Voice Market Share Sustainability Indicators Environment Suppliers Over 653,851 59,005 717 95% 84% 9 Total Energy GHG emissions, Waste produced Waste recovery rate of the amount of THOUSAND Consumed scope 1 and 2 (Tons) purchases related to suppliers (GJ) (tCO2e) national suppliers 12 01. Company Overview Management Report Financial Indicators €1,506 €592 MILLION MILLIONS Telco Revenues €180 €141 €1,576 MILLIONS MILLIONS MILLION €111 Consolidated Revenues MILLIONS Consolidated Consolidated Consolidated Audiovisual & EBITDA FCF Net Income Cinema Revenues €1,068 M € € € BBB Total Gross Debt 1,084 0.35 2,728 Rating Fitch MILLIONS MILLIONS BBB- €1,066 M Total Equity Dividend Proposal Market Cap Rating S&P Net Financial Debt 2018 Exercice 1.8x Net Debt/EBITDA Employees Over 9 1,919 41% 59% 41.1 68% Lisbon 51,767 26% Oporto THOUSAND Employees Average Age Training hours Madeira suppliers 3% 2% Azores 1% Others 13 01. Company Overview Management Report A track record Launch of Iris The 1st interface Launch of Timewarp, in the world with a worldwide of innovation automatic recording revolutionary feature 2011 2012 NOS Cinemas inaugurates the Focus on Launch of N Play, country’s second IMAX cinema 4K Content an inhouse OTT like subscription at the Mar Shopping Mall based content library 2016 Launch of UMA TV, a new generation of TV, with a whole new customer interface and cutting edge features NOS and Vodafone reach fibre sharing NOS and Lagoa Town Council agreement for 2.6 million homes and sign a protocol as part of buisinesses the Smart Cities scheme. 2018 Opening the new NOS Data Centre NOS completes strenghtening and data analytics store digital transformation, service offer covering 183 stores 14 01. Company Overview Management Report Launch of Timewarp, Opening of the 1st IMAX Merger between Launch of the ZON4i offer, a worldwide cinema theatre in Portugal ZON and Optimus the first convergent revolutionary feature offer post merger 2013 NOS renews the Iris platform and launches the new Launch of the NOS inaugurates its 2014 NOS IRIS app, setting new NOS Brand Convergence and Supervision Centre international standards 2015 Premiere of 4DX Launch of the NOS TV App technology in cinemas allowing TV to be watched on all devices 2017 Launch of YouTube Launch of the 1st intelligent electricity on UMA TV meter using NB-IoT technology NOS’s network is NOS assigned Investment Grade long NOS Cinemas - Opening of the first 1 Gbps enable term credit rating by S&P and Fitch and 100% laser cinema complex in the bond issuance Greater Lisbon area 15 02 The best Communications and Entertainment group in Portugal 02.