Telecoms 500 2017 The annual report on the world’s most valuable telecoms brands February 2017 Foreword Contents steady downward spiral of poor communication, Foreword 2 wasted resources and a negative impact on the Definitions 4 bottom line. Methodology 6 Brand Finance bridges the gap between the marketing and financial worlds. Our teams have Understand Your Brand’s Value 7 experience across a wide range of disciplines from market research and visual identity to tax and Executive Summary - Telecoms 500 8 accounting. We understand the importance of Executive Summary - Telecoms Infrastructure 10 14 design, advertising and marketing, but we also believe that the ultimate and overriding purpose of Full Table - (USDm) 16 brands is to make money. That is why we connect brands to the bottom line. How We Can Help 26 By valuing brands, we provide a mutually intelligible Contact Details 27 David Haigh, CEO language for marketers and finance teams. Marketers then have the ability to communicate the Brand Finance significance of what they do and boards can use What is the purpose of a strong brand; to attract the information to chart a course that maximises customers, to build loyalty, to motivate staff? All profits. true, but for a commercial brand at least, the first Without knowing the precise, financial value of an answer must always be ‘to make money’. asset, how can you know if you are maximising your returns? If you are intending to license a brand, how Huge investments are made in the design, launch can you know you are getting a fair price? If you are and ongoing promotion of brands. Given their intending to sell, how do you know what the right potential financial value, this makes sense. time is? How do you decide which brands to Unfortunately, most organisations fail to go beyond discontinue, whether to rebrand and how to arrange that, missing huge opportunities to effectively make your brand architecture? Brand Finance has use of what are often their most important assets. conducted thousands of brand and branded Monitoring of brand performance should be the business valuations to help answer these questions. next step, but is often sporadic. Where it does take place it frequently lacks financial rigour and is Brand Finance’s recently conducted share price heavily reliant on qualitative measures poorly study revealed the compelling link between strong understood by non-marketers. brands and stock market performance. It was found that investing in the most highly branded companies As a result, marketing teams struggle to would lead to a return almost double that of the communicate the value of their work and boards average for the S&P 500 as a whole. then underestimate the significance of their brands Acknowledging and managing a company’s to the business. Skeptical finance teams, intangible assets taps into the hidden value that lies unconvinced by what they perceive as marketing within it. The following report is a first step to mumbo jumbo may fail to agree necessary understanding more about brands, how to value investments. What marketing spend there is can them and how to use that information to benefit the end up poorly directed as marketers are left to business. The team and I look forward to continuing operate with insufficient financial guidance or the conversation with you. accountability. The end result can be a slow but 2. Brand Finance TelecomsGlobalAirlines 500 30 500 30February February 2016 20152017 Brand Finance Telecoms 500 February 2017 3. Definitions Effect of a Brand on Stakeholders Definitions E.g. + Enterprise Value – the value of the Telefonica entire enterprise, made up of Directors Potential Middle ‘Branded‘Branded multiple branded businesses Customers Managers Enterprise’Enterprise’ Existing All Other ‘Branded‘Branded + Branded Business Value – the Customers Employees Business’ E.g. Business’ Movistar value of a single branded business operating under the subject brand ‘Brand’ Contribution’ Influencers Production + Brand Contribution– The total e.g. Media Brand E.g. economic benefit derived by a Movistar business from its brand ‘Brand Value’ Trade Sales Channels + Brand Value – the value of the E.g. trade marks (and relating Movistar Strategic marketing IP and ‘goodwill’ Debt Allies & providers attached to it) within the branded Suppliers Investors business Branded Business Value Brand Contribution Brand Value Brand Strength A brand should be viewed in the context of the The brand values contained in our league tables In the very broadest sense, a brand is the focus Brand Strength is the part of our analysis most business in which it operates. For this reason are those of the potentially transferable brand for all the expectations and opinions held by directly and easily influenced by those Brand Finance always conducts a Branded asset only, but for marketers and managers customers, staff and other stakeholders about an responsible for marketing and brand Business Valuation as part of any brand valuation. alike, an assessment of overall brand contribution organisation and its products and services. management. In order to determine the strength Where a company has a purely mono-branded to a business provides powerful insights to help However, when looking at brands as business of a brand we have developed the Brand architecture, the business value is the same as optimise performance. assets that can be bought, sold and licensed, a Strength Index (BSI). We analyse marketing the overall company value or ‘enterprise value’. more technical definition is required. investment, brand equity (the goodwill Brand Contribution represents the overall uplift accumulated with customers, staff and other In the more usual situation where a company in shareholder value that the business derives Brand Finance helped to craft the internationally stakeholders) and finally the impact of those on owns multiple brands, business value refers to from owning the brand rather than operating a recognised standard on Brand Valuation, ISO business performance. the value of the assets and revenue stream of the generic brand. 10668. That defines a brand as “a marketing- business line attached to that brand specifically. related intangible asset including, but not limited Following this analysis, each brand is assigned We evaluate the full brand value chain in order to Brands affect a variety of stakeholders, not just to, names, terms, signs, symbols, logos and a BSI score out of 100, which is fed into the understand the links between marketing customers but also staff, strategic partners, designs, or a combination of these, intended to brand value calculation. Based on the score, investment, brand tracking data, stakeholder regulators, investors and more, having a identify goods, services or entities, or a each brand in the league table is assigned a behaviour and business value to maximise the significant impact on financial value beyond combination of these, creating distinctive images rating between AAA+ and D in a format similar returns business owners can obtain from their what can be bought or sold in a transaction. and associations in the minds of stakeholders, to a credit rating. AAA+ brands are exceptionally brands. thereby generating economic benefits/value”. strong and well managed while a failing brand would be assigned a D grade. 4. Brand Finance Telecoms 500 February 2017 Brand Finance Telecoms 500 February 2017 5. Methodology Understand Your Brand’s Value League Table Valuation Methodology Drivers of Change Brand Finance calculates the values of the 2 Determine the royalty rate range for the respective Brand Value Dashboard Three key areas impact Brand Value (EURm) 18 131 brands in its league tables using the ‘Royalty brand sectors. This is done by reviewing comparable $707m $882m $10,216m 34 (EUR) [XXX] Brand Value (EUR) Brand Value Enterprise Value (EUR) AA+ 729 729 Relief approach’. This approach involves licensing agreements sourced from Brand Finance’s €650m €729m €9,399m 78/100 616 616 650 Historic brand value performance (EURm) Peer Group Comparison (USDm) $6,265 2015 Brand Strength Business Performance External Changes 2016 extensive database of license agreements and other 800 729 estimating the likely future sales that are $3,031 650 $2,328 $1,913 $707 700 607 Brand Strength Business Outlook Economic Outlook 600 attributable to a brand and calculating a royalty online databases. [XXX] [XXX]’s brand strength has increased compared to last year. Brands drive higher revenues. An investor would therefore All future returns are subject to risk. If the risk of not 500 pay more for a brand that makes more money. receiving the forecast returns is higher (increasing the As the brand continues its sustainability drive, [XXX] has discount rate), the brand’s market is not growing as quickly 320 400 Brand Value by Product Segment been improving across all CSR scores. It now has the [XXX]’s revenue base and the 5 year forecast growth have as expected (lower long term growth rate) or the tax rate in 3 Calculate royalty rate. The brand strength score is 275 highest CSR scores it has had in the last four years across fallen this year, resulting in a loss of $177m USD to total the brand’s regions of operation is higher, then the brand’s rate that would be charged for the use of the 300 213 Environment, Employees and Governance. brand value. value is reduced and vice versa. 37% Nutrition 200 The premium approach is also leading to significant margin However, it is important to note that this has arisen as a advantages – positively affecting “performance”. result of the company divesting a number of divisions. 100 Performance Materials brand, i.e. what the owner would have to pay for applied to the royalty rate range to arrive at a royalty 58% 0 Other Activities 4% 2011 2012 2013 2014 2015 2016 2016 2015 2016 2015 2016 2015 Brand 5 Year Forecast the use of the brand—assuming it were not rate.