transcom presentation at seb enskilda nordic seminar, january 8, 2013
DESCRIPTION
Transcom's President & CEO, Johan Eriksson, presented at the SEB Enskilda Nordic Seminar on January 8, 2013TRANSCRIPT
8 January 2013
Transcom SEB Enskilda Nordic Seminar
Johan Eriksson, President & CEO
Outstanding
Customer
Experience
Transcom at a glance
1
3
• A global customer experience
specialist...
• ...providing outsourced
customer care, sales,
technical support, and credit
management...
• ...through an extensive
network of contact centers
and work-at-home agents Transcom’s business is to
help make sure that our
clients’ customers form
positive perceptions of their
interactions with them.
”
What is Transcom?
Vision
Brand promise
Mission
Recognised as a global leader in customer experience
Transcom enables companies to enhance their business
performance by improving the experience of their
customers.
For this we use:
• Talented, experienced and committed people, who
deliver outstanding customer experience across a
multitude of channels,
• Innovative technology for capturing, processing and
analysing customer intelligence,
• Continuously improved processes, working methods
and systems, for serving customers and advising clients,
• Deep understanding of customer trends, needs and
behavior.
Outstanding customer experience, driving revenue and
brand loyalty
4
Vision, brand promise and mission
Transcom in numbers
• More than 27,000 people, and growing fast
• 70 contact centers, onshore, off-shore and near shore
• 28 countries
• Delivering services in 33 languages
• To over 350 clients in various industry verticals
• €554 million revenue (2011)
• Market cap: SEK 691 million as at December 28, 2012. Listed on NASDAQ OMX Stockholm
(TWW SDB B and TWW SDB A)
5
We have an extensive global footprint
Home markets
Austria
France
Netherlands
Slovakia
UK
Belgium
Germany
Norway
Spain
Australia
Near Shore Locations Offshore Locations
Chile*
Peru*
Philippines*
Tunisia
6
Czech Republic
USA
Canada
Italy
Poland
Sweden
Denmark
Portugal
Switzerland
Croatia
* Developing into home/near shore
markets
Canada
Croatia
Estonia
Latvia
Czech Republic
Hungary
Lithuania
Transcom’s organization
7
• Corporate management
- CEO, CFO, CIO, Head of Operations, Head of Global
Sales & Accounts
• Regional management
- North region (28% of revenue)
- Iberia (19% of revenue)
- North America & Asia Pacific (19% of revenue)
- South (16% of revenue)
- Central Europe (9% of revenue)
- Credit Management Services (CMS) in eight European
countries (9% of revenue)
Transcom’s service portfolio
8
• Customer service
Customer experience specialists trained to support best-in-class product, service and brand experiences for our clients’ customers
• Technical support
Tiered support models, from the simplest questions to more complex support scenarios
• Customer retention
Preventing defection and maximizing the lifetime of a customer
• Customer acquisition
Acquiring new customers cost-efficiently, and building strong customer relationships as a basis for future interactions
• Cross- and upselling
Building relationships and identifying customer needs during any type of interaction, and taking appropriate action to satisfy the customer’s need
• Credit management services (CMS)
Early collections, Contingent collections and Legal collections
Key messages today
9
Situation today and short-term focus
• Transcom’s profitability has decreased
in recent years, but is now improving
• Continuous focus on underperforming
areas
• Growth in selected areas and efficiency
improvements
• Broadening client base
Market trends
• Growth driven by domestic Asia Pacific
and Latin America markets
• Diversification (geography and
business models)
Going forward - Strategic direction
• Creation of outstanding customer
experiences, while helping clients to
reduce cost and drive growth
• Flexibility is critical
Transcom’s situation today - short-term focus areas
2
599.2
631.8
560.2
589.1
554.1
2007 2008 2009 2010 2011
Transcom’s operating margin has declined from 6% in 2007 to 1% in 2011
11
Revenue (€m)
Operating margin*
6.0%
4.4% 4.3%
2.2%
0.9%
* Underlying performance, excluding restructuring and other non-
recurring costs
411.1
442.7
9-mo 2011 9-mo 2012
Compared to the same period in 2011, revenue was up by 8 percent* and operating margin** doubled in Jan–Sep 2012
12
Revenue (€m)
Operating margin*
0.7%
* Excluding currency effects, revenue increased by 5 percent
** Underlying performance, excluding restructuring and other non-recurring costs
1.4%
Revenue grew in all units except for CMS. Margin increase primarily driven by the North America & APAC and South regions.
13
* Underlying performance, excluding restructuring and other non-
recurring costs
2012
Jan-Sep
2011
Jan-Sep
Growth
Y-o-Y
Net revenue (€m)
North
Central Europe
South
Iberia
North America & AP
CMS
117.0
41.8
73.3
88.5
80.2
41.8
102.6
41.3
71.2
80.4
72.6
43.0
14.0%
1.3%
3.0%
10.0%
10.6%
-2.9%
EBITA margin*
North
Central Europe
South
Iberia
North America & AP
CMS
3.1%
-1.3%
-3.7%
4.6%
1.1%
8.9%
4.6%
3.1%
-7.0%
4.9%
-3.8%
8.5%
Transcom’s peers generally have a greater share of English-language and offshore revenue
* Teleperformance, TeleTech, Sykes, Convergys
14
Transcom Peer average*
Revenue 2011 (€m) 554
1,200
Operating margin 2011
(underlying)
0.9%
7.7%
Share of revenue
generated offshore
19% 35-40%
Share of revenue in
English
25% Approx. 67%
What will it take for Transcom to return to historical margins?
15
Key performance
driver
Trend vs. 2011 Sept 2012 vs. Sept 2011
Average Seat
Utilization ratio
(86% vs. 74%)
Share of revenue
generated offshore
(19% vs. 16%)
Average Efficiency
ratio (billable over
worked hours)
n/a
Monthly attrition n/a
Improvements on four KPIs vs. previous year
Continue improving key performance indicators
• Seat utilization
• Efficiency
• Offshore/onshore split
• Attrition
Successfully address a number of short- and medium-term operational and financial challenges
16
Stop the losses in France (€1m/month in 2012). Transcom plans to stop financing
the French subsidiary’s loss-making operations beyond March 1, 2013
Increase onshore seat utilization in North America
Successfully resolve tax claims
Germany – renegotiate labor agreements
Return UK CMS to profitability
Market trends – Understanding our business
3
Communications & Media and Financial Services account for almost two-thirds of global industry capacity
18
Communications & Media 39%
26%
Financial Services
Retail & Wholesale 8%
Manufacturing 4%
Energy & Utilities 4%
4%
4% Other
Government & Education Healthcare
3% 3%
Travel & Hospitality
Professional services
2% 1%
Professional services
Distribution of outsourced agent positions* by industry vertical, 2011
100% = 1.58 million
* Agent positions in principal markets (reflecting approximately 75-80 percent of total global capacity)
Source: Ovum
Increasing demands for quality: an opportunity for Transcom
19
Historically
Our task: Respond to voice calls
from customers as efficiently as
possible, at the lowest possible cost
Today
Our task has expanded:
Deliver excellent customer experience
New channels and technology platforms
Offer more knowledge due to diversity of
products and greater customer
demands
Generating a much higher degree of
revenue and brand loyalty to clients
Feed back customer intelligence to
clients
-
• PRICE: Ability to offer an attractive
price level without sacrificing quality
customer service
• QUALITY: Ability to consistently
achieve essential service level
Key Performance Indicators (KPI)
• CAPABILITY TO DRIVE
INNOVATION
Contract structures and vendor incentive schemes
are evolving to put greater emphasis on customer
loyalty and revenue generation.
Rapidly evolving quality definition: greater focus
on sales performance and ability to support clients’
strategic goals; increasing product/service
complexity; technologically- empowered consumers
expect engagement on their terms!
Ability to identify issues and opportunities, and to
provide an environment that brings together
solutions, process changes and technology to drive
new, different and innovative approaches.
Achieving a tight integration across different
channels for customer interaction will become an
even greater imperative for our clients.
20
As a consequence of changing client demands, contact center outsourcers’ long-established business model needs to change
Market trend: Increased diversification in terms of market presence
• Stagnant growth in mature, Western outsourcing
markets
• Significantly higher levels of growth in selected
developing markets, and rising interaction volumes with
an increasingly sophisticated customer base
• Outsourcers will seek to capitalize on
domestic opportunities in developing markets,
to drive growth and diversify revenue
• Traditional offshore locations also developing
into domestic delivery centers
Expansion in new markets
Market trend: Diversification in service channels changes business models
• Social networks are emerging as important customer
service channels
o Although still small in relation to voice, email and chat
• A growing number of people are more comfortable with non-
voice channels, and expect interaction on their terms...
• …As a result, companies are getting serious about social
media in customer service and marketing
22
• Outsourcers need to further develop analytics platforms
and KPIs specific to customer service via social media
• Agents are not only customer service representatives;
they become PR agents and brand ambassadors.
Implications for training and recruiting
• Channel integration will become more important
Increasingly sophisticated non-voice offerings
Industry growth in the coming years will primarily be driven by domestic expansion in Asia Pacific and Latin America
478.5 683.8
420.6
481.3 330.8
466.3 234.5
264.8
60.5
96.5
59
85.9
2011 2016
23
Central & East Europe
Western Europe
Latin America
North America
Asia Pacific
1584
2079 2011-16 CAGR
7.8% 9.8%
7.1%
2.7%
7.4%
* Agent positions in principal markets (reflecting approximately 75-80 percent of total global capacity)
Source: Ovum, Transcom analysis
Middle East & Africa
2.5%
83% of expected growth in Latin
America is domestic, i.e. non-offshore
64% of expected growth in Asia
Pacific is domestic, i.e. non-offshore
Outsourced agent positions* by region, 2011 and 2016e
Thousands
The number of work-at-home agents is expected to grow significantly faster than contact center-based agents
0
20000
40000
60000
80000
100000
120000
140000
2011 2012 2013 2014 2015
24
2011–15 CAGR = 18%
Global outsourced home-based agent growth*,
2011–2015*
* Total agents working exclusively from home for 20 or more hours per week
Source: Ovum
• Higher quality of customer
service
• Lower overall cost
• Scheduling flexibility
• Empowers employees
• Resilience in face of external
disruption
• Lower absenteeism and better
staff retention
• Ability to recruit high-quality
employees
Key drivers
Going forward – Transcom’s strategic direction
4
26
Transcom’s brand promise
Outstanding Customer
Experience, driving
revenue and brand
loyalty
”
How we increase revenue and reduce costs
27
Baseline
operating
environment
Apply our
industry
experience
Apply
segmented
channel options
Maximize
workforce
effectiveness
Manage
sourcing mix
Optimize operational
performance
and business results
A range of disciplines underpin the effective delivery of customer care services
• Operations: Deliver training, manage day-to-day performance and ensure that the right
skills are available in the right place in the right quantity.
• Business Support Team (BST): Provides the intelligence and applies it to the data that is at
the heart of the contact center. This can consist of leveraging workforce optimization tools
such as eWFM to helping clients better understand their customers by using quality
monitoring and advanced voice analytics.
• Human Resources (HR): The performance of finding, recruiting and training new staff or
ensuring that tenured staff are leveraged and retained as campaigns flex in volumes, is
essential in a “people business”
• Information Technology (IT): Contact center staff are 100% IT enabled – which means any
break in availability has a direct and measurable impact on the business of Transcom and its
clients. Integration to client systems, together with cost efficient call delivery, is an essential
and fundamental component of providing outsourced contact center services.
28
North America and Asia Pacific • Continue expanding in local markets in Asia Pacific
Latin America • Serving domestic markets and the US,
in addition to Spanish clients
North Europe
Central Europe • Near shore
Growth opportunities
30
Short-term focus
• Continuous focus on executing turnaround in underperforming areas
• Continued focus on revenue expansion and efficiency improvements
• Increased focus on quality and service delivery to support significant ramp-up of new volumes
Medium-to long-term priorities
• Grow revenue in line with overall market growth in the markets where we choose to compete
• Improve profitability and decrease earnings volatility
- Continuously strengthen operational efficiency
- Optimizing our geographic delivery mix
- Focus on broadening our client base
Summary: key priorities going forward
Thank you! Questions?
Appendix Back-up slides and key financials, Q3 2012
Revenue is typically driven by the time that our agents spend in contact with customers
• Accuracy of volume forecast is key to planning and profitability
• Transcom typically commits to delivering against agreed service levels for volumes in the
range of 80-120 percent of the forecast (non-compliance being subject to penalties)
• Average call time is capped: Transcom does not get paid for time exceeding this limit
33
Volume forecast
Guaranteed volume
(~80-90% of forecast)
“Extraordinary
circumstances”
(~>120% of forecast)
Actual call volume
Illustrative
Flexibility is critical since our industry is very event-driven
34
Scheduled staffing level based on forecast
Staffing need based on actual volume
Invoice sent out
two days later
than forecast
Delayed
campaign
Time
Example
• 11.7% revenue increase
- All our regions managed to deliver growth while
CMS revenue fell
• Gross margin 19.1% (19.2%)
- Improvements in NAA and South offset by
decreases in other regions and CMS
• EBITA €2.2m (€-4.8m). Q311 impacted by €8.6m in
restructuring- and other non-recurring costs.
• EBITA margin: 1.5%, up from -3.6% in Q311
• Net currency impact:
Y-o-Y Revenue +€6.4m, EBITA +€0.2m
• EPS at -0.3 euro cents, compared to -31 euro cents in
Q311
• Net Debt decreased by €41.3m to €32.1m; Current Net
Debt / EBITDA ratio at 1.71 (4.2 in Q311)
• Net cash flow from operations €-13.2m compared to
€18.9m in Q311
132.7 142.8 147.1 147.4 148.2
25.1 27.6 26.5 27.3 28.3
-4.8
2.7 2.2 2.4 2.2
Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012
-
Q3 2012 Group financial results
EBITA, Q312 vs. Q311
36
* Underlying performance, excluding restructuring and other non-recurring costs
• Overall, savings from the restructuring program were more than offset by additional expansion
and ramp-up costs, and – to a lesser extent – by volume and efficiency deterioration in some
regions, as well as investments in sales & support functions
• Q312 results impacted by significant expansion costs, particularly in the Philippines. Revenue
associated with these investments will increase gradually in the coming months
19%
North America & Asia Pacific Region*
o Revenue increased by 13.1%
o Continued expansion in the Philippines
o New volumes and shift of volumes offshore
o Gross margin up by 3.3 percentage points
o Higher share of volumes delivered from offshore
sites in the Philippines
o Increased operational efficiency and capacity
adjustment
o EBITA decreased by €0.6m
o increased investments related to further expansion in
the Philippines
o Revenue associated with these investments to be
gradually ramped up during the coming months
o Key priorities
o Continue acquisition of new clients
o Recruitment and training to support massive ramp
offshore
o Onshore capacity utilization
o Focus on quality and service delivery
* Underlying performance, excluiding restructuring and other non-
recurring costs in 2011
** Historical data reflects a reclassification of costs from depreciation to
amortization
24.6 25.8 25.4
27.0 27.9
5.1 5.8 6.2 6.9 6.7
0.1
-0.5
0.3 1.0
-0.5 -5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012
Net Revenue (€m) Gross Profit (€m) EBITA (€m)
9%
Central Europe Region*
o Revenue increased by 2.5%
o Ramp-up of a contract with a new consumer
electronics client in the Netherlands.
o Positive volume trend with our installed client base in
some countries, particularly in Poland and Hungary.
o Gross margin decreased by 2.5 percentage points
o Lower volume and efficiency in Germany.
o Start-up costs related to new business in the
Netherlands
o EBITA decreased by €0.5m
o Factors described above, and higher costs related to
new volumes.
o Key priorities
o Germany: increase capacity utilization and improve
efficiency
o Sales: funnel build-up and deal closure
* Underlying performance, excluiding restructuring and other non-
recurring costs in 2011
** Historical data reflects a reclassification of costs from depreciation to
amortization
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
19%
Iberia Region*
o Revenue increased by 8.3%
o Additional volumes with existing clients in Spain
o New business in Spain and Portugal
o Gross margin decreased by 0.9 percentage
points
o Appreciation of the Chilean Peso
o Higher salary costs in Chile following a new labor
agreement.
o EBITA decreased by €0.4m
o SG&A increased due to investments related to
expansion, both in Spain and Peru
o Key priorities
o Growth Latin America (on- and offshore), new site
in Lima, Peru
o Continue driving operational efficiency
o Sales: funnel build-up and deal closure
* Underlying performance, excluiding restructuring and other non-
recurring costs in 2011
** Historical data reflects a reclassification of costs from depreciation to
amortization
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
28%
North Region*
o Revenue increased by 23.2%
o Increased contact center volumes with existing clients
o Growth in the interpretation business
o Gross margin decreased 1.9 percentage points
o Lower operational efficiency
o Higher training costs, mainly as a result of attrition
o EBITA decreased by €0.3m
o SG&A costs increased compared, mainly due to
investments in strengthening our sales force and
support functions
o Key priorities
o Stabilize ramp-up of new volumes
o Implementation of new clients
o Continue improving operational efficiency
o Sales: funnel build-up and deal closure
o Focus on quality and service delivery * Underlying performance, excluiding restructuring and other non-
recurring costs in 2011
** Historical data reflects a reclassification of costs from depreciation to
amortization
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
16%
South Region*
o Revenue increased by 14.0%
o Higher onshore volumes with existing clients in
Italy
o New business for Italian clients delivered from
offshore centers
o Gross margin increased by 4.7 percentage points
o Volume increases and efficiency improvements in
Italy
o Higher proportion of offshore delivery at higher
margins.
o The closure of the Vélizy site, and additional cost
savings in France
o EBITA improved by €0.7m
o Driven by factors described above. SG&A costs
increased, mainly due to increased volumes in Italy
and ramp-up costs.
o Key priorities
o France turnaround
o Continue improving operational efficiency
o Sales: funnel build-up and deal closure.
* Underlying performance, excluiding restructuring and other non-
recurring costs in 2011
** Historical data reflects a reclassification of costs from depreciation to
amortization
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
9%
Credit Management Services (CMS)*
o Revenue decreased by 6.1%
o Decrease in case volumes and collection rates,
particularly in Germany, Austria and Poland
o Good growth potential based on recent strong
sales performance
o Gross margin decreased by 3.3 percentage points
o Decrease in volumes handled
o EBITA decreased by €0.5m
o Cost reduction initiatives lowered SG&A expenses
by €0.3 million
o In the UK, performance is improving steadily and
we expect a full turnaround during 2013, driven by
volume growth, operational efficiency
improvements and SG&A savings
o Key priorities
o Generate new volumes, installed base and new
logos
o Improve operational efficiency
o Execution of the UK turnaround
o Appoint a new Head of CMS
* Underlying performance, excluiding restructuring and other non-
recurring costs in 2011
** Historical data reflects a reclassification of costs from depreciation to
amortization
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Financial Statements
Consolidated Financial Summary o Net revenue €148.2m in Q312, up
11.7% compared to Q311.
o Gross margin flat. Margin
improvements in the North America &
Asia Pacific and South regions.
Margins fell in CMS, Central Europe,
North, and Iberia.
o SG&A costs in Q312 amounted to
€26.1 million, compared to 29.9
million in Q311. In Q311, SG&A cost
included €8.3 million in restructuring-
and non-recurring costs.
o Net financial result: €-2.1 (€-1.8m).
Interest expense €-0.5 (€-1.1m).
* Historical data reflects a reclassification of €0.3m in costs from
depreciation to amortization
** Q3 2011 includes €8.6 million of restructuring & non-recurring costs.
-
Financial Statements
o Net debt €32.1 as at
September 30, 2012,
compared to €73.4m as at
September 30, 2011
o Net Debt / EBITDA ratio at
1.71 (0.77 in Q212)
o Consolidated net financial
expenses/EBITDA at 5.78x
(5.42 in Q212)
Balance Sheet
Financial Statements
o Net cash flow provided by operations
was €-13.2m, compared to €18.9m in
Q311
o Net working capital was €51.5 million,
an increase of €10.2 million (€41.3
million in Q212).
o Significant rise in trade receivables,
resulting from late payment by
clients, as well as increased
revenues.
o Capex in Q312 was €2.3m
Cash Flow
Debt & Leveraging
o Gross debt decreased by €35.3m vs. Q311
o Net Debt decreased by €41.3m compared to
the Q311 level
o Net Debt/EBITDA ratio: 1.71 (4.2 in Q311)
o Interest charge €0.5m (€1.1m in Q311)
(€ millions) Q312 Q212 Q112 Q411 Q311 Q211 Q111 Q410 Q310 Q210
Gross debt 75.9 71.0 65.0 65.3 111.2 126.8 117.8 118.5 118.4 133.1
Net debt 32.1 17.2 11.9 13.2 73.4 89.1 74.7 77.5 81.8 85.7
Net debt/EBITDA 1.71 0.77 0.71 0.75 4.2 4.2 2.6 2.5 2.3 2.3
Interest charge -0.8 -0.8 -0.7 -1.3 -1.1 -0.9 -0.6 -0.6 -0.4 -0.5
117.8
126.8
111.2
65.3 65.0 71.0
75.9 74.7
89.1
73.4
13.2 11.9 17.2
32.1
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
Q111 Q211 Q311 Q411 Q112 Q212 Q312
Gross debt (€ m) Net debt (€ m) Net debt/EBITDA
Cost reduction initiatives to yield €1.9m in annual savings
• In order to further align our cost base to current business conditions, and concentrate the focus
of our central support teams, we will be making some changes to our corporate organization
• Reduction of overhead costs by approximately €1.9 million on an annual basis, with full effect
from 2013
• Restructuring costs amounting to approximately €1.7 million will impact Q4 2012 results
