Transcom presentation at SEB Enskilda Nordic Seminar, January 8, 2013

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Transcom's President & CEO, Johan Eriksson, presented at the SEB Enskilda Nordic Seminar on January 8, 2013

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Transcom presentation at SEB Enskilda Nordic Seminar, January 8, 2013

  1. 1. 8 January 2013TranscomSEB Enskilda Nordic SeminarJohan Eriksson, President & CEOOutstandingCustomerExperience
  2. 2. Transcom at a glance1
  3. 3. What is Transcom?• 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.3
  4. 4. Vision, brand promise and mission Vision Recognised as a global leader in customer experience Brand promise Outstanding customer experience, driving revenue and brand loyalty Mission 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.4
  5. 5. 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
  6. 6. We have an extensive global footprintHome markets Near Shore Locations Offshore Locations Austria  Czech Republic  Canada  Chile* France  USA  Croatia  Peru* Netherlands  Canada  Estonia  Philippines* Slovakia  Italy  Latvia  Tunisia UK  Poland  Czech Republic Belgium  Sweden  Hungary * Developing into home/near shore Germany  Denmark  Lithuania markets Norway  Portugal Spain  Switzerland Australia  Croatia6
  7. 7. Transcom’s organization • 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)7
  8. 8. Transcom’s service portfolio• 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 collections8
  9. 9. Key messages today Situation today and short-term focus Market trends • Transcom’s profitability has decreased • Growth driven by domestic Asia Pacific in recent years, but is now improving and Latin America markets • Continuous focus on underperforming • Diversification (geography and areas business models) • Growth in selected areas and efficiency improvements • Broadening client base Going forward - Strategic direction • Creation of outstanding customer experiences, while helping clients to reduce cost and drive growth • Flexibility is critical9
  10. 10. Transcom’s situation today- short-term focus areas2
  11. 11. Transcom’s operating margin has declined from6% in 2007 to 1% in 2011 Revenue (€m) 631.8 Operating margin* 6.0% 599.2 589.1 4.4% 4.3% 560.2 554.1 2.2% 0.9% 2007 2008 2009 2010 2011 * Underlying performance, excluding restructuring and other non-11 recurring costs
  12. 12. Compared to the same period in 2011, revenue was up by8 percent* and operating margin** doubled in Jan–Sep 2012 442.7 Revenue (€m) Operating margin* 1.4% 411.1 0.7% 9-mo 2011 9-mo 2012 * Excluding currency effects, revenue increased by 5 percent ** Underlying performance, excluding restructuring and other non-recurring costs12
  13. 13. Revenue grew in all units except for CMS. Margin increaseprimarily driven by the North America & APAC and South regions. 2012 2011 Growth Jan-Sep Jan-Sep Y-o-Y Net revenue (€m) North 117.0 102.6 14.0% Central Europe 41.8 41.3 1.3% South 73.3 71.2 3.0% Iberia 88.5 80.4 10.0% North America & AP 80.2 72.6 10.6% CMS 41.8 43.0 -2.9% EBITA margin* North 3.1% 4.6% Central Europe -1.3% 3.1% South -3.7% -7.0% Iberia 4.6% 4.9% North America & AP 1.1% -3.8% CMS 8.9% 8.5% * Underlying performance, excluding restructuring and other non-13 recurring costs
  14. 14. Transcom’s peers generally have a greater share ofEnglish-language and offshore revenue Transcom Peer average* Revenue 2011 (€m) 554 1,200 Operating margin 2011 0.9% 7.7% (underlying) Share of revenue 19% 35-40% generated offshore Share of revenue in 25% Approx. 67% English * Teleperformance, TeleTech, Sykes, Convergys14
  15. 15. What will it take for Transcom to return to historical margins?Continue improving key performance indicators • Seat utilization • Efficiency • Offshore/onshore split • Attrition Improvements on four KPIs vs. previous year Key performance Trend vs. 2011 Sept 2012 vs. Sept 2011 driver Average Seat (86% vs. 74%) Utilization ratio Share of revenue (19% vs. 16%) generated offshore Average Efficiency n/a ratio (billable over worked hours) Monthly attrition n/a15
  16. 16. Successfully address a number of short- andmedium-term operational and financial challenges 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 profitability16
  17. 17. Market trends– Understanding our business3
  18. 18. Communications & Media and Financial Services accountfor almost two-thirds of global industry capacity Distribution of outsourced agent positions* by industry vertical, 2011 100% = 1.58 million Professional services Professional services Travel & Hospitality Healthcare 3%2%1% Government & Education 3% 4% Other 4% Energy & Utilities 4% 39% Communications & Media Manufacturing 4% Retail & Wholesale 8% 26% Financial Services18 * Agent positions in principal markets (reflecting approximately 75-80 percent of total global capacity) Source: Ovum
  19. 19. Increasing demands for quality: an opportunity for TranscomHistoricallyOur task: Respond to voice callsfrom customers as efficiently aspossible, at the lowest possible costTodayOur 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-19
  20. 20. As a consequence of changing client demands, contact center outsourcers’ long-established business model needs to change• PRICE: Ability to offer an attractive Contract structures and vendor incentive schemes price level without sacrificing quality are evolving to put greater emphasis on customer customer service loyalty and revenue generation. Rapidly evolving quality definition: greater focus• QUALITY: Ability to consistently on sales performance and ability to support clients’ achieve essential service level strategic goals; increasing product/service Key Performance Indicators (KPI) complexity; technologically- empowered consumers expect engagement on their terms! Ability to identify issues and opportunities, and to provide an environment that brings together• CAPABILITY TO DRIVE solutions, process changes and technology to drive INNOVATION 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
  21. 21. 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 Expansion in new markets • 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
  22. 22. 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 Increasingly sophisticated non-voice offerings • 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 important22
  23. 23. Industry growth in the coming years will primarily be driven by domestic expansion in Asia Pacific and Latin America Outsourced agent positions* by region, 2011 and 2016e Thousands 2079 2011-16 CAGR 85.9 7.8% 96.5 9.8% 1584 264.8 2.5% Middle East & Africa 59Central & East Europe 60.5 83% of expected growth in Latin 466.3 7.1% Western Europe 234.5 America is domestic, i.e. non-offshore Latin America 330.8 2.7% 481.3 North America 420.6 64% of expected growth in Asia 683.8 7.4% Pacific is domestic, i.e. non-offshore Asia Pacific 478.5 2011 2016 23 * Agent positions in principal markets (reflecting approximately 75-80 percent of total global capacity) Source: Ovum, Transcom analysis
  24. 24. The number of work-at-home agents is expected to growsignificantly faster than contact center-based agents Global outsourced home-based agent growth*, Key drivers 2011–2015* • Higher quality of customer 140000 service • Lower overall cost 120000 2011–15 CAGR = 18% • Scheduling flexibility 100000 • Empowers employees 80000 • Resilience in face of external disruption 60000 • Lower absenteeism and better staff retention 40000 • Ability to recruit high-quality 20000 employees 0 2011 2012 2013 2014 2015 * Total agents working exclusively from home for 20 or more hours per week Source: Ovum24
  25. 25. Going forward– Transcom’s strategic direction4
  26. 26. Transcom’s brand promise” Outstanding Customer Experience, driving revenue and brand loyalty26
  27. 27. How we increase revenue and reduce costsBaseline Apply our Apply Maximize Manage Optimize operationaloperating industry segmented workforce sourcing mix performanceenvironment experience channel options effectiveness and business results27
  28. 28. A range of disciplines underpin theeffective 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
  29. 29. Growth opportunitiesNorth America and Asia Pacific• Continue expanding in local markets in Asia PacificLatin America• Serving domestic markets and the US, in addition to Spanish clientsNorth EuropeCentral Europe• Near shore
  30. 30. Summary: key priorities going forward 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 base30
  31. 31. Thank you!Questions?
  32. 32. AppendixBack-up slides and key financials, Q3 2012
  33. 33. Revenue is typically driven by the timethat our agents spend in contact with customers Illustrative Actual call volume “Extraordinary circumstances” (~>120% of forecast) Volume forecastGuaranteed volume(~80-90% of forecast)• 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 limit33
  34. 34. Flexibility is critical sinceour industry is very event-driven Example Staffing need based on actual volume Scheduled staffing level based on forecast Delayed campaign Invoice sent out two days later than forecast Time34
  35. 35. Q3 2012 Group financial results • 11.7% revenue increase 142.8 147.1 147.4 148.2 - All our regions managed to deliver growth while132.7 CMS revenue fell • Gross margin 19.1% (19.2%) - Improvements in NAA and South offset by 25.1 27.6 26.5 27.3 28.3 decreases in other regions and CMS 2.7 2.2 2.4 2.2 • EBITA €2.2m (€-4.8m). Q311 impacted by €8.6m in -4.8 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 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
  36. 36. EBITA, Q312 vs. Q311• 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 * Underlying performance, excluding restructuring and other non-recurring costs 36
  37. 37. North America & Asia Pacific Region* Net Revenue (€m) Gross Profit (€m) EBITA (€m) 19%30.0 27.0 27.9 24.6 25.8 25.425.020.015.0 o Revenue increased by 13.1%10.0 6.9 6.7 o Continued expansion in the Philippines 5.1 5.8 6.2 5.0 o New volumes and shift of volumes offshore 0.1 0.3 1.0 0.0 o Gross margin up by 3.3 percentage points-5.0 -0.5 -0.5 o Higher share of volumes delivered from offshore Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 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 * Underlying performance, excluiding restructuring and other non- offshore recurring costs in 2011 o Onshore capacity utilization ** Historical data reflects a reclassification of costs from depreciation to o Focus on quality and service delivery amortization
  38. 38. Central Europe Region* 9%16.014.012.010.0 8.0 o Revenue increased by 2.5% o Ramp-up of a contract with a new consumer 6.0 electronics client in the Netherlands. 4.0 2.0 0.0 o Positive volume trend with our installed client base in-2.0 some countries, particularly in Poland and Hungary.-4.0 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
  39. 39. Iberia Region* 19%35.030.025.020.0 o Revenue increased by 8.3%15.0 o Additional volumes with existing clients in Spain10.0 o New business in Spain and Portugal 5.0 o Gross margin decreased by 0.9 percentage 0.0 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
  40. 40. North Region* 28%45.040.035.030.025.0 o Revenue increased by 23.2%20.0 o Increased contact center volumes with existing clients15.010.0 o Growth in the interpretation business 5.0 o Gross margin decreased 1.9 percentage points o Lower operational efficiency 0.0 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
  41. 41. South Region* 16%30.025.020.015.0 o Revenue increased by 14.0% o Higher onshore volumes with existing clients in10.0 5.0 Italy 0.0 o New business for Italian clients delivered from-5.0 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 * Underlying performance, excluiding restructuring and other non- recurring costs in 2011 o France turnaround ** Historical data reflects a reclassification of costs from depreciation to o Continue improving operational efficiency amortization o Sales: funnel build-up and deal closure.
  42. 42. Credit Management Services (CMS)*16.0 9%14.012.010.0 8.0 6.0 o Revenue decreased by 6.1% 4.0 o Decrease in case volumes and collection rates, 2.0 particularly in Germany, Austria and Poland 0.0 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 * Underlying performance, excluiding restructuring and other non- recurring costs in 2011 o Improve operational efficiency ** Historical data reflects a reclassification of costs from depreciation to o Execution of the UK turnaround amortization o Appoint a new Head of CMS
  43. 43. Financial StatementsConsolidated 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.
  44. 44. Financial StatementsBalance Sheet 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)
  45. 45. Financial StatementsCash Flow 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
  46. 46. Debt & Leveraging Gross debt (€ m) Net debt (€ m) Net debt/EBITDA 4.50 Gross debt decreased by €35.3m vs. Q311140.0 126.8 o 117.8 4.00120.0 111.2 3.50 o Net Debt decreased by €41.3m compared to the Q311 level100.0 89.1 3.00 74.7 73.4 75.9 80.0 71.0 2.50 65.3 65.0 o Net Debt/EBITDA ratio: 1.71 (4.2 in Q311) 60.0 2.00 1.50 o Interest charge €0.5m (€1.1m in Q311) 40.0 32.1 1.00 17.2 20.0 13.2 11.9 0.50 0.0 0.00 Q111 Q211 Q311 Q411 Q112 Q212 Q312 (€ 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
  47. 47. 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

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