Message from Management
Algar Telecom will always remember 2012 as a year of intense work, overcoming challenges and making great strides. It was a period in which it faced a challenging economic and industry environment. In the international arena, the lingering crisis in Europe, the slowdown in China and the sluggish recovery in the U.S. all contributed to a drop in exports and, consequently, in the inflow of U.S. dollars into Brazil. In Brazil, economic activity was affected by low investment levels due to these uncertainties, mainly in the first half of the year; as a result, GDP grew a disappointing 0.9% in 2012. In addition, the service industry continued to face cost pressure from talent maintenance and retention.
This adverse situation was even more challenging for Algar Telecom, the only telecom company fully owned by Brazilian investors. The Company relied on efficient strategic planning to make wise decisions, in order to become more competitive, increase liquidity, sustain investments and continue expanding geographically and attracting clients. As a result, it had 2.3 million Revenue Generating Units, and recorded consolidated net revenues of R$1.8 billion and net income of R$141 million at the close of 2012.
On the financial front, the Company had a major success. The market responded very positively to its second issue of debentures, which exceeded the minimum levels required by the Novo Mercado de Renda Fixa (New Fixed Income Market) rules and amounted to R$358 million. However, we restricted ourselves to R$294 million, which corresponds to the 35% additional amount permitted by regulations. At the end of the process, we had a very diverse group of investors. The new capital inflow allowed the Company to pay in advance 97% of the outstanding balance of the first issue debentures, issued in 2007 and maturing up to 2014. As a result, the Company was able to extend its average debt maturity while sustaining its cash reserves, needed to continue expanding its businesses focused on the corporate sector.
There were also changes in the operational environment of our business. Always at the forefront of new technologies, Algar Telecom continued to offer ultra-broadband services to the retail market and expanded its pay TV package, which currently comprises over 170 channels, 44 of which in high-definition. Concerning client relations, we expanded SAC 2.0, which is now part of other social networks, and introduced Clube Corporativo Prime (Prime Corporate Club), created to cater to a group of special clients that may buy products and services from the Company's different business segments.
In the Minas Gerais State expansion area, in which Algar Telecom started operating in late 2011 when it obtained the Band H license, we consolidated our position in the 19 new cities where we offer fixed-line phone, 3G mobile phone, broadband internet and pay TV combo packages.
The efforts to strengthen the Algar brand greatly contributed to the great expansion in the corporate market, one of the Company's key target markets for expansion. The strategic initiatives focusing on this niche comprise top-quality cost-effective solutions and close relationships with clients. In addition, we opened Casa Algar in São Paulo City in 2012 and are planning to open more of these facilities in 2013. That will bring us closer to our current and prospective clients, thus making the Company even more competitive and strengthening Algar Telecom's presence in state capitals.
We confidently stress that our achievements in 2012, as well as others that have always marked the Company's history, resulted from the unique way we serve our clients on a daily basis, regardless of where they are based. Algar Telecom, as well as all other Algar companies, follows its vision PEOPLE SERVING PEOPLE in all its initiatives. These words concisely describe our unique way of doing business, in which all investments in infrastructure and human capital focus only on offering quality and good services to satisfy our clients.
All this dedication and focus were essential for the Company to overcome the challenges and improving client satisfaction. In fact, satisfaction rates came to 86% among corporate clients and 72% among retail clients, considered high in the industry. In addition to Algar Telecom's professionals' performance, this recognition was also due to our competitive intelligence initiatives, risk management policies and improved Innovation Program, which pervades and is expanding throughout the organization and is a key component in our search for product and service quality.
We are immersed in a culture of innovation. Proof to that is the R$43-million profit that Algar Telecom has achieved since 2007 by developing new platforms, processes and equipment, in addition to the gains that it made by insourcing knowledge and remaining independent from international suppliers. To make even greater strides in innovation, we invested in innovative ideas and projects that may help the Company reduce costs and become more competitive. As a result, the Company was ranked the most innovative telecom company in 2012 by consulting firm A. T. Kearney, in a ranking published by Época Negócios magazine.
Our policy of valuing human talents is widely recognized as well. We offer a career path with clear opportunities for growth, adopt a merit-based management model and are committed to our professionals' quality of life and well-being in and out of the Company. Our most significant advance in this regard in 2012 was extending PDI da Saúde, a life quality program initially offered to executives only, to all associates.
We also invested heavily in job training programs in 2012. It is worth noting the Integrar (Integrate) Program, designed by UniAlgar, the Group's corporate university, especially to bring all Algar Telecom's associates closer to the Company's strategic goals. In 2012, investing in professional development helped improve services in the segments of Business Process Outsourcing and IT, mainly concentrated at Algar Tecnologia, whose data center in Campinas, São Paulo State, was enlarged by 30% to cope with the expansion of operations, and of Engeset, which is in telecommunications engineering. Likewise, Algar Mídia focused on training sales professionals in the specifics of digital media, which have a great growth potential in the near future.
The expansion of our operations and other developments described in this Annual Report resulted from our good corporate governance practices as well, including the involvement of the Board of Directors, a risk management policy that improved considerably in 2012 and our commitment to sustainability at all levels.
In addition to business perpetuity, Algar Telecom's management model seeks to promote value creation throughout its relationship chain. As a result, our environmental policy goes far beyond the effort to mitigate environmental impact. Our main purpose is to enable and encourage our associates, clients, suppliers and communities to contribute to the future of the planet. This effort, which we call internally Influência Verde (Green Influence), is supported by a series of practices designed to increase energy efficiency, promote correct waste disposal and reduce greenhouse gas emissions, for example. On the social front, Algar Telecom invested over R$5 million in 2012. The direct investments from the Company and those from tax incentive laws were allocated to educational initiatives developed by Instituto Algar and cultural events held in the fifteen cities in which the Company is present.
We started 2013 ready to face the future challenges. We believe in a more favorable economic environment, which will lead to increased demand from the corporate market niche, to which our expansion strategy is directed. We also believe that the new investments, coupled with ANATEL's regulatory measures, will allow Algar Telecom to compete more aggressively in the mobile phone market. However, we have no doubt that the Company's success will always be related to its ability to provide a unique experience for clients. Therefore, we are going to continue investing heavily in innovation and human talent management, in addition to infrastructure.
We take this opportunity to thank all the people who are part of Algar Telecom's history— clients, board members, regulators, governments, creditors, associates and suppliers— and reaffirm our commitment to being a unique Company where everyone is glad to help build a better world.
Divino Sebastião de Souza
Algar Telecom's CEO
Luiz Alberto Garcia
Chairman of the Board of Directors
