“We signed several new client agreements in 2016, both with new clients and with existing ones.”
We are continuing to progress well against our mid-term financial targets, despite a challenging first half of the year. In the first and second quarters, we experienced an unexpected temporary volume drop in the English-speaking markets & APAC region, as well as soft volumes in the telecom sector in North Europe. In response, we implemented a number of initiatives in order to boost growth, control cost, and raise efficiency. These measures brought about a quick performance recovery during the second half of 2016, as evidenced by the improvement in our EBIT margin from 2.2 percent in the January-June period to 5.5 percent during July-December. This means that we are now within reach of our target to generate an annual EBIT margin of at least five percent.
Back to positive organic growth in the last quarter of the year
While we are not yet back to last year’s revenue level, our efforts to win new business in order to fill unused capacity in the English-speaking markets & APAC region started to yield good results during the third quarter. We ramped up new business volumes with several of our existing clients, as well as with a few new clients. The positive trend continued into the fourth quarter, with a fast-improving utilization of available capacity. In Europe, solid growth with clients in other sectors compensated for lower volumes with telecom clients compared to last year. Our full-year and Q4 financials clearly reflect this positive progression during the year. While organic revenue growth was negative from a full-year perspective (-4.4%), we managed to return to positive organic growth in the fourth quarter (+1.4%).
We signed several new client agreements in 2016, both with new clients and with existing ones. In order to build stronger partnerships with global clients, and facilitate further expansion with them in new geographies, we established a number of new global account teams during the year. We also expanded our footprint in 2016 by opening a new site in the city of Bialystok in Poland. This new site will support growth with clients in Poland, focusing on delivering customer care services in the Polish language on behalf of domestic clients. Our other two locations in Poland, in Gdansk and Olsztyn, have evolved into important multilingual delivery hubs for clients in major European countries. The expansion in Bialystok will allow these other sites in Poland to focus on further expanding their multilingual delivery capacity, meeting the high demand for this type of service.
Because business volumes (demand for customer care support) can vary significantly over time in our industry, it is critical that we keep growing and broadening our client base, while also maintaining a high degree of flexibility and responsiveness. Our target is to generate organic revenue growth of at least five percent per year.
Improved efficiency and strengthened cost control
The fact that we have been filling unused capacity with new business volumes is a key factor behind our positive profitability trend. But we also made significant progress during the year in terms of improved operational efficiency and cost effectiveness. First, the realignment of our regional management structure in the Continental Europe region was fully implemented during the fourth quarter. This program is estimated to yield €2.9 million in annual cost savings.
Another key project in 2016 was our Group-wide operational excellence program, which also included a comprehensive internal site benchmarking exercise. A majority of our sites were scrutinized during the year, focusing on root cause analysis and the identification of best practices. This project has improved the level of transparency throughout our organization, contributing to a strengthened performance culture and internal competition mindset. I am happy to report that the operational excellence program delivered positive results in all regions. We made good progress in terms of reducing staff attrition and sickness, along with improvements in workforce management, recruitment processes and standardization. Overhead reduction and improved support ratios have also contributed to cost savings. Apart from cost optimization and efficiency improvements, we have also managed to make some enhancements from a commercial standpoint as a result of renegotiations with clients.
Driving standardization and efficiency across our global business will continue to be an important priority for Transcom, key to protecting and enhancing our competitive position in the marketplace.
Innovation and business development
The customer care outsourcing industry is growing at an attractive rate, exceeding expected global GDP growth. Transcom anticipates that the global market will grow at an average annual rate of around four to five percent up to 2020. At the same time, the nature of customer service is gradually changing, not least because of the migration to digital channels such as apps, social media, chat, and self-service. Customers increasingly expect customer service to be accessible at all times. They also expect to be able to resolve their issues via the channel of their choice, without the hassle of having to switch modes of communication.
We have supported many clients on their digital journeys, helping them to manage the shift towards non-voice solutions for customer care. Today, approximately thirty percent of Transcom’s revenue is related to non-voice activities, and that number will keep increasing. We are well-positioned to deliver services via digital, non-voice channels as well as through the traditional voice channel.
Innovation is one of Transcom’s core values, signifying that we are progressive and move quickly to anticipate new customer trends and needs. There are plenty of great opportunities to create value together with our clients, but it is critical that we keep evolving our offerings and capabilities, staying adaptive and proactive in response to changing market conditions and competitive dynamics in our industry. The proliferation of new technologies and changing consumer preferences require us to constantly innovate and refine best practices together with our clients in order to remain competitive. To this end, Transcom’s Innovation Council was established in 2016, with members from different functional as well as operational areas. This group is charged with overseeing the development of Transcom’s value proposition and offerings. They also ensure effective coordination and sharing of best practices internally, and manage the development of partnerships with external parties.
People & sustainability
Transcom’s customer experience specialists handle 1.5 million interactions with our clients’ customers every day. We hire and train thousands of new people every year. So the way we take care of and develop our people lies at the core of our strategy and activities. By the same token, people are at the focus of Transcom’s sustainability strategy. Our stakeholder dialogues have confirmed our view. Transcom’s sustainability program, Transcom Cares, was launched in 2013, focusing on people development, equality & diversity and community engagement. While the focus of our sustainability efforts remains unchanged, we reviewed and calibrated our priorities during the year. We also strengthened the program’s governance and processes for target follow-up.
Talent management and training are absolutely central to our people and sustainability strategy. Promoting diversity and equal opportunity is equally important to us. We strive for gender equality on all levels, and are dedicated to providing equal opportunity employment. We are focused on attracting top talent and retaining people to build a truly global company that is prepared to meet and deliver towards diverse business cultures in all corners of the world.
Transcom adds value to our clients’ businesses by supporting the creation of outstanding customer experiences, while reducing cost and helping to drive growth. The customer care industry is exceptionally data-driven. In order to run the business efficiently and track our performance against key performance indicators, an immense amount of data is collected on millions of customer interactions every day. This information can offer crucial insights for Transcom and our clients in terms of enhancing the understanding of customers, and the drivers of loyalty and disloyalty. Our clients entrust us with their customers’ and their own data and they expect us to protect it well. Ensuring customer data protection and security, as well as taking proactive measures against fraud, are clearly very important sustainability issues for us.
Getting involved in the communities in which we operate not only strengthens our employer brand, but also maintains our license to operate in the markets where we choose to compete. Community engagement has been a part of Transcom’s culture since the beginning, and it is clear that our activities in this area support recruitment and staff retention. I am proud to say that many of our community engagement projects depend on our employees’ passion to contribute their time and energy.
At Transcom, we strive to reduce the environmental impact of our operations, with a particular focus on managing e-waste, limiting business travel and lowering energy consumption in our facilities. We conduct training and support local initiatives with our employees in order to encourage greater environmental responsibility in our workplaces. Our environmental policy, which is in agreement with the precautionary principle, guides us in lowering emissions from air travel, supports us in selecting goods and services produced with respect for the nature and constitutes a tool for pushing our environmental demands throughout our supply chain.
In addition to the sustainability focus areas we have defined, Transcom fully supports the ten principles of the UN Global Compact with respect to human rights, labor rights, environmental care and anti-corruption work. These principles are an integral part of our corporate strategy, business culture and day-to-day operations. Therefore, as part of our on-going pledge to deliver an outstanding customer experience in a global sustainable society, Transcom is a signatory of the UN Global Compact. We are whole-heartedly committed to ensuring that we comply with the UN Global Compact and its principles.
Finally, we are committed to offering transparent reporting and communication on sustainability at Transcom. This year, we are taking an important step in further improving our reporting by publishing our first sustainability report in accordance with the GRI Standards (Core option) of the Global Reporting Initiative. You will find the GRI Index at 2016.transcom.com. We have started to report on a number of new KPIs, not least in our focus areas People Development and Equality & Diversity. On this site, you will also find content in other areas, such as business development and finance. Let me also invite you to read Transcom’s magazine, Hello Transcom, which features stories from the year. It is available on transcom.com.
Altor acquires all shares in Transcom
On December 21, 2016, Altor AB announced a public cash offer to the shareholders of Transcom, offering SEK 87.50 in cash per share, corresponding to a total value for all outstanding shares in Transcom of SEK 2,294 million. Transcom’s independent Bid Committee unanimously recommended that the shareholders of Transcom accept the offer. On March 13, 2017, Altor announced that all conditions for completion of the offer had been satisfied and Altor therefore declared the offer unconditional and completes the offer.
Altor has stated that they support Transcom’s strategy, and they are planning to accelerate the implementation of some activities, increase investments to support digitalization and also make targeted acquisitions.
Let me close by thanking our clients and shareholders for their continued support, as well as our 29,000 employees for their hard work, commitment and dedication during 2016.
Johan Eriksson, President & CEO of Transcom