Message from the Management

GRI 102-10, 102-14

We closed 2018 with a significant growth in Algar Telecom, despite the instability scenario in the Brazilian economy. Net revenue totaled R$2,867.3 million, up 6% over 2017. Net profit reached R$316.1 million, up 38% year-over-year. These numbers prove the efficient implementation of the Company’s strategy and the competitive advantages of our products and services.

The results reflect the ongoing geographical expansion, the new market possibilities and the resulting increase in our capillarity. In 2018, we have expanded our operations in the Brazilian South and Southeast regions and started operating in the Brazilian Northeast. This entire expansion was made possible by the deployment of the submarine cable Monet, connecting São Paulo to Florida, touching the Brazilian coast in Fortaleza. In the Northeast, we are in the main capitals, divided into 18 locations, throughout 6 new regional offices in the states of Alagoas, Sergipe, Paraíba, Rio Grande do Norte and Ceará, as well as Espírito Santo. With the purpose of speeding up the Company’s expansion, we acquired Cemig Telecom’s assets in the states of Bahia, Ceará, Pernambuco and Goiás through a bidding process.

In addition to keeping the growth of the customer base, especially corporate customers, we have expanded the offer of products and services to meet the integrated needs of these customers in Telecom and IT, with increasingly digital services. Specifically for B2C clients, we launched Algar Fibra, as part of the investments that have been made in Fiber to the Home (FTTH) to provide high speeds in data traffic.

Our purpose is to be amongst the first to bring digital transformation to our customer relations and to be a benchmark in technology management, providing the best possible experience for end users, more efficient processes and a good return on invested capital. To achieve this purpose, we are founding members of Brain, a private institute of science and technology. Since the second half of 2017, Brain has supported the creation of new products, services and business models in four main areas: Internet of Things (IoT), Cloud, Cyber Security and Digital, using agile methodologies and innovative processes. The first solutions developed in partnership with Brain were already included in our portfolio and are available to the market. Based on the same method, at the end of 2018, we launched Estação: a structure that brings together employees from different areas to enable the absorption of these disruptive solutions in an even more agile way.

The ongoing search for quality of service and closeness to our clients proved to be successful, according to the research we held in 2018, with the support of Expertise Institute, evidencing a satisfaction level of 94% of our corporate clients. Throughout the year, we were among the first in the IDA Performance Index, published monthly by the Brazilian Telecommunications Agency (Anatel), in fixed broadband services, landline and mobile, and TV. In this sense, we were once again recognized as a reference in service by the ReclameAQUI portal, with our relationship model standing out in the industry. These acknowledgements reinforce that all employees are in line with the corporate purpose of Gente Servindo Gente (People Serving People), always working to deliver the best solutions to clients and to meet the goal of first-call resolution, factors that contribute to generate value at Algar Telecom.

In addition to advances in technology and innovation towards the best experience to our customers, sustainability also guides operations in both the Telecom and Tech – BPO/IT Management segments. In this sense, we were recognized by Guia Exame de Sustentabilidade (Exame Sustainability Guide), for the sixth consecutive year, showing that our approach to sustainability has been effective. We are signatories of the United Nations Global Compact Local Network in Brazil, one of the main initiatives to engage the private sector with sustainability. In 2018, we mapped and correlated the actions and initiatives promoted by Algar Telecom in accordance with their compliance to SDGs (Sustainable Development Goals), global goals of sustainable development established by the General Meeting of the United Nations.

The year was also very positive regarding the performance of the Tech – BPO/IT Management segment. We consolidated the operational efficiency initiatives and concluded a full overhaul of our service portfolio, providing a higher number of digital tools to achieve an improved operational productivity and better results for our customers. As a result, the segment recorded an EBITDA margin of 13% in 2018, over 7% in 2017; the best net profit in the entire history of this business segment.

Algar Tech also won first place in the “100+ Innovative in IT Use” award, in the Digital Industry – IT and  the Telecom category and ranking in 10^th. Throughout 2018, the company launched two more innovation spaces, one in the headquarters in Uberlândia and another in the São Paulo office. The first, named Digital Garage, is a 30-sqm area with all infrastructure required to hold design-thinking sessions with small groups, as well as inviting people to disruptive innovation. The other, located at República neighborhood, in São Paulo, is already the third Innovation Lab of the Company.

We were also recognized for our corporate information disclosure and governance practices, either through the publication of the annual report or through our other interactions with the market, receiving the Abrasca Awards and the Transparency (Transparência) Award granted, respectively, by the Brazilian Association of Publicly-Held Companies (Abrasca – Associação Brasileira de Companhias Abertas) and by the Brazilian Association of Finance, Management and Accounting Executives (Anefac – Associação Nacional dos Executivos de Finanças, Administração e Contabilidade).

In the financial area, we successfully concluded the seventh issue of debentures and the first issue of promissory notes, raising R$800.5 million, exceeding the initial expectations of R$300 million. These funds enabled the Company to improve its debt profile and, given the 24% EBITDA growth, we closed 2018 with a leverage level (net debt/EBITDA) slightly smaller over the previous year.

In 2019, we will continue to expand our operations and develop our business. We will continue to improve our customer service and satisfaction, the efficiency of our organization, the well-being of all employees and the generation of value to our shareholders, following the mission of integrating people and businesses in a sustainable way and in line with the corporate purpose of People Serving People.