strategy

market background

Poland’s economy is in good shape, with GDP growth at 6.5% for the end of 2007 (according to the Polish Central Statistical Office). In 2008, the inflation rate is expected to increase, and can exceed the inflation target assumed, which is 2.5% (2.3% is established in State Budget bill 2008).

The Polish economy is expected to continue post strong growth in 2008:

• GDP real terms growth in the range of 5-6%,
• Inflation expected at approximately 3%, 
• Unemployment rate falling to the level between 8% and 9%.

On this basis, TP Group’s expects the traditional telecommunications market to develop at relatively high pace with total market value growth in the range of 2-4% driven mainly by: 

• Double-digit growth of mobile retail market, with further potential for higher service penetration,
• Broadband market to resume reasonable growth after 2007 slowdown, with volume increase comparable to 2007,
• Wholesale market rebound, despite 15% additional MTR decrease scheduled for May 2008. 
  

what this means for TP group

We anticipate that fixed voice will continue sliding in value and in volume, while mobile and broadband should continue to grow our business, but at a slower pace.

At the same time, we see growth in adjacent sectors to our business such as:

• Online Advertising
• Retail trade
• Pay TV
• Information Communication Technology (or ICT).

As the pure access market becomes more and more commoditized, TP’s successful expansion will depend on our ability to penetrate those markets which offer high growth potential and for which we have unique strengths.

a gateway into 10 million households

TP has already demonstrated that it knows how to fight and win in tough market conditions. The Group has defended its position in the fixed segment in the face of fierce competition while significantly improving market share in the fastest-growing segments of the telco market, broadband and mobile, and experiencing steadily increasing customer satisfaction levels.

TP is determined to make further progress in these areas, and is ambitious for more. TP Group has several, very valuable competitive differentiators:

• Unrivalled access to Polish households, with 9 million fixed and 14 million mobile customers
• One of Poland’s largest sales, distribution and customer care networks
• A strong brand portfolio

These are the assets that will allow TP to reach out to virtually all market segments with appealing products and services.

what do Polish customers want?

• They want a flat fee with unlimited usage, non-stop connectivity, information online, content on-demand and complex solutions delivered in a simple way.
• They want a few simple, technically sound services that all our sales staff and customers understand, not an impressive but unmanageable list of thousands of products.
• Individual customers are ready to pay for converging services: telecoms, entertainment and infotainment.
• Business customers want an integrated world of telecommunications, ICT and consultancy.
• And above all, they all want value for money.
• TP Group has all the capabilities to provide each category of customers with exactly the quality products they are looking for at the price they are prepared to pay. The next three years will be devoted to making this happen.

our 2007-2010 strategy

Over the next three years, TP Group will focus on two main strategic directions:

Enhance CORE, and Go for MORE.

This means strengthening TP's position in our current CORE business, and at the same time looking carefully for new opportunities to invest MORE in adjacent business sectors where we can deliver sound growth and profitability.

enhance CORE

This element of our strategic plan will focus on four major activity streams:

1. Cross-selling through the better utilisation of the existing TP Group customer databases
2. Opex optimisation, with a goal of 10% savings in TP Group cost base by 2010
3. Capex optimisation, continuing the optimisation programme which will see our Capex-to-sales ratio converging towards European telco industry benchmarks
4. Balance Sheet optimisation, ensuring a better return on the Group’s asset portfolio while maintaining its sound financial structure

go for MORE

Following a rigorous analysis process, TP Group has decided to expand its activities to focus on the following growth areas:

1. Innovative products (e.g. Livebox, vertical application services for business)
2. Information Communications Technologies
3. Media and Entertainment, with TP becoming a "content everywhere" leader
4. Adjacent sectors: leveraging exiting subsidiaries such as Paytel, TPI and Emitel to penetrate markets close to the telco world, and considering strategic partnerships that take us into new sectors where our customer relationships give us a strong head start.

Looking at the potential of these markets, with TP Group’s strengths and assets in mind, "Going for MORE" means a combination of organic growth and external growth.

TP Group’s decision-making criteria for potential acquisitions or new ventures are highly selective. They include:

• Margin and FCF accretion
• Higher ROCE than current TP Group return
• Maintaining our current investment grade rating
• Poland and Central/Eastern Europe as our main geographic focus

We will leverage the combination of the knowledge and capabilities of TP Group and France Telecom Group’s world-class expertise: the best of both worlds.

cash distribution policy

TP Group is going through a period of significant change, but one key factor remains the same: the cash distribution policy.

Taking into account the uncertain regulatory environment and the intensifying competition, TP Group’s cash distribution policy has three goals:

• To provide the flexibility needed to sustain profitable development by investing in organic growth as well as in selective acquisitions
• To maintain the financial discipline required to support the Company’s current rating of BBB+ / Baa1. (This implies, for instance, that the net debt to equity or "gearing" ratio does not exceed 40% and that the net debt to EBITDA ratio remains below 1.5.)
• To offer an attractive remuneration to shareholders.

Based on the 2007 results, the Management Board has submitted to shareholders approval a shareholder remuneration of PLN 2,753 million, equivalent to PLN 2.01 per share, which will consist of:

• an ordinary dividend of PLN 2,053 million or PLN 1.5 per share payable in cash in the first half of 2008,
• a share buy-back of PLN 700 million.
  

measuring the success of our strategy

In 2007, the Management Board made the following commitments regarding TP Group’s performance by 2010:

• More than 50% of revenues will be derived from non regulated markets
• Opex savings of 10% by 2010 compared to our 2006 base
• Target net free cash flow generation between 18% and 20% of revenues.

Throughout the challenges ahead, TP Group will not lose sight of its mission statement:
"TP’s goal is to deliver outstanding customer satisfaction and attractive shareholder remuneration by being the first choice provider of telecommunication, media and entertainment services, through state-of-the art and cost-effective technologies."

back to top