When I was invited to WeDo’s London presentation of their 2012 results, I immediately jumped to two conclusions. First, I guessed the results would be okay. If the figures were poor, their CFO would not spend time and money flying to London, just to share the bad news with journalists. Second, I guessed the results would be less than spectacular. The market is difficult, price competition is fierce, and some of WeDo’s rivals are struggling. In that context, it would make sense to schmooze a few London journalists, explaining why staying in the same place is relatively good. Staying in the same place is a good result, if your business is swimming against the tide, and some of the rivals look like they are struggling to keep their heads above water. So I was very surprised when Fernando Videira, WeDo’s CFO, presented figures that were so good that they speak for themselves. Nevertheless, he kindly answered all the questions put to him by the assembled journalists, plus one (annoying, highly sceptical) blogger. The answers Fernando gave were all credible, and upbeat. Fernando also gave an excellent example of how CFOs should engage stakeholders, encouraging Q&A instead of relying on the one-way push of press releases. Transparency promotes trust. Whilst WeDo has only one shareholder – they are part of the Portuguese conglomerate Sonae group – it still makes sense to communicate financial results more broadly, in order to secure the trust of current and prospective customers.
Before I dive into the reported figures, it is worth pointing out that there is no way to tie them back to independently verified results in the public domain. Sonae group is too large to present accounts with the granularity of detail needed to drilldown to the level of WeDo. That said, WeDo gave credible explanations that were consistent with results published in previous years. In short, this sceptic looked for reasons to be sceptical, but I have to admit that WeDo’s 2012 results surpassed my expectations and I can find no reason to doubt them.
WeDo’s 2012 revenues were up 19.3% compared to 2011, at USD70.6mn. As Subex revenues are well down for the first three quarters of their financial year, it appears that WeDo are set to outstrip the total revenues of their Indian rivals. Leaderboards are less important than money, but I admit my surprise at such a dramatic transformation from previous years. And because WeDo have an appetite for more M&A, they could be establishing themselves as the new long-term leader in market share. This shows that a vendor’s products and strategy can have a very significant influence on performance, irrespective of the overall growth or decline of their market. Instead of talking about why any telco needs any and every kind of assurance, the industry conversation is subtly shifting to why customers want more of the assurance sold by some vendors, and less of the assurance sold by others.
EBITDA was well up compared to last year, rising 55% to USD11.1mn. So whatever WeDo are doing to grow revenues, they are not growing revenues through cutthroat pricing and degraded margins. When questioned about the quality of their revenues, WeDo played down any concerns that telcos have become more resistant to paying at the completion of a project. Reading between the lines, Western European telcos may be maximizing the time they take to settle, but WeDo reported no problem with rising bad debt. This is in stark contrast to how Subex took a USD5mn bad debt provision during their Q2.
In May 2012, WeDo acquired Connectiv Solutions, a US-based firm. The informal report was that roughly half of WeDo’s growth came from adding Connectiv. There was also good growth in their continuing business of supplying telcos. And WeDo also grew their non-telco sales by 80%. In a similar way, WeDo stated that results were good across all geographical regions, though they highlighted they had most overperformed in the Middle East and Africa. Perhaps chastened by the economic troubles experienced across Europe, WeDo has a clear strategy of diversifying their risk. This means pursuing growth outside of telecoms, and reducing the share of their revenues generated within Portugal.
The acquisition of Connectiv enabled the closing of deals in North America, and one of the most interesting revelations is that WeDo are now openly publicizing their desire to acquire a business in SE Asia. Ideally the target firm would be based in Indonesia or Malaysia. For obvious reasons, M&A ambitions are normally kept quiet, but after several years of unsuccessfully searching for a suitable Asian target, WeDo is prepared to tell the world, in the hope it will help them to finally achieve their goal. In case you are wondering, I forgot to ask them about the finder’s fee, but if you let me know who they should buy, I will be happy to pass on the information.
Finally, it is worth emphasizing two of WeDo’s key strategic themes. First, this is a firm that sees itself investing for its future, and investing on behalf of the rest of Sonae group. They are spending on R&D, and they are spending on developing their presence in foreign countries. They recognize that investing in their product leads to a more sustainable virtuous circle than competing on price. They are also acting as a combination of trailblazer and national champion, leading the way for other Portugese businesses who will follow in their footsteps. Second, if you invest for the future, you expect to be around long enough to reap the rewards. WeDo is as keen to promote their robustness as their growth. As somebody who has sat in telcos and contemplated the trade-off between a supplier’s price and the prospects of building a win-win relationship between customer and supplier, I received a strong impression of how WeDo’s business philosophy is integrated with their marketing. So I was half-wrong about the reasons why Fernando got on a plane to the UK, to explain WeDo’s 2012 results. But that was because he came to explain more than the results. And given what he said, I now fully understand why he wanted to talk to the press.