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Corporate Presentation

Corporate Presentation. August, 2004. www.telemar.com.br/ir. Telemar Presentation - Contents. 1. Highlights – 2003/200 4 1. 2. Growth Strategy 3. 3. Review of Operating Results 1 2. 4. Financial Overview 2 0.

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Corporate Presentation

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  1. Corporate Presentation August, 2004 www.telemar.com.br/ir

  2. Telemar Presentation - Contents 1. Highlights – 2003/2004 1 2. Growth Strategy 3 3. Review of Operating Results 12 4. Financial Overview 20

  3. Highlights – Telemar 2003/2004 Region I = Concession areafor Wireline services = Mobile license for Wireless services • Goal: Building a fully integrated telecom service provider • Change, adaptation and consolidation • Market share gains in all lines of businesses • Selective growth (New Services) • Consolidation of investments • Growth in highly competitive markets: • Long Distance (Nationwide and International) • Data & Corporate (Nationwide) • PCS Mobile Services (Region I) • Exploring new opportunities: • Broadband • Bundling Services • New Products (residential/SME) • Wi-Fi hotspots • Target: Ensure a sound financial position, with increasing returns to shareholders Nationwide = Authorization areafor Long-Distance and Data services

  4. 1. Highlights – 2003/2004 1 2. Growth Strategy 3 3. Review of Operating Results 12 4. Financial Overview 20

  5. ADSL Wireless Wireline Expansion of Customer Base million customers • Ability to anticipate wireless migration and continue exceptional growth performance • Capacity to maintain / increase market share in a changing telecom landscape • Target: Continue delivering growth of customer base CAGR (98-03) 19,7% 20.6 ~22.2 19.2 16.4 * Company’s acquisition

  6. Fixed Lines in Service million lines • Investments for expansion of fixed line network essentially completed • Fully operational digital platform  Mix consists of 78% residential, 18% business, and 4% public phones • Wireline penetration is only ~50% of households in Region I • Obstacle: Increase in wireline penetration subject to GDP growth and regulatory changes maintenance growth

  7. Wireline / ADSL Market in Brazil Market Share (Brazil v. Region I) – Dec/03 Region I Brazil • Velox is already present in 110 cities, more than ten times the availability of broadband alternatives • Broadband penetration is expected to grow to 30% of nationwide internet access in the next five years • Effort to build sales channels to penetrate SME clients together with other bundled services (LD, wireless) • Challenge: Capture and retain premium clients increasing overall ARPU PC Penetration (% of households) – Dec/03 Average * 2003 *Source: Pyramid Research

  8. ADSL Growth Thousand lines • Highest ADSL growth in Brazil (+176k lines >37% of 2003 nationwide net adds)  ADSL represents 82% of broadband access in Brazil • Velox revenues increased by 285% yoy in 1H04 • Subscribers reached 217K in Dec/03 (18% of total broadband access in Brazil), and 345k in Jun/04 • Target: Increase ADSL penetration in Region I from 1.9% of LIS to 5% in 2-3 years 450 Gross Revenue (R$ million)

  9. Wireless Market in Brazil Market Share (Brazil v. Region I) – Jun/04 Region I Brazil** • Even with increased competition, Oi remains a high growth player in its home market (35% net adds in 2Q04) • Oi reached ~21% market share in Jun/04 • Wireless penetration in Region I (25%) still offers significant growth potential • Challenge: Grow subs by ~65% in 2004, with positive EBITDA margins ^Includes other operators: Nextel, CTBC, SERCOMTEL, Telemig and Tele Norte Celular ** Morgan Stanley estimates. Wireless Penetration (%) – Jun/04 Average * *Source: Pyramid Research

  10. Wireless Platform Thousand subscribers • Most successful GSM launch globally  5 million subs in 24 months • Almost 50% share of all net adds in Region I since launching • Oi´s market share (Jun/04)  Region I: 21%  Brazil: 9% ~6,500 5,093 15% 3,893 17% 85% 2,236 83% 1,401 20% 20% 80% 35 80% Post paid Pre paid Gross Revenue (R$ million)

  11. Short Message Service - SMS Thousand messages • SMS annual revenues achieved a run-rate of over R$ 70 million in the last two quarters • Oi has a team focused on data services, particularly for the corporate market • Oi also launched Wi-Fi hotspots in early 2004 • Target: Increase data ARPU and maintain growth of customer base Gross Revenue (R$ million)

  12. Call Center Services Attendant Positions • Focus on profitability: EBITDA positive since inception • 62% CAGR in attendant positions, in line with increase in customer base and net revenues (70% CAGR) - Contax currently has 29 customers, including major banks, utilities, insurance, media, telecom, retail • Target: Consolidate #1 position as call center operator in Brazil >15,000 14,887 12,907 7,337 4,947 Net Revenues (R$ million) 421 287 223 146

  13. 1. Highlights – 2003/2004 1 2. Growth Strategy 3 3. Review of Operating Results 12 4. Financial Overview 20

  14. Wireline Long Distance Data & Corporate Moderate Growth High Growth High Growth Wireless Others(*) High Growth Consolidated Gross Revenue Breakdown – 1H04 Fixed to Mobile (VC1) Inter-Connection Local 59% Data Long Distance (includes VC2/3) Mobile (*) – Includes advanced voice, public telephones, additional services and Contact Center. The Company’s four main lines of business provide a healthy balance between stable cash flow and growth opportunities

  15. Growth in Long Distance Services LD Gross Revenue - R$ million LD as a % of Total Revenues (includes F2M) +31.7% Telemar keeps on leadership in LD services in Region I.

  16. Focus on Data / Corporate Services Data Revenues (gross) - R$ million • Key corporate and governmental contracts achieved during 2003 • Data revenues increased by 31% in 2003 and 15% in 2002 • Challenge: Increase market share in data services in Region I and nationwide +31.6% Major Clients won in 2003

  17. Gross Revenue from Wireless Services R$ million • Revenue growth of 69% yoy • Services revenues increased 91% yoy, resulting mainly from subscriptions, outgoing calls & SMS • EBITDA breakeven reached after 18 months of operations • Target: Continue to deliver high revenue growth with positive EBITDA margins 511 866 Handsets Services 1H04 1H03

  18. Net Revenues EBITDA EBITDA Margin Consolidated Net Revenues and EBITDA R$ million • Delivering consistent revenue and EBITDA growth in spite of huge wireline expansion & wireless startup • Recurring margins stable over time, in the mid-40’s EBITDA for 2001 impacted by extraordinary provisions • Target 2004: Consolidated EBITDA margin in mid-40s even with a faster growth of wireless revenues

  19. Consolidated Net Income R$ million 1H03 1998 2002 2000 2001 1999 2003 1H04

  20. Consolidated CAPEX R$ billion 10.1 • CAPEX 2003: ~12% of net revenues (v. 17% in 2002) • CAPEX 1H04: R$ 534 million (7.1% of net revenues) • Consolidated CAPEX since 1998: US$10.4 billion • Target: Stabilize CAPEX at ~15% of net revenues to support growth in wireless and other services (broadband, long distance) 2.2 Wireless 7.9 2.8 2.5 2.2 2.0 2.0 1.7 40% Wireline 0.9 0.6 0.5 60% 1.1 1.1 Anatel Targets Mobile License (R$1.1 bn)

  21. 1. Highlights – 2003/2004 1 2. Growth Strategy 3 3. Review of Operating Results 12 4. Financial Overview 20

  22. Operating Cash Flow after CAPEX R$ million CAGR (99-03)69.1% 1H04 1H03 2003 2002 2000 2001 1999 Having met wireline universalization targets and PCS rollout,our cash generation is expected to remain strong

  23. Dividend Payments - 1999/2003 US$ million Dividend yield Dividend * 2003 1999 2000 2001 2002 * includes JCP (interest on capital) Our goal is to continue to provide high cash returns to shareholders

  24. 12.1 22.6 28.0 11.4 6.4 19.5 Net Debt Position and Repayment Schedule R$ million Gross Debt Repayment Schedule – Jun/04 Net Debt – Jun/04 R$ 7,355 million R$ 12,200 million % of total Given our strong cash generation, we should reduce net debt to less than 1xEBITDA by year end 2004

  25. Key Financial Ratios Net Debt / EBITDA Amortization*/ EBITDA (%) (*) 12 - Month EBITDA * Principal and interest Dividends* / EBITDA (%) CAPEX / EBITDA (%) * includes JCP (interest on capital)

  26. Key Financial and Valuation Ratios Enterprise Value / EBITDA Market Cap / EBITDA EBITDA / Net Interest Expense EBITDA / Total Debt Service

  27. “Safe Harbor” Statement This presentation contains forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements and involve inherent risks and uncertainties. These statements are based on current plans, estimates and projections, and therefore you should not place undue reliance on them. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events Investor Relations Rua Humberto de Campos, 425 / 8º andar Leblon Rio de Janeiro -RJ Phone: ( 55 21) 3131-1314/1313/1315/1316 Fax: (55 21) 3131-1155 E-mail: invest@telemar.com.br Visit our website: http://www.telemar.com.br/ir

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