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Corporate Presentation. August/2003. General Overview. HIGHLIGHTS. Integrated Telecom Service Provider 14.9 million wirelines in service 2.6 million wireless clients (August/03). Concession Area (Region I ) - Local Service and PCS 65% of Brazilian territory/94 million people
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Corporate Presentation August/2003
HIGHLIGHTS • Integrated Telecom Service Provider • 14.9 million wirelines in service • 2.6 million wireless clients (August/03) • Concession Area (Region I) - Local Service and PCS • 65% of Brazilian territory/94 million people • 40% of country’s GDP • Over 20 million households • Leadership in local services (97% market share – Region I) • Domestic and international long distance services • PCS Mobile services (GSM) • Data, Corporate & Call Center Services • Most liquid stock in Brazilian market (TNLP4) • One of Most liquid Latam ADR (NYSE: TNE) • High Free Float: 80% of total shares/ADR: 27% • Market value: US$ 5 billion (August/03)
Tele Norte Leste Participações S.A. (TNE) 80.8% 100.0% Note: % of holdings excluding treasury stock 100.0% 100.0% SHAREHOLDERS’ STRUCTURE Treasury TelemarParticipações S.A.* *Controlling Shareholder (55% voting shares) Free float Free float 19.2% (TMAR)
2.2% 17.9% 79.9% R$ 4,644 million Total outstanding shares (ex-treasury) 381,777 m Treasury Stock CAPITAL STRUCTURE Capital Common shares 1/3 130,186 m Preferred shares 2/3 260,371 m Total shares 390,557 m Tele Norte Leste (TNE) Telemar Participações Free float BNDESPar Fiago AG Telecom NYSE (ADR/TNE) ASSECA Participações Lexpart Part. L.F. Tel BrasilCap Brasil Veículos Bovespa * 13.1% - Annex IV
PERSONNEL full-time employees Fixed & mobile businesses Contact center 31,393 28,736 27,471 Jul_1998 1998 1999 2000 2001 2002 Jun_2003
Universalization goals24% CAGR WIRELINE PLATFORM million lines Lines in service Lines installed Jun_2003 2002 Jul_1998* 1998 1999 2000 2001 * Company’s acquisition
BROADBAND ACCESS thousand lines ISDN ADSL Increasing focus on ADSL 140 125 120 93 59% 92 47% 42% 19% 23% 81% 77% 58% 53% 41% Jun_2002 Sep_2002 Dec_2002 Mar_2003 Jun_2003
Main features LONG DISTANCE AND DATA TRANSMISSION NETWORK International connections RR AP Belém São Luís Fortaleza PA AM MA Terezina CE RN Natal João Pessoa PB PI PE Recife AC AL Maceió RO TO SE Aracajú BA MT Salvador Brasília Montes Claros Goiânia Paracatu MG GO Patrocínio Uberlândia MS Belo Horizonte • Coverage of 80% of Brazilian Industrial GDP • Interstate and intrastate transport network • 18,000 km of fiber optical cables • 20 integrated metropolitan rings in 18 states • 350 remote satellite stations • – 8 Satellite Hubs • ATM, TDM/SDH and IP Networks ES Vitória SP RJ Campinas International connections PR Rio de Janeiro São Paulo Curitiba SC Florianópolis RS Porto Alegre Rio – location of our Network Operations Center (NOC)
Oi – 2.2 million subscribers in just 12 months WIRELESS PLATFORM thousand subscribers Prepaid Post-paid 2,648 20% 2,236 20% 80% 1,722 80% 1,401 22% 20% 78% 80% 502 22% 78% 35
Net additions - Oi thousand subscribers Net additions – Region I thousand subscribers Oi’s OPERATING & FINANCIAL PERFORMANCE – 2Q03 Post-paid Prepaid 514 500 900 321 4Q02 1Q03 2Q03 3Q02 1,517 Oi´s market share (net adds) 1,115 902 470 4Q02 1Q03 3Q02 2Q03
Oi’s MARKET SHARE – AUGUST/2003 Region I GSM - Region I Brasil Source: Anatel
WIRELESS PENETRATION – AUGUST/03 % - States in Region I Brazil – 23% Region I – 17% Region II– 25% Region III– 27% Source: Anatel
WIRELESS PROJECT ROLLOUT Oi • ~ 400 cities covered; 48 million people • GPRS coverage in 6 main capitals • 2,680 sites (BTS) • CAPEX optimization (co-siting: 971 in / 531 out) • International roaming • Main suppliers: Nokia, Siemens, Alcatel, Ericsson Coverage Coverage focused on profitable areas • 1,824 points of sales (breaking exclusivity of A & B band agreements) • Diversified channels with high capillarity • Retail, specialized agents/dealers, stores, telesales • Corporate sales effort combined with Telemar Consumer and corporate focus through high capillarity and diversity of channels Distribution • Tight headcount structure: 933 employees • Infrastructure sharing • Outsourcing (including call centers) • Synergies with Telemar • Strong brand name Resource optimization Focus on profitable growth, minimizing OPEX and CAPEX
+19.8% 23.4% CAGR REVENUE GROWTH R$ million Gross revenue Net revenue 1H03 1H02 1998 1999 2000 2001 2002 * Wireless startup from 2H02
+21.3% 17.4% CAGR COSTS & EXPENSES R$ million 1H03 1H02 1998 1999 2000 2001 2002 * Recurring costs (excluding extraordinary rev. of R$ 153 million /Sistel)
1H03 1H02 1998 1999 2000 2001 2002 EBITDA R$ million * EBITDA Margin 1H03 1H02 98 99 00 01 02 * * Recurring EBITDA (ex-Sistel)
+398% +541% +777% EMPLOYEE PRODUCTIVITY – TMAR Lines in Service/Employee Net Revenue/Employee R$ Thousand EBITDA/Employee R$ Thousand 1.604 1.605 1.281 939 1998 1999 2000 2001 2002 1H03* 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 1H03* 1H03 * Annualized
Net Revenue/ ALIS Costs & Expenses /ALIS EBITDA/ALIS WIRELINE PRODUCTIVITY – TMAR R$ +14% -10% +63% 1H03* 1H03* 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 1H03* *Annualized ALIS: Average Lines in Service
1H03 1H02 1998 1999 2000 2001 2002 CAPITAL EXPENDITURES (CAPEX) R$ million Wireline Wireless CAPEX/Sales 1H03 1H02 98 99 00 01 02 10,060 2,804 2,500 2,244 2,031 825 480 447 198 282 378
CAPITAL EXPENDITURES (CAPEX) US$ million 1998 1999 2000 2001 2002 Total 1H03
GROSS REVENUE BREAKDOWN R$ million % Change 2Q03 % 1Q03 % 2Q02 % Gross revenue QoQ YoY Wireline Local (including VC1) Long distance (including VC2/3) Network Usage Data Public phones Other Wireless Services Subscription Outgoing calls Domestic/inter. roaming Network usage Other SMP services Handset sales Total Gross revenue Wireline Wireless Contact center Consolidated net revenue 4,256 2,617 681 317 289 195 158 292 174 43 58 13 52 8 118 4,570 4,256 292 22 3,343 100 61 16 7 7 5 4 100 59 15 20 4 18 2 41 100 93 6 1 4,214 2,592 666 330 271 196 160 219 137 32 52 12 35 6 82 4,453 4,214 219 20 3,218 100 61 16 8 6 5 4 100 63 15 24 6 16 3 37 100 95 5 0 3,764 2,378 464 395 223 159 146 – – – – – – – 3,774 3,764 – 10 2,780 100 63 113 10 6 4 4 – – – – – – – – 100 100 – – 1 1 2 -4 7 -1 -1 33 26 34 13 3 47 22 45 3 1 33 6 4 13 10 47 -20 30 22 8 – – – – – – – – 21 13 0 115 16 * * Wireless startup from 2H02
2Q03/2Q02 – YoY 2Q03/1Q03 – QoQ Main drivers • Local rate increase (Jun/02) • F-M rate increase (Feb/03) • F-M rate increase (Feb/03) + R$ 239 million (+10.0%) + R$ 26 million (+1.0%) LOCAL SERVICES Monthly subscription Pulse Fixed to mobile (F-M) Other 2 Installation -22 Total 239 Fixed to mobile (F-M) 35 Pulse Monthly subscription Other 0 Installation -3 Total
2Q03/1Q03 – QoQ 2Q03/2Q02 – YoY Main drivers • DLD: market share gains • ILD: backlog cleanup/1Q03 • F-M rate increase (Feb/03) • Market share gains (new services: R$ 86 million), rateincrease and traffic growth + R$ 15 million (+2.2%) + R$ 217 million (+46.9%) LONG DISTANCE SERVICES Domestic International 17 Fixed to mobile (F-M) Total Domestic International -8 Fixed to mobile (F-M) Total
2Q03/2Q02 – YoY 2Q03/1Q03 – QoQ Main drivers Market growth, market share gains (new long term contracts) and increasing sales of IP & ADSL services + R$ 67 million (+30.2%) + R$ 18 million (+6.6%) DATA SERVICES IP SLDD/SLDA* EILD* -16 Packet/frame relay Other Total IP SLDD/SLDA* -8 EILD* -12 Packet/frame relay Other Total *Leased lines to companies and other telcos
2Q03/1Q03* – QoQ Main drivers • Aggressive growth:2.2m subscribers injust 12 months (514K net adds-2Q03) + R$ 73 million (+33.2%) WIRELESS SERVICES Handset sales Outgoing calls Network usage Subscription Other 1 Total Handsets +R$ 37 million Services +R$ 36 million * Startup as of 3Q02
COSTS & OPERATING EXPENSES* – 2Q03 R$ million 1Q03 G&A/other Cost of services Selling Interconnection Cleanupof outstanding payments 2Q03 G&A/other 2Q02 1Q03 2Q03 Cost of services Selling Special sales campaigns * Excluding depreciation & amortization Interconnection
COSTS & OPERATING EXPENSES – MAIN CHANGES (2Q03/1Q03) R$ million TNE Change Item Comments 2Q03 1Q03 R$ m % Interconnection Personnel Third Party Services Handset Costs Rent/Insurance Marketing Provisions for Doubtful Accounts (PDA) Other Operating Exp. (Revenues) Total 621 219 501 156 108 37 152 70 1,864 654 204 475 82 115 16 141 56 1,743 (33) 15 26 74 (7) 21 11 14 121 -5.0 7.4 5.5 90.2 -6.1 131.3 7.8 25.0 7.0 • Backlog cleanup in 1Q03 • Headcount/severance costs/sales commissions • Dealers’ commissions/consultancy • Handset sales (+85.7%) • Lower costs with leased lines • Marketing campaigns (mothers and valentine days) • Stable level in spite of macro environment - PDA/Sales: 3.3% (3.2% in 1Q03) • Lower infrastructure rental revenues
PROVISIONS FOR DOUBTFUL ACCOUNTS % of gross revenue 2Q03 2Q02 3Q02 4Q02 1Q03
EBITDA R$ million EBITDA Margin 2Q02 3Q02 4Q02 1Q03 2Q03 * 2Q02 3Q02 4Q02 1Q03 2Q03 * Startup of wireless business
FINANCIAL RESULT – 2Q03 R$ million 1Q03 2Q03 Financial revenues Financial expenses Interest on loans/debentures Monetary & exchange variations Banking Fees & contingencies Premium amortization, PIS & Cofins Other Net Financial result 133 (586) (265) (164) (108) (31) (18) (452) 134 (651) (232) (220) (126) (29) (44) (518) Interest on currency swaps (+R$ 54 m); Restatement of provisions & liabilities (+R$ 29m)
DEBT POSITION R$ million Jun/02 Dec/02 Mar/03 Jun/03 Total Debt • Short term • Long term (-) Cash (-) Long term financial invest. (=) Net debt 9,700 1,220 8,481 (573) – 9,128 10,774 1,769 9,006 (1,513) (141) 9,121 11,616 2,053 9,563 (1,479) (132) 10,005 11,394 2,264 9,130 (1,789) (86) 9,519 A 5% reduction in 2Q03
DEBT PROFILE – CURRENCY & INTEREST (JUNE/03) Currency Interest index Libor US$ 2% 2% TJLP** CDI Local* * After currency swaps ** BNDES long term lending rate (12% p.a.)
Total debt = 11,394 4.5 9.1 27.3 21.2 20.5 9.7 7.7 DEBT REPAYMENT SCHEDULE (JUNE/03) R$ million FC:8,306 LC:3,088 2H2003 2004 2005 2006 2007 2008 2009+ % of total
CAPEX R$ million Wireline Wireless CAPEX/SALES 2Q02 3Q02 4Q02 1Q03 2Q03 697 509 386 295 185 2Q02 3Q02 4Q02 1Q03 2Q03
CASH FLOW: EBITDA & CAPEX R$ million 1,479 1,476 1,311 1,285 EBITDA 1,260 CAPEX EBITDA (-) CAPEX 2Q03 2Q02 3Q02 4Q02 1Q03
Integrated Offer of Telecom Services GROWTH STRATEGY Local Wireline Data & Corporate Long Distance Wireless (GSM)
Leadership in home market • Advanced voice services (corporate/middle market) • Increase ARPU (V.A. Services) • Reduce interconnection costs (F-M) • Customized Offer (Regulation) Local service Data & corporate Long distance Wireless services WIRELINE LOCAL SERVICES Platform and traffic growth (GDP/Regulation)
Leadership in home market • Retail – loyalty/retention programs + promotions • Corporate – best quality (call completion/billing) + competitive service plans (discounts/volume) • Conquer new markets (domestic/international/SMP) • Leverage on relationship & brand • Increase efficiency & quality (low cost + high quality service provider) • Avoid price wars Long distance Local service Data & corporate Wireless services LONG DISTANCE SERVICES New services (increase market share): DLD, ILD and SMP(mobile)
Data & corporate • Increase penetration in SME (home market) • ADSL (high end residential/so-ho/small businesses) • Nationwide services (corporate level) • Best Service Provider (quality end to end / SLA) Local service Long distance Wireless services DATA & CORPORATE SERVICES Growth above market average (market share gains)
Wireless services Local service Data & corporate Long distance • Market segmentation/innovative plans (MTV & Celebrities/Oi Family) • Streamline product portfolio • Leverage on competitive advantages: GSM, regional coverage, synergies with Telemar • Optimize distribution channels • Positive EBITDA in 2004 WIRELESS (GSM) Aggressive growth / Enhance competitive position
Network • Wireline ~14.9 million lines in service • Wireless ~3.0 million subscribers • Revenue drivers • Mobile, DLD and Data • Rate increases (2H03) • Bad debt ~3.8% of annual gross revenues • EBITDA Margin in the mid- 40’s • Capex ~R$ 1.7 billion for 2003 • Net debt ~R$ 8.5 billion (2003 YE) OUTLOOK 2003
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 Fax: (55 21) 3131-1155 E-mail: invest@telemar.com.br Visit our website: http://www.telemar.com.br/ri “SAFE HARBOR” STATEMENT